Comment] It's time for countries to restructure their debts If an ordinary person found themselves in a position of unmanageable debt - something which we all try to avoid - they could have a new chance. Following the usual restrictions that are placed on you, you are free to start to build your economic profile again. And the sooner you can end the misery and get on with your life, the better. A similar rule should apply to EU member States. That is why we want to see a change of thinking, a reconsideration of European policy away from what has been pursued so far: national debts should be waived. Following this, a standard can then be set to ensure that maximum national debt in the future does not exceed earning capacity, for instance around the 60 percent of GDP level, with a maximum budget deficit of 3 percent. Of course, such a tough approach will cause considerable shock waves and a 'shake down' of banks, pensions funds and those owning the debts. The position being taken by European leaders right now goes in the opposite direction.
Hans-Böckler-Stiftung Hard Keynesianism in the European Union John Quiggin and I have a piece on the eurozone mess in the new issue of Foreign Affairs. The piece is subscriber-only, but we’re allowed to post it (in Web format) for six months or so on a personal or institutional website. Accordingly, the piece can be found below the fold. The piece was finished some weeks ago, but I think it holds up quite well. Four things worth noting. First – I suspect we would put our argument that the politics are more important than the economics even more strongly in the light of current events. Second – Paul de Grauwe has a new paper which points to a complementary mechanism through which monetary union plausibly damages political legitimacy at the national level (although his discussion is largely framed in terms of the economics). Third: the Daniel Davies qualification. Finally – the piece is written in the rhetorical style of US policy articles. How to Save the Euro—and the EU Reading Keynes in Brussels By Henry Farrell and John Quiggin May/June 2011
Salaire moyen 2010 en france par ville, revenu moyen, salaire brut net, salaire net, retraite des français Satyajit Das: “Progress” of the European Debt Crisis By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (forthcoming August 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010) In Oscar Wilde’s Importance of Being Earnest, Lady Bracknell memorably remarks that: “To lose one parent… may be regarded as a misfortune; to lose both looks like carelessness.” The Euro-zone’s need to rescue three of its members (Greece, Ireland and Portugal) with three others increasingly eyed with varying degrees of concern (Spain, Belgium and Italy) smacks of institutionalised incompetence. European Debt Crisis Returns In little over a year since the announcement of Greece’s debt problems, the European debt crisis has ebbed and flowed with markets oscillating between euphoria (resolution) and despair (default or restructuring). The most recent concern about the peripheral countries was triggered by concern about Greece. Greek Death Watch Pain Sharing
The Eurozone’s Last Stand - Nouriel Roubini Exit from comment view mode. Click to hide this space NEW YORK – The eurozone crisis is reaching its climax. By 2012, Greek public debt will be above 160% of GDP and rising. Meanwhile, the current French proposal of a voluntary rollover by banks is flopping, as it would impose prohibitively high interest rates on the Greeks. So the only realistic and sensible solution is an orderly and market-oriented – but coercive – restructuring of the entire Greek public debt. The answer is to emulate the response to sovereign-debt crises in Uruguay, Pakistan, Ukraine, and many other emerging-market economies, where orderly exchange of old debt for new debt had three features: an identical face value (so-called “par” bonds); a long maturity (20-30 years); and interest set well below the currently unsustainable market rates – and close to or below the original coupon. Rating agencies would consider this debt exchange a “credit event,” but only for a very short period – a matter of a few weeks.
Fighting (for?) Europe: How European Elites Lost a Generation - SPIEGEL ONLINE - News - International When Kostas Dekoumes, a 24-year-old Greek, is asked about Europe, he launches into a rant about German Chancellor Angela Merkel. When Oleguer Sagarra, a 25-year-old Spaniard, is asked the same question, he says that Europe represents the only chance to find work. Karl Gill, a 21-year-old Irishman, responds to the question by railing against the banks. And when Jacques Delors, 85, is asked about Europe, he says things like: "Europe needs a pioneering spirit," and he asks: "Do the men and women of this era truly want this Europe?" Delors, together with former French President François Mitterrand and former German Chancellor Helmut Kohl, was one of the driving forces behind the European Union, and under his leadership as president of the European Commission, treaties were signed that would be impossible to forge agreement on today. Delors represents a time when Europe inspired the imagination of statesmen. A Look at the Zeitgeist Spaniard Oleguer Sagarra is no revolutionary. Deep Crisis
Time for Plan B: How the Euro Became Europe's Greatest Threat - SPIEGEL ONLINE - News - International In the past 14 months, politicians in the euro-zone nations have adopted one bailout package after the next, convening for hectic summit meetings, wrangling over lazy compromises and building up risks of gigantic dimensions. For just as long, they have been avoiding an important conclusion, namely that things cannot continue this way. The old euro no longer exists in its intended form, and the European Monetary Union isn't working. We need a Plan B. Instead, those in responsible positions are getting bogged down in crisis management, as they seek to placate the public and sugarcoat the problems. But if it wasn't for the euro, Greece's debt crisis would be an isolated problem -- one that was tough for the country, but easy for Europe to bear. If the rest of Europe abandons Greece, the crisis could spin out of control, spreading from one weak euro-zone country to the next. Democratic Deficiencies Resistance to Austerity Measures Euro Has Become Greatest Threat to Continent's Future
Euro Statement Translated Yesterday the long awaited Euro rescue plan was announced. As ever, it is couched in euro-speak so TMM offer up their translation of the document - Today, we agreed on the following measures: Greece 1. Papa will keep walking and keep smiling because we have a gun in his back. 2. We'll cut Greece's interest rates because, let's be honest, they are pretty immaterial against never getting your money back. 3. We will push Greece's debt forward up to 30 yrs as unfortunately we can't push it on any further. 4. Panzers start your engines. Private sector involvement 5. We have persuaded those nice kind banks to contribute E37bio using a menu of threats of levies, banking licence revokements, electrodes and wet sponges. 6. Look, we have only just managed to cobble this together because Greece is so small. 7. Your bosses agree to this too. 8. 9. We will ask our accountants to give the contributing countries a bit of paper saying "trust me, what can go wrong?" 10. 11. 12. Economic governance 13. 14.
Eurozone leaders still don’t get it Editor's note: This column updates the column originally posted on 8 August 2011. The glass is now a quarter full. This Sunday, Europe’s leaders accepted two of the three steps that are necessary to bring an end to the crisis. They know what they have to do when it comes to putting Greece on a sustainable path, and when it comes to backstopping the banks. On the third necessary step – backstopping sovereign debt to avoid contagion – EZ leaders have not yet realised the magnitude of the problem – they are talking of billions when they need to be talking of trillions. Since early 2010, we have known that Greece would have to default on a substantial part of its public debt. Because Greek banks hold so much Greek government debt, any serious restructuring will bankrupt the Greek banks. On this point, EZ leaders have understood the problem and are pursuing the right ideas. The amount announced (€108 billion) is far short from independent estimates of what is needed. De Grauwe, Paul (2011).
Magical Thinking This is what policy paralysis looks like. From the FT's ongoing coverage of the eurozone crisis: 8.40: Another day, another fudge. Sometimes bad policy-making takes the form of enacting bad policies. What do the EU's finance ministers think will be different one month from now? I realize that this will probably sound like a truly horrible insult (particularly to European policy-makers themselves) but I can't help but be reminded of the magical thinking that characterized so much of George W. Either that, or it's nothing more than simple procrastination. UPDATE: Oops, I hadn't remembered that Paul Krugman had used the term magical thinking in the context of European policy-making more than a year ago. The Crisis and the Euro George Soros | The New York Review of Books | July 12, 2010 I believe that misconceptions play a large role in shaping history, and the euro crisis is a case in point. Let me start my analysis with the previous crisis, the bankruptcy of Lehman Brothers. As Mervyn King of the Bank of England explained, the authorities had to do in the short term the exact opposite of what was needed in the long term: they had to pump in a lot of credit, to replace the credit that had disappeared, and thereby reinforce the excess credit and leverage that had caused the crisis in the first place. This required a delicate two-phase maneuver—just as when a car is skidding, first you have to turn it in the direction of the skid and only when you have regained control can you correct course. The situation is eerily reminiscent of the 1930s. The euro was an incomplete currency to start with. Member countries share a common currency, but when it comes to sovereign credit they are on their own.
The eurozone’s terrible mistake The FT is reporting today that the new fiscal rules for the EU “include a commitment not to force private sector bondholders to take losses on any future eurozone bail-outs”. If this principle really does get enshrined into some new treaty, it will be one of the most fiscally insane derelictions of statesmanship the world has seen — but it certainly helps explain the short-term rally that we saw today in Italian government debt. Right now, the commitment is still vague: Ms Merkel agreed that private sector bondholders would not be asked to bear some of the losses in any future sovereign debt restructuring, as she had insisted this year in the case of Greece’s second bail-out. You can safely ignore the bit about collective action clauses. The impetus for this completely insane policy seems to have come from the ECB, which genuinely seems to believe that bailing in private-sector banks, in the Greece restructuring, was the “terrible mistake” which caused the current euro crisis.