Monday, October 1, 2012

You can't have your cake and eat it...

Given that the overall public debt of Greece is approximately Euro 360 billion, this means an effective annual interest rate of approximately 3.7% for Greek public debt . A better interest rate than many other countries would get.  None of the above denies that Greece's economy is in a terrible mess and that many of its poorer citizens suffer.  Posting agitprop on Guardian bulletin boards won't change that, dear Kouros, neither will the stopping of paying taxes in Greece change that, which you also advocate for frequently in your comments. Paying no taxes means no money for schools to educate children, no money for medicines to be given to sick people, no money for pensions to be given to old people in Greece.
Well, otherwise .... For too long in Europe (and elsewhere) governments have run deficits, and have added to their overall debt. The only way to run those deficits and have that level of debt is through the bond market. All of us have enjoyed high standards on living, and some of that is paid for on tick, where are children will end up picking up the tab.   I don't see how anyone can blame the bond traders for charging higher interest rates if through their own risk assessment it looks like that debt will either never be paid back, or will be swollowed up through inflation.  Either a government runs near on balanced budgets which means the electorate not voting for high public spending 'free monkey in every office' political parties, so the bond markets have very little to do with economic decisions, or the electorate go for those parties and accept high debts and deficits which leaves them beholding to the bond markets.  You can't have your cake and eat it.

15 comments:

Anonymous said...

Tens of thousands of Spaniards and Portuguese rallied in the streets of their countries’ capitals Saturday to protest enduring deep economic pain from austerity measure, and the demonstration in Madrid turned violent after Spaniards enraged over a long-lasting recession and sky-high unemployment clashed with riot police for the third time in less than a week near Parliament.

The latest violence came after thousands of Spaniards who had marched close to the Parliament building in downtown Madrid protested peacefully for hours. Police with batons later moved in just before midnight to clear out those who remained late because no permission had been obtained from authorities to hold the demonstration.

Anonymous said...

WSJ -smaller Larger
By JONATHAN HOUSE
MADRID—The Spanish government said the effort to clean up an ailing banking system will widen its budget gap and increase its debt load.

The admission comes as concerns mount over the country's solvency, sending its borrowing costs soaring and pushing the government of Prime Minister Mariano Rajoy closer to requesting European Union aid to help it finance itself.

The euro zone's fourth-largest economy is grappling with the collapse of a decadelong housing boom that sent tax revenue plummeting, cratered domestic demand and saddled banks with billion of euros of bad debts.

In its 2013 budget plan presented to Parliament on Saturday, the government said that the bank aid will inflate its budget deficit to around 7.4% of gross domestic product this year, which is above the deficit target of 6.3% of GDP for 2012 it has committed to with the European Union. Spain said that if the effect of measures to help banks are excluded, it would meet its EU commitment. A spokesman for the European Commission, the EU's executive arm, couldn't immediately be reached for comment.

roro said...

Thousands of demonstrators took to the streets of Paris on Sunday to protest against the spread of economic "austerity" in France and Europe.

Chanting "resistance, resistance", the crowds had been rallied by around 60 organisations, including the leftwing Front de Gauche and the French Communist party, which oppose the European budget treaty.

"Today is the day the French people launch a movement against the politics of austerity," said the Front de Gauche president, Jean-Luc Mélenchon.

A few hours before the protest started Jérome Cahuzac, a junior budget minister, described the demonstration as a "fundamental" error. "I think they are committing a fundamental error in thinking that the policies we are following are weakening France, when in fact these policies are strengthening it," he told Europe 1.

The French prime minister, Jean-Marc Ayrault, defended the European budget treaty and accused the protesters of taking a risk with history. "To take the risk of aggravating the crisis, which is not only an economic crisis but also a euro crisis … The ambiguity of saying 'non' is also something that could lead to the end of the euro."

He added that he and the president, François Hollande, "would never be responsible … for the disappearance of the euro. The support of the majority in these circumstances is essential. We can't swerve away, the future of the euro as well as growth and prosperity are in doubt," Ayrault added.

For Annick Coupé of the Solidaires union, the demonstration on Sunday was aimed at creating a "show of force for the weeks to come" in which the government will consider pension, social security and employment reforms.

"Just because we helped defeat Nicolas Sarkozy [the former right of centre president] doesn't mean we're now going to shut up," she said.

Anonymous said...

This is all about - not facing reality.

There is no way that either Greeks or foreigners can pay for the current living standard in Greece in the future. (or anybody for Spain, Portugal, France resprectively)

It is kicking the can - again.

It is about - the sad truth that Europe is neither sufficiently weathly nor dynamic to allow the elites to fleece and keep the entire population on northern Europe living standards.

Something's gotta give - sooner or later.

Anonymous said...

One interesting developing story in Germany is on Bank Reform. The SPD's Steinbrück has picked up the recommendation of the Vickers report (he does acknowledge the debt) and is demading the breaking-up of Investment and Retail banks.

So, in the long-term, a some equivalent of the american Glass-Steagall Act, which was one of the big lessons learnt from the Great Depression

Now this is interesting, because one of the arguments for the repeal of Glass-Steagall was to allow american banks to compete more equally with european-style "Universal Banks".

Deutsche Bank is, predictably, completely against this. But they don't have that much support and power.

The head of Munich Re came out for exactly this separation a month or two back.

What's uncertain is how Hollande in France views it. Universal Banks are far more a feature of the French banking market. Some clues on this here:

http://seekingalpha.com/article/588551-francois-hollande-and-the-separation-of-commercial-from-investment-banking

Anonymous said...

Marcus Ashworth, head of fixed income at Espirito Santo, explains why a downgrade could mean more pain for Spain:

Moody's probably can't delay action much longer - and it simply stretches credulity how they can maintain an investment grade rating when they have had Spain on Baa3 (-ve review) over the summer on review. And it is most unlikely to be a one-notch move or to be left on stable.

Trouble is the index rules (thanks to ITC for this) have changed somewhat as the Barclays Euro Govt term indices now follow the same procedures as the (old Lehman) Barclays Global Aggregate indices - namely that no longer based on the lower of S+P or Moody's.

So this means even when Moody's goes first into junk that there will be forced selling - unlike for instance what happened with Portugal end Jan. S+P are on BBB+ (-ve outlook), Fitch are BBB. Street ests are that 13% or E66bln would be affected if Spain were to drop out of all the major Govt bond indices - I would counsel that seems too little despite the fact SPGBs are now held much more by domestic Banks and it is collateral for Bank bailouts now too - as it cannot factor in those who may want to..ahem..go short.

However, the effect from this first mover Moody's will be mitigated but it not being the final death tool - and that it surely has been telegraphed far and wide.

10.59 The Moody's jury is still out on Spain. There were rumours that the rating agency was ready to downgrade the country to junk status on Friday. That didn't happen.

Anonymous said...

Instead of calling it the sixth year of recession, they might find calling it the first decade more appropriate.
Until Samaras swallows his pride and takes Greece back to the drachma (they must have been printed by now), the heartbreak will continue - into a second decade. By which time, Oxfam will have moved in.

Anonymous said...

Berlin - Diese Worte dürfte man in Athen erfreut zur Kenntnis nehmen: SPD-Kanzlerkandidat Peer Steinbrück hat sich in einem Interview mit der "Welt am Sonntag" ("WamS") dafür ausgesprochen, dem Land für seine Reformbemühungen mehr Zeit einzuräumen. Zugleich erteilte Steinbrück Forderungen nach einem Austritt Griechenlands eine klare Absage.







ANZEIGE




Den Appell verband Steinbrück mit einem Angriff auf Bundeskanzlerin Angela Merkel. Diese müsse den Deutschen "endlich die Wahrheit sagen", forderte der frühere Bundesfinanzminister. Griechenland werde sich noch sieben bis acht Jahre lang kein Geld am Kapitalmarkt leihen könne. "So lange werden wir helfen müssen."

"Die Griechen müssen zu ihren Verpflichtungen stehen, aber wir sollten ihnen mehr Zeit geben", sagte Steinbrück der "WamS" weiter. Es sei nicht möglich, den Druck auf Griechenland weiter zu erhöhen. Steinbrück schloss nicht aus, dass die SPD einem dritten Hilfspaket für Griechenland zustimmen könnte.

Vehement widersprach der SPD-Politiker Aussagen von FDP- und CSU-Politikern, die einen Euro-Austritt Griechenlands als unproblematisch bezeichnet hatten. "Wir sollten allen, die martialisch den Rauswurf Griechenlands aus der Euro-Zone fordern, deutlich sagen: Ihr wisst nicht, wovon ihr redet! Die politischen und ökonomischen Erschütterungen wären verheerend."

Zuletzt hatten verschiedene Medien berichtet, dass Griechenland die nächste Tranche von Finanzhilfen über 31 Milliarden Euro erhalten wird. Demnach hat sich auch die Bundesregierung damit abgefunden, dass die griechische Regierung sowohl die Haushaltsziele verfehlt als auch die versprochenen Reformen mit Verspätung umsetzt.

Anonymous said...

http://www.spiegel.de/internat...

German industry surging ahead in areas others can't reach?

"Recent arrests suggest that Germany remains a hub for sales of prohibited supplies to Iran that are being used in Iran's nuclear program."

Anonymous said...

Greece's draft budget is now on the finance ministry's website. It's all Greek to me though (literally).

14.23 Reuters has got more details of Greece's draft budget.

It says that the country's budget deficit will come to 6.6pc of GDP this year, with a target of 4.2pc in 2013.

As reported by Greek state TV earlier (see 11.25), the economy is expected to contract by 3.8pc next year, with unemployment at 24.7pc (up slightly from the current level of 24.4pc).

The finance ministry source also told Reuters that public debt will grow to 179.3pc of GDP next year. This is nearly 10 percentage points higher than its 2012 forecast of 169.5pc.

13.38 Luis de Guindos said that banks that receive bail-out funds must limit salaries. He added that Spain was still analysing the benefits of a full bail-out package.

13.29 While I've been bleating on, Spain's economy minister has been holding a joint press conference in Madrid with Olli Rehn, EU commissioner for economic and monetary affairs.

Mr Rehn praised Spain's reform efforts and repeated that the €60bn EU cash injection for the country's battered lenders would be administered in November.

He said that Spain is now in the driving seat and has full confidence that the country would take the necessary steps to reform.

Anonymous said...

Plan B for countries such as Spain and Italy: internal adjustment. And we know how effective that is:

Figure 2 shows that Greece and Ireland, the countries with the biggest adjustment so far, i.e. biggest decline in unit labour costs and current account deficits, have experienced the highest economic (lost output) and social costs (increase in unemployment).

The risks of internal devaluation are evident in Greece: social resistance and a self-reinforcing economic decline. Our past analysis showed that fiscal efforts that exceed 3.5% of GDP over two years are more likely to become counterproductive with the country ending up chasing its own tail. Spain’s fiscal effort is likely to exceed 7% in 2012/2013 based on this week’s budget announcement raising the risk of a self reinforcing economic decline in Spain.

The other message from Figure 2 is that Italy’s adjustment has barely begun.

Anonymous said...

Greek-style haircuts/debt write-offs for countries such as Spain and Italy won't do much to help these countries:

When the Greek PSI took place, the debt of Greece was around €350bn, €259bn of which in bonds. Of these bonds around €52bn was held by the ECB/Eurosystem. Of the €207bn in private hands, around €130bn was held by non-domestic investors. The rest was mostly held by domestic banks and state pension funds which had to be recapitalized following the PSI. Around €5bn of bonds held by private non-domestic investors escaped PSI as they were foreign law bonds. Therefore, the Greek PSI provided a net debt relief to Greece of around 53.5% x €125bn = €67bn, or 33% of GDP. Applying the same haircut and assumptions (i.e. only general government bonds are subjected to haircuts), the net debt relief to Spain from haircuts on non-domestic holders would be only €66bn or 6% of GDP and for Italy €265bn or 17% of GDP.

In other words, this cost/benefit analysis suggests that a Greek-style PSI would be rather unattractive for Italy and worthless for Spain.

Anonymous said...

Greece's economy will contract by 3.8pc next year, according to a draft budget seen by state-run channel Net TV.

Net TV, which did not specify its sources, also said that the economy would contract by 6.1pc this year.

Compare this with official forecasts by the European Commission, which believes (and I had to check twice to ensure my glasses were cleaned properly) that Greece's economy will flatline next year.

European debt inspectors (the troika) will meet with finance minister Yannis Stournaras in Athens this afternoon, and with Antonis Samaras, the country's PM, later this evening.

Anonymous said...

If the Swiss are buying Euros it is because they are getting an influx of money that was Euros and has been converted to Francs.... so net effect is zero.. The only thing that will go up is German bonds and maybe the French....

If the Euro is up then someone else is buying it...

Anonymous said...

Even Europe's strongest economy is wobbling.

Germany's PMI rose to 47.4 in September, from 44.7 in August, as employment levels stabilised, and manufacturers saw a slower fall in new business orders. However, Markit added:

German manufacturers remained cautious in terms of their purchasing activity and inventory levels during September. Stocks of finished goods fell at the most marked pace since March 2011, and pre-production inventories dropped for the thirteenth successive month. Input buying meanwhile dropped sharply in September, thereby extending the current downturn in purchasing to eight months. Subdued demand for raw materials contributed to another improvement in vendor performance. The current period of shortening lead-times from vendors is the most marked since 2008/09