Category Archives: Greece

Trichet comments

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As suspected:

*DJ Trichet: No Crisis Of The Euro As A Currency

He looks at the euro as a currency as per the single mandate of price stability.

*DJ Trichet: Euro As Currency Is Evidently Not In Danger

There is no euro crisis as the value of the euro has been reasonably strong.

*DJ Trichet: Fear That Non-Standard Measures Stoke Inflation Totally Unfounded

They are now comfortable that the bond buying is not inflationary as it doesn’t alter actual spending on goods and services (aggregate demand) and in fact the required austerity reduces it.

*DJ Trichet: ECB Still Against Taking Defaulted Govt Bonds As Collateral

Ok, but so far there aren’t any.

*DJ Trichet: ECB Still Against Credit Event

No reason to let any member nation default and be released from their obligations.

*DJ Trichet: Rescue Fund Must Be Operational As Soon As Possible
*DJ Trichet: EFSF Should Be Appropriately Leveraged

Implying ECB involvement as suspected .

*DJ Trichet: Govts Should Be Responsible For Making Safety Nets Work

Which requires they be backstopped by the ECB which dictates austerity in return for said backstopping.

*DJ Trichet: EFSF Shouldn’t Get Banking Licence
*DJ Trichet: Banks Must Shore Up Capital As Soon As Possible
*DJ Trichet: Govts Must Be Ready To Recapitalize Banks If Needed

All of which requires ECB as backstop directly or indirectly.

*DJ Trichet: Need Euro-Zone Fin Min, Executive Branch In Future

Which would be ECB ‘funded’ much like the US Fed/treasury relation.

*DJ Trichet: Crisis Questions Econ, Fincl Strategy Of All Developed Economies
*DJ Trichet: Working Assumption That Govts Will Overcome Crisis
*DJ Trichet: Euro Is Credible, Stable

Again, the value of the euro is telling for the ECB.

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Merkel does not want to allow Greece to default

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To my point,
Merkel’s view is now that allowing Greece to default is a gift to the Greek govt. that
rewards bad behavior, introduces moral hazard, etc.

The trick is to support Greece and not permit default without using German taxpayer funds and without weakening the credit capacity of Germany.

Hence, the current policy of ECB bond buying,
which accomplished all of the above,
is not inflationary,
carries austerity as it’s prime term and condition,
holds Greece to it’s obligations,
enhances ECB earnings and capital,
and is operationally sustainable,
is likely to continue.

Merkel said that her “entire council” of economic advisers says Greek debt should be restructured, advice that she is not prepared to take. “If we tell a country ‘We cancel half of your debt,’ that’s a great deal,” she said. “Then the next guy will immediately show up and say he wants the same.”

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Mosler: Greek Default Not Logical Path Out of Crisis

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Mosler: Greek Default Not Logical Path Out of Crisis

By Forrest Jones and Kathleen Walter

September 30 — Letting Greece default won’t end Europe’s crisis and won’t allow Germany and other core nations to brush themselves off and move merrily on their way, says Warren Mosler, principal and co-founder of AVM, an international bond firm with 30 years of experience in Europe and author of the 2010 book, “The 7 Deadly Innocent Frauds of Economic Policy.”

In fact, it will do the opposite. It will cost money and rattle key export markets for Germany and other countries targeting European periphery countries.

Greece has run up debts and may default and exit the euro, yet many in wealthier nations such as Germany oppose bailouts for Greece and other debt-ridden Mediterranean nations.

They also have opposed backing euro-wide bonds, which basically shores up the Greek economy via the financial backing of the Greece’s richer northern neighbors.

However, allowing the European Central Bank to play a role in Greece’s economic reform will not put the load on German, French and other taxpayers, Mosler says.

“It’s a question if a bailout now is good for Germany and France but not so good for Greece, because if Greece is allowed to default, then their debt goes away. They are agreeing to wipe out their debt and it reduces their payments,” he said in an exclusive Newsmax.TV interview.

“But if they fund Greece, and don’t allow them to default, then Greece has to continue to make these payments. So the whole dynamic has changed from doing Greece a favor to disciplining Greece by not allowing them to default.”

That makes default, arguably, less imminent.

“I would think the odds are shifting to the endgame where Greece doesn’t default, where at the end of the day Greece is forced though the austerity measures to run a primary balance or primary surplus, the interest payments will largely wind up with up with the European Central Bank, who is buying Greek debt in the marketplace,” Mosler says.

Furthermore, the logic that applies to keeping Greece in the eurozone applies to the other nations such as Italy.

“It used to be if Germany, France and the others bailed out Greece, and then suddenly they have to bail out Ireland, Portugal, Spain and Italy, they could never have the capacity to do that. It’s now understood that there is no limit, no nominal limit to the check that the European Central Bank can write,” Mosler says.

Plus, Europe can expect no side effects of such Central Bank involvement.

“It will not weaken the euro, it will not cause inflation and it will not increase total spending in the region. In fact it will help reduce total spending in the region because the European Central Bank imposes terms and conditions when it intervenes.”

Should Greece default, however, Europe would feel the pain, but it shouldn’t be too bad in the United States, Mosler says.

Yes, regulators would have to react.

“The FDIC would have to decide how they would want to respond to a drop in equity. Would they want the banks to raise more capital? Would they give them time to do it?”

But they wouldn’t have to react too much.

“They don’t need to shut the banks down, it doesn’t need to be disruptive to the real economy.”

Turning to the United States and President Barack Obama’s economic policies, Mosler says the president is on the right track by running deficits, but adds he’s doing a poor job of explaining the rationale behind his policies.

Or he just doesn’t understand it.

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Deficit Reduction Super Committee Fighting the Battle of New Orleans

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I realize it’s not a perfect analogy,
but, due to poor communications,
the battle of New Orleans was fought
well after the War of 1812 had ended.

Likewise, the Congressional super committee is fighting the battle for deficit reduction
long after the vaporization of the primary reason driving that move towards deficit.

The main difference is the stakes are much higher this time,
with the real cost of the lost output from the excessive, ongoing,
global output gap far exceeding
all the real losses of all the wars in history combined.

The headline reason for deficit reduction was
the rhetoric about the immediate danger of the US
suddenly becoming the next Greece,
with the US govt being cut off from credit,
interest rates spiking,
and visions of the US Treasury Secretary
on his knees, hat in hand,
begging the IMF for funding and mercy.

And the looming flash point was the threat of a US downgrade if
a credible deficit reduction package wasn’t passed before the Aug 2 deadline,
when the Congressionally self-imposed US borrowing authority was to expire.

After a prolonged Congressional process that was
even uglier than the healthcare process,
with already dismal Congression approval ratings moving even lower,
the debt ceiling was extended with a measure that contained some deficit reduction,
and also set up the current super committee to ensure further deficit reduction.

Soon after, however, Standard and Poor’s decided it all wasn’t enough,
and the dreaded downgrade was announced.

And then the unexpected happened.
Rather than spike up as widely feared,
market forces drove US Treasury interest rates down, substantially.

What was happening? Where had the mainstream gone wrong?
Former Fed Chairman Greenspan and celebrity investor Warren Buffet
both immediately had the answer.
S&P was wrong.
The US is not Greece.
The US govt prints its own money, while Greece does not.
The US always has the ability to pay any amount of dollars,
that markets can’t take away.

And everyone agreed.

And the driving force behind deficit reduction was suddenly not there,
and the rhetoric of becoming the next Greece vanished from the national TV screens.

And, unfortunately, just like the news that the War of 1812 had ended
didn’t get to New Orleans in time to prevent thousands from
losing their lives in that bloody battle that would otherwise not have been fought,

the news that the US isn’t Greece apparently hasn’t gotten through
to the Congressional members of the super committee
now fighting the current battle over deficit reduction.

What was learned after the downgrade was that
there is no such thing as a solvency problem for the US govt.
Short term or long term.

True, excessive deficit spending may indeed someday cause unwelcome inflation,
but the US government is never in any danger of not being able
to make any payment (in dollars) that it wants to.

And yes, the discussion could be shifted to a discussion
as to whether current long term deficits forecasts
translate into unwelcome inflation in the future
that may demand action today.

However no specific research has been done along those lines.
And, in fact, inflation forecasts,
which all assume our current fiscal trajectory,
don’t show any signs of an inflation problem.
Nor are the long term US Treasury inflation indexed bonds flashing any inflation warnings.
In fact, the Fed and most other forecasters remain more concerned over the risk of deflation.
And Japan, with a debt to GDP ratio about triple that of the US,
has been fighting its battle against deflation for nearly two decades.

So, clearly, shooting from the hip on this issue,
by suddenly declaring long term deficits
must be immediately addressed
with cuts to Social Security,
and with tax hikes,
to prevent a looming inflation problem,
(now that the prior errant reason, that the US could be the next Greece, has been dismissed)
could only be considered
highly irresponsible behavior
on the part of the super committee.

An informed Congress might recognize
the reason for the urgent action to reduce the federal deficit
and the reason for the super committee
is no longer there.
And, therefore, in informed Congress might suspend the super committee,
and regroup and reconsider before taking action.

It is widely agreed the current problem is a massive lack of aggregate demand.
It is widely agreed that a combination of tax cuts and/or spending increases
will restore sales, output and employment.

But instead of a compromise where the Republicans get some of their tax cuts
and the Democrats some of their spending increases, and the economy booms,
both sides are instead going the other way and pushing proposals to reduce aggregate demand,
even though they no longer have good reason to do so.

The battle of New Orleans was fought after the reason for fighting it had ended,
And, likewise, long after the reason for deficit reduction vaporized,
this battle continues to be fought
with both parties continuing acting counter agenda.

(feel free to distribute)

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Mosler Bonds for the ECB, and reasons why Greece will not be allowed to default

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First, The ECB should turn the bonds it buys into Mosler bonds, by requiring the govt of issue to legally state that in the case of non payment, the bearer on demand can use those bonds for payment of taxes to the govt of issue.

The ECB holding Mosler bonds will shift the default option from the issuer to the ECB, as in the case of non payment,
the ECB would have the option to make it’s holdings available for sale to tax payers of that nation to offset their taxes.

Therefore, conversion to Mosler bonds will ensure that the ECB’s holdings of national govt debt are ‘money good’ without regard to external credit ratings, and give the ECB control over the default process.

Second, I see several substantial reasons Greece should not be allowed to default, which center around why it’s in the best interest of Germany for Greece not to default.

Sustaining Greece with ECB purchases of Greek debt costs German tax payers nothing.

The purchases are not inflationary because they are directly tied to reduced Greek spending and increased Greek taxes, which are both deflationary forces for the euro zone.

Funding Greece facilitates the purchase of German exports to Greece.

Funding Greece does not reward Greek bad behavior.
Instead, it exacts a price from Greece for its bad behavior.

With the ECB prospectively owning the majority of Greek debt, and, potentially, Greek Mosler bonds, Greece will be paying interest primarily to the ECB.

The funding of Greece by the ECB carries with it austerity measures that will bring the Greek budget into primary balance.

That means Greek taxes will be approximately equal to Greek govt expenditures, not including interest, which will then be largely payments to the ECB.

So if default is not allowed, the Greek govt spending will be limited to what it taxes, and additional tax revenues will be required as well to pay interest primarily to the ECB.

But if default is facilitated, Greece will still be required to spend only from tax revenues, but the debt forgiveness will mean substantially lower interest payments to the ECB than otherwise.

And while without default, it can be said that the holders of Greek bonds have been bailed out, the euro zone will be considering the following:

The ECB buys Greek bonds at a discount, indicating holders of those bonds have, on average, taken a loss.

The EU in general did not consider the purchase of Greek bonds as bad behavior that is rightly punished with a default.

In fact, it was EU regulation and guidelines that resulted in the initial purchases of Greek bonds by its banking system.

Therefore, I see the main reason Greece will not be allowed to default is that not allowing default serves the further purpose of Germany and the EU by every measure I can think of.

It sustains the transfer of control of fiscal policy to the ECB.
It’s deflationary which helps support the value of the currency.
It provides for an ongoing income stream from Greece to the ECB.

Note, however, that not long ago it was not widely recognized as it now is that the ECB can write the check without nominal limit.

Before the EU leaders recognized that fundamental of monetary operations, Greek default was serious consideration for financial reasons as it was believed the funding of Greece and subsequently the rest of the ‘weaker’ euro zone nations would threaten the entire euro zone’s ability to fund itself.

It is the realization that the ECB is the issuer of the currency, and is therefore not revenue constrained, that leads to the conclusion that not allowing Greece to default best serves public purpose.

(as always, feel free to distribute, repost, etc.)

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Greek Parliament Approves Unpopular Property Tax

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No compliance issues here- if the tax isn’t paid the property gets sold.

Don’t even have to know the owner.

Greek Parliament Approves Unpopular Property Tax

September 27 (Reuters) — Greek lawmakers approved an unpopular property tax law on Tuesday that is crucial to a new austerity campaign the government has proposed so it can meet the terms of its international bailout and continue receiving aid funds.

All 154 of the ruling Socialist PASOK party’s deputies voted in favor of the measure, winning a majority in the 300-seat parliament.

The vote is the first test of the government’s capacity to win backing for a new wave of belt-tightening measures announced last week to convince the International Monetary Fund and European Union that Greece is worthy of an 8-billion euro ($11 billion) loan that Athens needs to avoid bankruptcy next month.

Having grown increasingly impatient at the slow pace of reforms, an EU/IMF team abruptly quit Greece in early September following disagreements over what was needed for Athens to plug fiscal slippage this year and next.

Finance Minister Evangelos Venizelos met representatives from the lenders in Washington over the weekend and Greek officials said the inspectors had asked Athens for written assurances it will implement the measures announced before they return.

“We are at the moment of truth for Greece,” European Commission spokesman for economic affairs Amadeu Altafaj said on Monday. “This is the last chance to avoid the collapse of the Greek economy. The criteria must be fully met in order to allocate the funds.”

The IMF and EU team has rapped Athens for dragging its feet on cutting the size of the bloated public sector because it has made little progress on a pledge to cut the 730,000 public workforce by a fifth, eliminate dozens of inefficient state entities and sell off loss-making state firms.

The government has failed to end rampant tax evasion, while the third year of economic contraction has undermined budget revenues and put Greece off-track for its goal of cutting the budget deficit to 7.6 percent of annual output this year.

Analysts say the property tax is a short-term measure that will not forestall a default most economists see as inevitable.

Activists have pledged to step up demonstrations in Athens’ central Syntagma square, where Greek riot police clashed with anti-austerity protesters on Sunday, firing tear gas in the first such unrest after a summer lull.

When lawmakers voted on an earlier austerity package at the end of June, more than 100 people were injured in two days of clashes with police at the square in front of parliament.

Prime Minister George Papandreou was in Germany for a meeting with Chancellor Angela Merkel during the vote on the tax bill.

He will discuss reforms ahead of another key parliamentary vote in Germany on Thursday meant to give more powers to the EU’s EFSF bailout fund.

Some 92 percent of Greeks believe the austerity measures are unfair and 72 percent believe they will not work, according to a GPO poll published by Mega TV on Monday. But only 23 percent said they would not pay the new taxes.

The poll also showed 77.8 percent of Greeks think the country should stay in the single currency zone while 54.8 percent saw a risk that Greece would default on its 340 billion euro debt pile in the next couple of months.

Greece has vowed to do what it takes to get the next tranche and announced on Monday it may close concession deals as part of its 50-billion euro privatization plan, another key condition for bailout aid.

The property tax is meant to help plug a gap of about 2 billion euros in this year’s budget to try and meet EU/IMF fiscal targets.

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Half of Germans oppose Greek bankruptcy

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makes sense.

The ECB funds Greece which facilitates the purchase of German goods and services, including military,
at ‘no cost to the German taxpayer.’

Germany gets to control/impose austerity on Greece,
which keeps the euro strong, interest rates low, and punishes Greece for past sins.

Half of Germans oppose Greek bankruptcy (AP)

 
A poll finds that half of Germans oppose letting Greece go bust and a majority believe a Greek bankruptcy would be bad for their own economy. The ZDF television poll published Friday showed that 50 percent of respondents wouldn’t favor the European Union letting Greece go bankrupt, while 41 percent would. It says 68 percent believe such a bankruptcy would be economically bad for Germany and only 15 percent expect positive effects. Athens is working to persuade international debt inspectors to authorize the next batch of bailout cash. Without the euro8 billion, Greece has said it would run out of money next month. The poll of 1,229 people was conducted from Tuesday to Thursday and has a margin of error of plus or minus 3 points.

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The euro zone is operationally sustainable as is

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While the way the euro zone is currently function would not be my first choice for public policy, it is operationally sustainable.

The ECB is writing the check, and can continue to do so indefinitely.

For example,
as long as the ECB buys sufficient quantities of Greek bonds in the secondary markets,
Greece will be able to fund itself.

The ECB debt purchases merely shift net financial assets held by the ‘economy’ from Greek govt. liabilities
to ECB liabilities in the form of clearing balances at the ECB, which does not alter any ‘flows’ in the real economy.

So as long as the ECB imposes austeric terms and conditions, their bond buying will not be inflationary.
Inflation from this channel comes from spending,
and in this case the ECB support comes only with reduced spending.

For the ECB this also means they accrue substantial net interest margins on their portfolio of Greek debt.
And as long as they keep funding Greece in any manner, Greece need not default.

This means the ECB books profits from their portfolio that adds to their stated capital.
While this is of no operational consequence,
it does help satisfy political concerns over ECB capital adequacy.

Nor is this ‘Ponzi’ in any sense,
as the ECB is not dependent on external funding
to make payments in euro.

Additionally, the ECB no officially has stated it will provide unlimited euro liquidity to its banks.
This too is not inflationary or expansionary, as bank assets remain constrained by regulation
including capital adequacy and asset eligibility which is required for them to receive ECB support.

So while politics is and will always be a factor in government in general, the current state of affairs can be operationally sustained.

The problem then shifts to political sustainability which is necessarily less certain.

The near universally accepted austerity theme is likely to result in continually elevated unemployment,
and a large output gap in general characterized by a lagging standard of living and high personal stress in general.

With ECB continuing to fund, this can, operationally be readily adjusted via a loosening of the Growth and Stability Pact budget constraints, but politically this possibility remains remote without a substantial increase in popular opposition.

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