cat de benefică a fost înființarea u.e pentru europa posibilă temă pentru licență
TRANSCRIPT
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Charts, maps and infographics
Daily chart
Government debt
More pain to comeJun 29th 2011, 15:48 by The Economist online
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The cost of reducing government debt
AMID strikes and violent public protests, on June 29th Greece's parliament voted in
favour of the government's emergency package of austerity measures. The package,
which requires a second vote to implement it on June 30th, is necessary. Without it, the
European Union and the International Monetary Fund will not release another tranche of
a large rescue loan to the country. And without the loan, Greece cannot afford to meetthe interest payments on its monumental government debt. But because the package will
bear down too heavily on ordinary Greeks without addressing necessary structural
reform, it is likely to fail. Many other rich countries have big debt burdens and are facing
similar problems. The chart below shows OECD calculations of what it would take
governments to reduce gross debt to 60% of GDP by 2026. This is around the level
considered healthy and is also the ratio set by the widely ignored Maastricht agreement,
which is meant to govern debt in the European Union. It is not pretty.
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Greek debt
Stepping back from the edge?Jun 29th 2011, 12:01 by R.A. | WASHINGTON
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ALL eyes are on the Greek parliament, where a vote on a new package of austerity
measures is imminent. Europeans and the IMF have made additional payouts of their
already agreed Greek support plan dependent on adoption of further austerity measures,
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deemed necessary to get the struggling nation back on track to meet its deficit reduction
goals. The Greeks, not without cause, are angry with the new demands on them. The
contractionary impact of the cuts in place has dragged the economy deeper into
recession, making progress on fiscal consolidation slow. Meanwhile, European leaders,
and the European Central Bank especially, are reluctant to foist any of the pain of
insolvency on creditors.
Given the apocalyptic language in the press ("suicide vote") and the visible anger in the
Athens streets, one might assume that the worst is nigh. Markets, however, are behaving
as though passage of the austerity measures is a foregone conclusion. European markets
are up, the euro is strengthening, and yields on peripheral debt are backing away from
recent crisis highs. Traders are anticipating a positive vote, securing aid payments to
Greece and forestalling any immediate meltdown.
Yet virtually no one believes that the Greece's underlying difficulties, to say nothing of
the periphery's as a whole, have been addressed. Greece will need a new aid deal
eventually; it cannot hope to return to markets to borrow for some time. Negotiations
over that package will lead to more recriminations, more demands on Greece, and more
brinksmanship.
But for now, all eyes are on the Greek parliament, where the immediate crisis is likely,
knock wood, to be defused...
UPDATE:The austerity measure passed. Europe's disaster remains a slow one, rather
than a fast one.
http://www.economist.com/blogs/newsbook/2011/06/greek-debt-crisis
Germany and the euro
Merkel's hazardous courseGreeces troubles are causing acute discomfort for Germanys chancellor
Jun 23rd 2011 | BERLIN | from the print edition
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Between Scylla and Charybdis
THE streets of Berlin are quieter than those of Athens, but the euro crisis is making life
almost as hellish for the German chancellor, Angela Merkel, as it is for the Greek prime
minister, George Papandreou. Partly because of it, Mrs Merkel is going through her
roughest patch so far in more than five years in office, says Renate Kcher of
Allensbach, a pollster. Members of her coalition, consisting of her Christian Democratic
Union (CDU), its Bavarian sibling, the Christian Social Union, and the liberal Free
Democratic Party, are restive about the costs of saving the currency. The opposition is
openly speculating, prematurely, that the government may fall.
The immediate danger is the wrangle over a second rescue for Greece. On June 10th the
Bundestag endorsed a bail-out on condition that private investors make a fair
contribution. Even then, ten legislators from the coalition either voted no or abstained, a
worrying dent in the governments 20-vote majority. Since then, Mrs Merkels room for
manoeuvre has narrowed. On June 17th, under French pressure, she endorsed the non-
confrontational Vienna model, under which Greeces creditors are expected voluntarily
to buy new Greek bonds as old ones fall due. That makes it less li kely that they will make
the large contribution that Mrs Merkels parliamentary allies are demanding.
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Explore our interactive guide to Europe's
troubled economies
Television images of Greeks haranguing their government over reforms do not help. The
protests make it very difficult for MPs to explain the rescue measures to voters, says
Klaus-Peter Flosbach, the CDUs fiscal-policy spokesman in the Bundestag. Nearly half
the electorate favours throwing Greece out of the euro, according to a recent poll.
Depending on how it is structured, the Greek rescue may not need explicit approval by
the Bundestag, but there will be pressure to bring it to a vote. If that happens the
coalition will support it, believes Mr Flosbach. The MPs know what is at stake. The mood
is fiercer in Finland and the Netherlands, which have influential Eurosceptic parties,
German officials point out.
Related topics
y Germanyy Bundestagy Europey Greecey Angela Merkel
Even if the Greek hurdle is overcome, others loom. The Bundestag will vote later this
year on whether to top up the temporary European Financial Stability Facility, which
helped to finance the Irish and Portuguese bail-outs, and to create a permanentsuccessor, the European Stability Mechanism (ESM). Many coalition MPs want every ESM
rescue put to a parliamentary vote, which would make it unworkable. Germanys highest
court is deliberating on complaints that the bail-outs violate the constitution and
European law.
Mrs Merkel sees herself as steering between catastrophic alternatives. Hawkish demands
for imposing losses on creditors or submitting every future bail -out to parliamentary
scrutiny could endanger the euro. But the doveish idea that only more Europe will
resolve the crisis is also distasteful. Mrs Merkel rejects fixes such as a finance minister for
the euro area (an idea floated by Jean-Claude Trichet, president of the European Central
Bank) or Eurobonds backed by every country in the zone. To spectators on both sidesher cautious middle course, with its many abrupt corrections, looks directionless,
defensive and eventually doomed.
http://www.economist.com/blogs/dailychart/2011/05/europes_economies
Europe's economies
Strong core, pain on the periphery
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May 17th 2011, 14:25 by The Economist online
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THE fear that Greece's sovereign-debt crisis might presage similar episodes elsewhere in
the euro zone has been borne out. In November, Ireland joined Greece in intensive care,
becoming the first euro-zone country to apply for funds from the rescue scheme agreed
in May 2010 in concert with the IMF, and in April this year Portugal followed suit.
Sovereign-bond spreads (the extra interest compared with bonds issued by Germany, the
safest credit) are now much higher in all three of the bailed-out countries then they were
in May 2010. Promises to tackle budget deficits through public spending cuts and tax
increases have offered little reassurance to bondholders, who know that austerity will
take its toll on growth.
The interactive graphic above (updated May 17th 2011) illustrates some of the problems
that the European economy faces. GDP picked up in most countries through 2010 but
there were marked differences in performance. Germany was especially sprightly: its
economy expanded by almost 5% in the year to the first quarter of 2011. But GDP in
Greece has crashed under the weight of austerity; Ireland contracted sharply in late
2010; and Spains economy is barely growing.
In many countries unemployment has not gone up by as much as one might expect given
the depth of the crisis. Germany now has lower unemployment than before the crisis,
thanks in part to a short-time working scheme and flexible time arrangements in its
manufacturing sector. The worst-affected countries include Ireland and Spain, where a
collapse in construction has swollen the dole queues. Youth unemployment is especially
high in Spain, prompting protests in May. Britain has fared better because its tight
planning laws limited the growth of its construction sector during the global housing
boom.
Weak growth and high unemployment spell particular trouble for countries that already
have high levels of public debt. That explains why Greece was first to lose the confidence
of the markets with a public-debt-to-GDP ratio of 127% and a budget deficit of 15.4% of
GDP in 2009, making it the euro zone's outlier country. Ireland had low public debt going
into the crisis, but the state became crippled by its pledge to backstop its banks together
with the hole that was blown in its tax revenues by a combination of recession and
housing bust. Forecasts in mid-May from the European Commission showed public debt
vaulting above 100% of GDP in both Ireland and Portugal by the end of this year and
reaching a dizzying 158% of GDP in Greece. Other countries are pruning before the
markets exert real pressure: Britain's debt has the longest maturity of any EU memberbut it is still aiming to get its finances in order within four brutal years.
AUDIO: Our correspondents on why struggling euro-zone economies should restructure
their debt sooner rather than later.
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Europe's debt crisis
Europe's damaging dithering continuesJun 20th 2011, 13:45 by R.A. | WASHINGTON
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CHARLEMAGNE summarises the latest developments from Europe:
After seven gruelling hours in Luxembourg, which included a video conference with colleagues from
G7 countries, the finance ministers of the 17 countries of the euro zone decided to delay until July
the disbursement of 12 billion ($17 billion) in loans from the European Union and the IMF.
By then, they said, two issues would have become clearer. Firstly, the finance ministers say they
want to know how far Greeces private creditors are willing to help voluntarily by rolling over
Greek debt when current bonds mature. This has become vital for German domestic opinion to
sweeten the bitterness of having to support a second bail-out for Greece.
Secondly, the euro zone wants to know whether the reshuffled government of George Papandreou,
the embattled Greek prime minister, will secure a vote of confidence in the Greek parliament,
which is expected to come on Tuesday. Greek MPs are also due to approve, by the end of June, the
next round of austerity measures and structural reformsincluding a wholesale privatisation of
state companies and lands...
[I]n the end the ministers decided they could not issue a blank cheque. Jean-Claude Juncker, the
prime minister of Luxembourg, who also presides over the euro-area finance ministers, declared: I
cannot imagine for one second that we would commit to finance Greece without knowing that the
Greek parliament has given its vote of confidence to the government, and that it has taken on
Greeces commitments [to the EU/IMF].
So why spend seven hours behind closed doors, only to decide to wait and see? Because, Mr
Juncker said, figuring out how to squeeze out some funding from private creditors, without it being
deemed a default, is very complicated. As a result of the discussion, he said, the euro group had
cleared the way for a solution.
The only obvious progress tonight was that Germany has formally abandoned its demand that
existing bonds be swapped for new ones with a seven-year maturity. Instead, the ministers agreed
that private creditors would be asked only for informal and voluntary roll-overs of existing Greek
debt at maturitywhile avoiding a selective default for Greece. The only stipulation is that the
resulting contribution be substantiala weaker formulation than the original German wish for a
contribution that is 'substantial, quantifiable, reliable and voluntary.
One must assume that the sums that can be raised for the rescue package will now be moremodest, which raises the question of whether the prevarication is really worth the turmoil it is
causing.
Yields are up sharply around the European peripheryin Spain and Italy as well as in
Greece, Ireland, and Portugal. The euro zone is courting a dangerous contagion. And for
what? Greece has already agreed to significant austerity measures and continues to
suffer through a revenue-crimping recession for its trouble. This new, miserly approach
may make it more difficult for the Greek parliament to pass a new, tougher package. And
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if Greece doesn't pass it? Europe will have to turn around and offer more generous terms
or face serious financial market consequences. This is the rub for the austerity-hungry
officials across Europe: if debt restructuring is sure to be catastrophic, then the flailing
peripheral countries have an unbeatable trump card in these negotiations. And if debt
restructuring isn'tlikely to be catastrophic? Then the reluctance to allow a Greek default
makes no sense.
It is immensely frustrating to watch Europe, the ECB, and the IMF fumble their way
toward the inevitable choicea euro-zone break-up or restructuring and tighter fiscal
union. Their mishandling of the situation threatens to bring more countries into the
markets' sights and is impairing confidence around the world.
Euro-zone crisis
Their euro crisis, our double-dipJun 17th 2011, 18:21 by M.S.
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GIVEN that Greece makes up just 3% of the euro zone's economy, it's nutty enough that
the fate of the euro now hinges in large measure on the outcome of the political
maelstrom in Athens. (Though that's not all it hinges on. It could hinge on nationalists in
Helsinki, centre-leftists in The Hague, or the personal relationship ofNicholas Sarkozy
and Angela Merkel. Basically there are a lot of hinges.) But it's even nuttier that the fate
of America's recovery partly hinges on Athens, Brussels and Frankfurt too. If the balloon
goes up at the European Central Bank, things in America are likely to start looking very
double-dippy. Kevin Drum's summary:Within the EU, it's the politicians vs. the central bankers. The politicians want to force the banks
that own Greek bonds to share the pain of a Greek semi-default, but the ECB is absolutely,
completely dead set against it. The reasons for the ECB's hard line on this are a little obscure, and
theories range from the fairly ordinary (the ECB believes it would cause chaos and bank failures) to
the outre (the ECB wants a crisis in order to force European governments into closer fiscal union).
For what it's worth, I spent yesterday morning talking to a member of the ECB's board of
directors and I really think the main explanation is the ordinary one. The ECB doesn't
believe it's possible to make private holders of Greek debt "share the pain" without
precipitating a Greek default. They think if you pressure banks to roll over Greek debt,
that debt will become untradeable, which is the same as "worthless"; the ratingsagencies will deem the failure to pay at maturity to be a technical default, which may
trigger credit default swaps; the Greek banking system will become insolvent, meaning
nobody in Greece will have any money anymore; recapitalising those Greek banks will
have to be done by governments that actually have money, ie the northern European
ones; and ultimately the costs will all fall on the northern European taxpayer anyway.
Meanwhile northern Europe's pension funds will be hit by the c redit panic, which again
will hurt the average citizen. The ECB folks sincerely think there's no way around having
taxpayers pick up the bill for saving Greece and the euro. That said, they also seem to
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think that if the crisis forces Europe towards fiscal unity, that wouldn't be a bad thing
either.
Whether they're right or not is a different question. My colleague cites a new letter by
the San Francisco Fed's Fernanda Nechio with a chart showing that while ECB monetary
policy has been more or less right for the euro zone "core" countries (Germany, France
etc.), it's always wrong for the "periphery" countries (Greece, Portugal, etc). But Paul
Krugman argues that even this is too generous:
[T]he letter uses a Taylor rule based on the unemployment gap, not the output gap (which is what
Taylor originally used). Either one is OK but if youre going to do Europe-US comparisons, you
need to recognize that there are big differences in labor market institutions, so that comparable-
depth recessions produce a much larger rise in unemployment in the US. It is not true, as the
report says, that the European recovery has been notably faster than the US recovery in terms
of output gaps, were similar.
And if youre going to use unemployment gaps, Id argue that you really dont want to use the
same coefficients on the two sides of the Atlantic.
So heres the thing: if you use the output gap Taylor rule that, for the US, corresponds to the
unemployment version of the rule used in the SF Fed letter, it surely implies a negative interest
rate. In short, the ECB has no business raising rates.
In other words, Mr Krugman says, ECB monetary policy isn't right for "core" countries;
it's only right for Germany.
This concludes this episode of "Americans nervously ridiculing Europeans who may
profoundly influence their economic fortunes." One thing I do want to note is how the
euro-zone crisis has changed the flavour of much American "oh, those silly Europeans"
criticismnot so much Mr Drum's, my colleague's or Mr Krugman's, but the kind of stuff
you encounter in conversation. The standard critique used to be: "Oh, those silly
Europeans, when will they overcome their separate working cultures, labour markets and
fiscal policies and come together in one big monetary and economic union like we have in
America?" Now, the critique has shifted to: "Oh, those silly Europeans, how could they
have thought they would ever be able to overcome their separate working cultures,
labour markets and fiscal policies and come together in one big monetary and economic
union like we have in America?" Countries will obviously never stop finding ways to make
fun of each other, but it's interesting from an intellectual -history point of view to watch
how the ridicule can shift polarity over time.
Slovakia and the euro
Slovakia is still playing toughJun 16th 2011, 17:46 by K.M. | BRATISLAVA
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A SMALL country should aim to avoid antagonising its allies. Slovakia, previously known
as a committed euro-enthusiast, earned the wrath of both Brussels and Berlin last year
when the new government decided to opt out of the first Greek bail-out.
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Since then, Slovak diplomacy has upped its game. As euro-zone leaders ponder a second
rescue for Greece, Bratislava is displaying a slightly more flexible attitude. This week,
Slovakia sent a cautious signal to its European partners: if it is asked to approve another
package for Athenswhich could reach up to 120 billionthe answer will be yes, but.
This was not Slovakia going soft. Richard Sulik, leader of the market -friendly Freedom
and Solidarity (SaS), a junior partner in the ruling centre-right coalition, says We want
to reach an agreement that will involve a declaration of insolvency. Iveta Radicova, the
prime minister, and her brainy finance minister, Ivan Miklos, have also been heard to
murmur about bankruptcies.
Falling into line behind the Germans, the Slovaks want to see Greece's private creditors
take a share of the pain by extending the maturity of their bonds by seven years.
Slovakia also wants the Greek government to strike a deal with the opposition on more
belt-tightening, structural reform and privatisation. Finally, the Slovaks insist that any
new loan for Athens must be guaranteed by Greek state property.
Euro-zone finance ministers had been fretting over Slovakias stance since last week
when Handelsblatt, a German economic newspaper, quoted a highly placed EU officialsaying that a second Slovak "no" could scupper the plan for Greece.
Unlike the first Greek bail-out, the second one depends on Slovakias approval as it would
draw on funds from the euro areas 440 billion European Financial Stability Facility
(EFSF), which requires a unanimous endorsement from the 17 countries that use the
euro.
Slovakias ruling centre-right parties regularly take the EU to task for going easy on the
likes of Greece, Portugal and Spain. They claim to dislike what they see as the habit of
rewarding extravagance and punishing frugality. But in recent weeks this criticism has
been repackaged. Controversial remarks about bailouts that resemble Ponzi schemes
are now rarely heard.
There are several reasons for this. Fear of alienating the public is one. Despite the
grumbling of officials, most Slovaks remain enthusiastic about the euro. In March 73%
said that they benefited from the single currency: a euro-area high.
The government may also simply be basking in its own success. The two main issues it
raised in Brussels at the time of the first Greek rescue plandebt restructuring as a
prerequisite for future bail-outs and a tougher implementation of the rules governing
public financeshave both been addressed by the European Stability Mechanism (ESM),
the permanent bail-out fund that should replace the EFSF in 2013. Still, Slovakia has not
yet thrown its support behind the ESM, despite having been encouraged by many experts
to do so.
The shift in the position of Germany and other countries also plays a role. The Slovaks
are no longer the radicals. Indeed, some observers have been bold enough to suggest
that the country has been doing a good job of communicating not only its own message
but Angela Merkels, too.
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The euro crisis
Mr IMF says: More Europe, pleaseJun 21st 2011, 0:52 by Charlemagne | LUXEMBOURG
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SO IT takes an American to remind Europeans about the importance of economic
integration, at a time when many of them are losing faith in the viability of the European
project. That the American in question should be John Lipsky, the man who has been
running the IMF since the downfall of Dominique Strauss-Kahn, somehow adds to the
power of his words.
Few people normally pay attention to the IMF's article IV mission to the euro area, a
sort of annual health check. But coming at a time when the euro area is in fibrillation, the
opinion of an external expert is bound to draw some attention. Mr Lipsky took the
opportunity to deliver two strong messages.
Firstly, the Europeans need to get a grip on the sovereign-debt crisis, which is
threatening to overwhelm the euro area's recent economic gains and cause large
global spillovers. In other words, contagion could spread from the periphery to core
European states, and could infect other economies too. (Conversely, resolving the crisis
would help the global economy.)
Secondly, and more interestingly, the way to deal with the problem is not byrestructuring the debt of troubled European states, but by greater economic integration.
In other words, more Europe. Mr Lipsky concluded his remarks by chiding Europeans
for losing their sense of history and ambition.
Looking ahead, it is important to learn from the crisis and define a clear vision for the future. The
story of European integration sinceWWII has been an incredible successnot least because the
leaders who built the European Union and the euro area looked beyond the crises of their day.
Indeed, if the euro area is to be more stable and resilient and live up to its growth potential, it will
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have to press ahead with a broad reform agenda now. Many welcome initiatives are under way, but
in our view in nearly all areas a few crucial additional steps are needed to make them add up to a
consistent set up.
Such words would gladden the heart of the most passionate euro-federalists, such as
Guy Verhodstadt, the former Belgian prime minister, who declared recently
(interviewhere, in French) that the only answer to the euro-zone crisis was to move
towards the United States of Europe. By contrast, a long report in the current Der
Spiegel, a German weekly, captures the sense of gloom as it argues that the euro is
becoming an ever-greater threat to Europe's common future.
The IMF's report is full of exhortations for the EU to move more decisively towards a
truly cohesive approach. To begin with, European leaders should stop the unproductive
debate on debt restructuring/reprofiling, which risks spreading contagion. Mr Lipsky
smiled when asked about this, saying he had asked for the word unproductive to be
removed from the statement after some real progress was made during ill-tempered
talks the previous night (ie, Germany gave up on the idea of debt swaps).
The IMF says European policymakers have focussed on national priorities, but the key to
success is the strength of the economic union. The EU's single market should bedeepened, capital markets should be integrated and countries should give up the idea of
protecting national champions from takeovers. There is a need for a Europe-wide fund
to support banks that are in trouble or need to be wound up. The main European bail -out
fund, known as the European Financial Stability Facility (EFSF), should be boosted and
allowed to buy up the bonds of troubled states. Fiscal rules for governments need to be
tightened, with more automatic sanctions for rule-breakers and a greater say for the
European Commission in monitoring and guiding economic policies.
The IMF has adopted an unexpected position in another sense: it has become a thorn in
the side of those creditor countriesmainly AAA-rated Germany, the Netherlands and
Finlandthat want the private sector to take up a part of the burden in the EU's second
bail-out of Greece, which is expected to add up to about 100 billion ($144 billion) on top
of last year's 110 billion rescue.
With Greece on the brink of default, Mr Lipsky was adamant in a meeting with euro-zone
finance ministers on Sunday night that he could not endorse the next tranche of EU/IMF
money for Greece, totalling 12 billion, due in July. Before doing so, he says he must
have assurances that the EU would make up the financing gap that Greece will suffer
starting next year, because it will be unable to borrow on the markets as once hoped.
Creditor states want a substantial but unspecified part of the assistance to come from
private bondholders voluntarily rolling over the Greek debt when the current bonds
mature. If the amount is small, says one minister, his country will not pay for Greece. All
this was too uncertain for Mr Lipsky's liking. He wanted euro-zone states to guarantee
that the money would be available one way or another, regardless of how much they
can squeeze out of the private sector.
Luckily for everyone concerned, all eyes are now on Greece. George Papandreou, the
Greek prime minister, faces a vote of confidence today and must get parliamentary
approval for a large package of deficit-cutting measures and structural reforms.
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Still, the muttering among officials in the shed that serves as a glum venue for EU
ministerial meetings in Luxembourg is that Mr Lipsky is being much tougher than Mr
Strauss-Kahn would have been. And after his rousing call for European endorsement,
they can hardly accuse him of being anti-European.
Growth
Recent historyJun 28th 2011, 15:20 by R.A. | WASHINGTON
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I LOVE today's Daily chart:
Here's some of the accompanying text:
The chart below shows a population-weighted history of the past two millennia. By this reckoning,
over 28% of all the history made since the birth of Christ was made in the 20th century. Measured
in years lived, the present century, which is only ten years old, is already "longer" than the whole
of the 17th century. This century has made an even bigger contribution to economic history. Over
23% of all the goods and services made since 1AD were produced from 2001 to 2010...
More person years have been lived in the first decade of the current century than in all of
the 17th century. And nearly 80% of the economic output of the last millenium has been
produced in just the last 110 years. Everyone likes to think that they live in historical
times. As it so happens, we do.
Small enough to failJun 28th 2011, 17:25 by A.M | LONDON
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AN ALIEN visiting earth for the last few years could be forgiven for thinking there were
only two types of banks: those too economically important to fail and those too politically
sensitive to fail. For the latter, think of the British government slapping a 100%
guarantee on Northern Rock deposits, saving savers (who of course are voters too) from
the consequences of a bank failure. The apogee of this strategy came in Ireland, where
the governments decision to guarantee the entire banking system has hobbled the
country with debt.
The alien might be surprised then, by recent events in Europe. Two weeks ago Britains
Financial Services Authority ordered the liquidation ofSouthsea Mortgages and
Investments, a tiny lender hailing from the town of Havant on Englands sleepy south
cost, after loans to property developers went sour. With an asset book of only 10m and
deposits of around 7.5m, the bank was clearly not too big to fail. But the Treasury has
set a precedent by refusing to compensate the 14 customers who had deposits in excess
of the 85,000 covered by the governments deposit guarantee scheme. This marks the
first application of Britains new bank resolution regime, which allows for senior
unsecured bondholders, as well as depositors, to share in the pain of restructuring.
In Denmark a similar regime claimed its second victim this week. Fjordbank Mors entered
the winding-up process, following Amagerbanken in February. Although both lenders are
small, both had outstanding bond debt as well as deposits. Senior creditors of Fjordbank
Mors are expected to suffer haircuts of around 25% on their principal.
This might be a welcome return to normality. Bondholders (and depositors who
concentrate large holdings in any one institution) willingly expose themselves to financial
risk, so should not be shielded from losses if a bank fails. But it raises the question, when
is a bank small enough to fail?
One rule of thumb might be when the systemic consequences of a failure are smaller
than the cost of a bail-out. In the case of Southsea this was clear. The Financial Services
Authority say Southseas only liabilities were to depositors. It had not issued bond debt.
Without bondholders, there was no systemic fallout from allowing the bank to fail. Indeed
Southseas collapse barely registered in the media or in the markets.
This may not be the case in Denmark. Yields on Danish bank bonds have risen since Denmark introduced its
burden-sharing bank resolution mechanism. Of course with two of Denmarks banks failing, this could simply
reflect nervousness about the countrys banking sector as a whole. But some Danish bankers think they are
paying a price for their governments speed of reformDenmark and Britain are two of the few European countries to introduce new resolution
regimes since the financial crisis. If bondholders anticipate better protection from
governments in other jurisdictions, at the margin they may prefer to hold the debt ofbanks in those jurisdictions. This makes it risky for one country to push ahead with
reform if others do not.
Governments across the world are committed to allowing banks to fail in the future.
Socialising bank losses is unpopular, and it creates moral hazard. However, when
national banking sectors remain fragile, imposing burden-sharing resolution regimes is
fraught with danger. Governments and regulators may chose safety first. Witness
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the ECBs continuing refusal to allow haircuts for the senior bondholders of Irish banks.
They, it seems, are definitely too big to fail.
Financial contagion
Fear of fear itself
Is this Europes Lehman moment?Jun 23rd 2011 | from the print edition
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CONTAGIOUS diseases are usually dealt with by isolating the patient, lest he infect
anyone else, and then by trying to treat the illness. Isolation is not always possible with
physical ailments; with financial ills, it almost never is. With the Greek government
perilously close to default, investors and policymakers are wondering whether European
banks have caught something nasty. Many are comparing the choices facing the euro
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zone and the IMF to those faced by the American Treasury and the Federal Reserve in
the days before Lehman Brothers collapsed in 2008, causing a seizure in the global
financial system.
The comparison is not exact. The Greek government owes more than 300 billion ($435
billion); Lehmans balance-sheet before its failure was $613 billion. The chief difference,
though, lies in complexity rather than in scale. Wall Streets fourth-largest investment
bank was at the centre of tens of thousands of interconnected trades that were hidden
from view and difficult to value. Its fall caused panic because others in the markets had
no way of knowing who the counterparties to its trades were and whether Lehman owed
them so much that they too might fail.
That ought not to be true of Greece. It has far fewer creditors: two-thirds of its debt is
probably held by about 30 institutions. And whereas Lehmans exposures were hidden
from public view, Greeces are largely out in the open and are also reasonably easy to
value. The more light has been shone into the dark vaults of banks holding Greek
government debt over the past year, the more markets have been reassured that few, if
any, foreign banks are dangerously exposed.
Related topics
y Securities Servicesy
Investment servicesy Investment bankingy Money marketsy European Central Bank
According to public data collected by Barclays Capital, an investment bank, few foreign
banks holdings of Greek government bonds are worth even 10% of their capital (Greek
banks are a different matter: see chart 1). That means they should comfortably
withstand the substantial losses that might arise if Greece said that it would repay less
than 100 cents on the euro. Softer forms of default, such as extending the maturit ies of
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existing bonds, would probably cause almost no harm to the financial system, especially
if the interest payments remained the same as when the bonds were issued.
Holdings of bonds do not tell the full story of banks exposure to Greek government deb t.
By buying credit-default swaps (CDSs), which are essentially insurance policies against a
default, banks are likely to have shifted some risk to insurers or investment funds that
are less important to the financial system as a whole. Some banks, however, will have
sold CDSs.
Across the entire financial system these CDS exposures largely net off, Barclays reckons,
and collateral and margin-calls should have reduced the outstanding exposures to
relatively small amounts. However, not everyone will end up with a net position close to
zero. It is reasonable to suppose that there would be some large losses (and some large
gains) on CDS contracts if Greece stopped paying its bills. Quite where these would
emerge is causing some worry in markets.
Bank regulators have made progress in publishing information on exposures. Banks
themselves have been giving quarterly or half-yearly updates on their ownership ofGreek bonds. But weaker banks have been the most reluctant to come clean: public data
on their holdings are a year out of date. Were panic to seize the banking system,
regulators could do much to restore calm by releasing information they have collected in
the past three months as part of stress tests of Europes banks.
Government bonds are not the only assets on which foreign banks could lose money in
Greece. Loans to Greek companies, made either directly or by their Greek subsidiaries,
might also go bad. Foreign insurers as well as banks might suffer contagion, because
they also own Greek government bonds. However, because Greeces insurance market is
relatively small, most foreign insurers would have correspondingly small amounts of
Greek debt.
Explore our interactive guide to Europe's
troubled economies
The hard numbers alone thus suggest that a Greek default would do little lasting harm to
the rest of Europes financial system. Yet investors act on fear as well as figures. What is
more worrying for Europes policymakers is the thought that Greeces affliction would
spread not just to foreign banks but to foreign governments. Just as Lehmans collapse
told investors that a Wall Street bank could fail, a Greek default would tell them that a
Western government could renege on its debts: Greece would be the first developed
country to default for 60 years.
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The European Central Bank (ECB) opposes a restructuring of Greek debt partly because
of the risk that investors would then desert other troubled countries on the euro areas
periphery. At the very least, their bond yields, which have already been rising, would
climb further. They might also be pushed towards default.
First and second in line would be the next-wobbliest members of the euro zone: Ireland,
whose government has debts of around 150 billion, and Portugal, which owes 160
billion. Partly because they have also reduced their holdings of Irish and Portuguese
bonds, European banks should be able to cope if these countries joined Greece in defaultor in restructuring their debts. However, if contagion were to spread to Spain or Italy,
and banks had to accept losses on their governments bonds, the sums would look grim
even for some banks outside the affected countries (see chart 2). Italy owes 1.8 trillion,
or 120% of a far bigger GDP than Greeces, Irelands or Portugals. Spains debts amount
to 640 billion.
Another cause for unease is European banks reliance on short-term wholesale financing
from outside the continent. Fitch, a ratings agency, reckons that roughly half the cash
entrusted to big American money-market funds is lent on to European banks. This is
skittish money that can be gone in a trice.
Banks in vulnerable countries have already found money-market funding harder to come
by, or at least dearer. Huw van Steenis of Morgan Stanley notes that a year ago, when
European regulators last conducted stress tests, their adverse scenario assumed a fall
in retail banks earnings, before loan-loss provisions, of about 5%. Almost every
peripheral or southern European bank weve looked at underperformed [that] case,
because of a rise in the cost of wholesale funding and deposits. Spanish banks have been
turning increasingly to the ECB for funding, drawing 57 billion at the end of May
compared with 42 billion in March.
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Worse than jitters in the money markets would be a loss of faith by depositors. The Bank
of Greece thinks that in the first four months of the year Greek banks lost deposits at the
rate of 2.8 billion a month.
Kill or cure?
What might happen if Greece defaults depends largely on how policymakers behave: the
costs of contagion need not be big if panic does not take hold. The ECB could counter
money-market flight, for instance, by supplying more liquidity, as the Fed did after
Lehman crashed. It could also reopen the foreign-exchange swaps set up with the Fed
during the crisis.
Some good ideas are already being discussed. One is to conduct credible stress tests and
recapitalise banks that fail. On June 17th the IMF urged European regulators to speed up
recapitalisation, warning that there is still a tail of weak banks.
Another idea is to increase the capacity for providing liquidity to countries on the
periphery that seem solvent, yet risk being caught in the fallout from a Greek default. On
June 20th the European Union restructured its interim bail -out fund, increasing itslending capacity to 440 billion from an effective limit of 260 billion by getting France,
Germany and others to guarantee more of its debt. EU officials also encouraged the flow
of private credit to Ireland, Portugal and Greece by saying that the fund would not be
repaid before other lenders if debts were restructured.
Some policies, though, might cause trouble. The ECB has threatened not to accept Greek
government bonds as collateral if the countrys debt were restructured. If it carried out
that threat, a liquidity crisis in Greece, bank runs and other mayhem could ensue. It
would be almost like an act of war, says a senior executive at a Greek bank. I dont
think that theyd pull the plug.
Charlemagne
Default options
The euro zones leaders are seeing their political choices narrow
Jun 23rd 2011 | from the print edition
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EVANGELOS VENIZELOS is a big man, built more like a rugby forward than a bookish
finance minister. As the politician now charged with fixing Greeces broken finances, he
will need to muster all his strength. On his first outing to meet European colleagues in
Luxembourg this week he found himself like a prop pinned under a ruck, with studs
tearing into his flesh.
The inexperienced Mr Venizelos left himself dangerously exposed. He tried to reopen the
austerity and labour-reform package, particularly the pace of privatisation, that is a
condition for receiving more bail-out money and saving Greece from default. He
suggested the parliament might not meet a deadline to approve the measures by the end
of the month. Worst of all, Mr Venizelos insinuated that other Europeans had no choicebut to save his country because a default would be more painful for the euro zone than
for Greece. Boots and fists were soon flying.
Still, he had a point. For months now, the European Central Bank and European
Commission (and, more quietly, parts of the IMF and the Americans) have been urging
ministers not to entertain even a modest restructuring of Greek debt, let alone a full-
blown default, for fear of disastrous contagion. With signs of trouble s preading to other
countries, including Spain and Italy, the words Lehman Brothers are uttered ever more
often. The dilemma is summed up by Keyness adage: If I owe you a pound, I have a
problem; but if I owe you a million, the problem is yours.
Related topics
y European Uniony United Statesy International Monetary Fund (IMF)y World marketsy Financial markets
The assumption is still that the euro zone will somehow muddle through, at least for a
while. George Papandreou, the Greek prime minister, won a vote of confidence this
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week, raising hopes that his reform programme, perhaps with some tinkering, will be
approved by the end of the month. Euro-zone finance ministers are due to meet on July
3rd to endorse the next tranche of loans, worth 12 billion ($17 billion), followed days
later by approval from the IMF. Greece should then stagger on until September. These
days, European ministers are no longer trying to gain a few more years; a few months or
even weeks will do. They keep kicking the can down the road, but the can is getting
heavier, comments one high-level diplomat.
By autumn, euro-zone ministers expect to have finalised a second bail-out for Greece
that will protect it until 2014. At that point, claim the EUs and IMFs economists, Greece
will have returned to growth and reached a primary budget surplus (ie, it will raise more
revenue than it spends, before interest). Officials say repaying the vast debt will be
difficult but not impossible. They have to affect optimism: as they try to save Greece
from default today, they can hardly admit that it is sure to default tomorrow.
But even if ultimate salvation is possible, Greece could fall into plenty of immediate
traps. One is the mood at home, with almost daily mass protests outside parliament,
interspersed with riots. What if Mr Papandreou cannot get a majority for unpopularreforms? Another is the sternness of the IMF, which says it cannot release next months
tranche of money before it knows that the euro zone will fully fund Greece next year. A
third is the mood of creditor countries such as Germany, which have been insisting on a
substantial contribution by private bondholders. After much argument, this is now
supposed to be done voluntarily by rolling over the debt at maturity. But nobody really
knows how much room this can create.
All this is knotted up. Without sufficient private-sector help, some countries say they will
not give more money; without certainty about who pays for what, the IMF says it cannot
release the funds; without the IMF, the euro zone cannot pay either; and without more
tranches of help, Greece will default.
Even if Greece can be salvaged, attention is turning to the long-term survival of the euro.
To Eurosceptics, notably British ones, it should be given up as a bad job. The tragedy of
Greece is the inevitable outcome of EU leaders hubris in imposing a single currency and
a single interest rate on incompatible economies.
Disunited states ofEurope
For Euro-federalists, such as Guy Verhofstadt, a former Belgian prime minister, the
answer is to move towards a United States of Europe. Even an American such as John
Lipsky, the acting head of the IMF, called on Europeans to rediscover the dream of
integration. Jean-Claude Trichet, president of the ECB, says that one day there should be
a European finance ministry to co-ordinate fiscal policies. He argues that the euros
performance is comparable to that of the dollar and that growth per head, price stability
and even the extent of economic divergence are broadly similar in America and the euro
zone. Indeed, the euro zones aggregate deficit and debt levels are healthier than
Americas.
But the comparison is flawed. The euro zone is not a federal state. Its key decisions are
national, and hence agonisingly slow. Fiscal transfers within the EU are far smaller than
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in America, so cannot help countries absorb sudden shocks. For Germany, especially, the
idea of a transfer union is anathema. It is willing to transfer rules on fiscal discipline
and the labour reforms that helped it regain competitiveness. But the idea of closer fiscal
integration will not go away. The European Commission has promised to study how
countries might issue common Eurobonds.
Whether it is through tougher rules that shift economic powers to Brussels, or perhaps
one day a bigger fiscal union, the crisis is forcing the euro zone into more integration. As
one Eurocrat puts it, We are speleologists trapped in a tunnel. We cannot go backwards;
we can only go forward. But the risk is that, in trying to avert the break-up of the euro,
leaders will create a bigger political backlash, against both themselves and the EU. Mr
Venizelos knows it. His rescuers know it. That is why they have been at each others
throats.
Economist.com/blogs/charlemagne
The euro crisis
If Greece goes
The opportunity for Europes leaders to avoid disaster is shrinking fast
Jun 23rd 2011 | from the print edition
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THE European Union seems to have adopted a new rule: if a plan is not working, stick to
it. Despite the thousands protesting in Athens, despite the judders in the markets,
Europes leaders have a neat timetable to solve the euro zones problems. Next week
Greece is likely to pass a new austerity package. It will then get the next 12 billion ($17
billion) of its first 110 billion bail -out, which it needs by mid-July. Assuming the
Europeans agree on a face-saving voluntary participation by private creditors to please
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the Germans, a second bail-out of some 100 billion will follow. This will keep the
country afloat through 2013, when a permanent euro-zone bail-out fund, the European
Stability Mechanism (ESM), will take effect. The euro will be saved and the world will
applaud.
Time to stop kicking the can
That is the hope that the EUs leaders, gathering in Brussels as The Economistwent to
press, want to cling to. But their strategy of denialrefusing to accept that Greece
cannot pay its debtshas become untenable, for three reasons.Related items
y Germany and the euro: Merkel's hazardous courseJun 23rd 2011y Greece and the euro: The brewing stormJun 23rd 2011y Financial contagion: Fear of fear itselfJun 23rd 2011
Related topics
y Economicsy Economic integrationy European economyy EU economyy Economies
First, the politics blocking a resolution of the euro crisis is becoming ever more toxic
(see article). Greeks see no relief at the end of their agonies. People are protesting daily
in Syntagma Square against austerity. The government scraped through a vote of
confidence this week; the main opposition party has committed itself to voting against
the austerity plan next week and a few members of the ruling Socialist party are also
doubtful about it. Meanwhile, German voters are aghast at the prospect of a second
Greek bail-out, which they think would merely tip more money down the plughole of a
country that is incapable either of repaying its debts or of reforming itself. As the climate
gets more poisonous and elections approach in France, Germany and Greece itself, therisk of a disastrous accidentanything from a disorderly default to a currency break-up
is growing.
Second, the markets are convinced that muddling through cannot work. Spreads on
Greek bonds over German bunds are eight points wider than a year ago. Traders know
that Greece, whose debts are equivalent to around 160% of its GDP, is insolvent. Private
investors are shying away from a place where default and devaluation seem imminent,
giving the economy little chance of growing. The longer restructuring is put off, the more
Greek debt will be owed to official lenders, whether other EU governments or the IMFso
the more taxpayers will eventually suffer.
The third objection to denial is that fears of contagion are growing, not receding. Earlyhopes that Greece alone might need a bail-out were dashed when Ireland and Portugal
also sought help. The euro zone has tried to draw a line around these three relatively
small economies. But the jitters of recent weeks have pushed Spain and even Italy back
into the markets sights again. The belief that big euro -zone countries could be protected
from attack has been disproved. Indeed, far from fears of contagion ebbing, the talk is of
a Greek default as a Lehman moment: like the investment banks bankruptcy in
September 2008, it might unexpectedly bring down many others and devastate the world
economy.
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Explore our interactive guide to Europe's
troubled economies
While the EUs leaders are trying to deny the need for default, a rising chorus is taking
the opposite line. Greece should embrace default, walk away from its debts, abandon the
euro and bring back the drachma (in a similar way to Britain leaving the gold standard in
1931 or Argentina dumping its currency board in 2001).
That option would be ruinous, both for Greece and for the EU. Even if capital controls
were brought in, some Greek banks would go bust. The new drachma would plummet,
making Greeces debt burden even more onerous. Inflation would take off as import
prices shot up and Greece had to print money to finance its deficit. The benefit from a
weaker currency would be small: Greeces exports make up a small slice of GDP. The
country would still need external finance, but who would lend to it? And the contagion
risk would be bigger than from restructuring alone: if Greece left, why not Portugal or
even Spain and Italy? If the euro zone were to break up it would put huge pressure on
the single market.
The third way
There is an alternative, for which this newspaper has long argued: an orderly
restructuring of Greeces debts, halving their value to around 80% of GDP. It would
hardly be a shock to the markets, which have long expected a default (an importantdifference from Lehman). The banks that still hold a big chunk of the bonds are in better
shape to absorb losses today than they were last year. Even if Greeces debts were cut in
half, the net loss would still represent an absorbable proportion of most European banks
capital.
An orderly restructuring would be risky. Doing it now would crystallise losses for banks
and taxpayers across Europe. Nor would it, by itself, right Greece. The countrys
economy is in deep recession and it is running a primary budget deficit (ie, before
interest payments). Even if Greece restructures its debt and embraces the reforms
demanded by the EU and IMF, it will need outside support for some years. That is bound
to bring more fiscal-policy control from Brussels, turning the euro zone into a morepolitically integrated club. Even if that need not mean a superstate with its own finance
ministry, the EUs leaders have not started to explain the likely ramifications of all this to
voters. But at least Greece and the markets would have a plan with a chance of working.
No matter what fictions they concoct this week, the euro zones leaders will sooner or
later face a choice between three options: massive transfers to Greece that would
infuriate other Europeans; a disorderly default that destabilises markets and threatens
the European project; or an orderly debt restructuring. This last option would entail a
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long period of external support for Greece, greater political union and a debate about the
institutions Europe would then need. But it is the best way out for Greece and the euro.
That option will not be available for much longer. Europes leaders must grab it while
they can.
The euro crisis
Beware Eurosceptics bearing giftsJun 20th 2011, 22:27 by Bagehot
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HURRY up and die. Make no mistake, that is the sub-text of the messages being sent to
Greece by British Eurosceptic politicians, under the guise of sympathetic noises about
how Greece is being burdened with unpayable debts by a heartless Euro -elite.
At an emergency debate today in the House of Commons, several MPs shared their
confidence that the single currency is doomed in its current form. Jack Straw, the former
Labour foreign secretary, told Parliament:Instead of sheltering behind complacent language and weasel words that we should not speculate,
the Government should recognise that this eurozone cannot last. It is the responsibility of the
British Government to be open with the British people now about the alternative prospects. Since
the euro in its current form is going to collapse, is it not better that that happens quickly rather
than it dying a slow death?
Here is Richard Shepherd, a veteran Tory Eurosceptic MP:
Mr Richard Shepherd(Aldridge-Brownhills) (Con):The eurozone was never an optimal currency
zone. It is predicated on a treaty arrangement that calls it irrevocable and irreversible.We should
never have accepted the hubris contained in those phrases, which brought about the passage of
the Maastricht Bill and the current situation. This Government and this country should not be
involved, and it would be helpful if we said what everyone in the press now says: this arrangement
cannot survive in its current form. The hubris of those politicians who led the poor Greeks and all
those who believed in this arrangement should be exposed as such
Douglas Carswell, another Tory ultra when it comes to Europe, called on the government
to agree that the International Monetary Fund should oversee a Greek decoupling from
the euro, followed by a default on its debts. Another Conservative MP, Anne Maine, called
for Greece to be "put out of its misery", adding:
no more of our public money should be sent abroad to Greece, even through the IMF. There are
riots on its streets. Its people do not like the medicine being offered to it, and we cannot expect it
to take any more. Let it depart peacefully from the euro. It cannot be sustained as it is; it is just
good money after bad
Building on the "poor Greeks" line, the Tory mayor of London, Boris Johnson, chose the
euro crisis to remind his many fans among the Conservative grassroots that he is (a) a
classical scholar, (b) Eurosceptic and (c) more robustly right-wing that his party leader,
David Cameron. Writing in the Daily Telegraph, Mr Johnson declared this morning:
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For years, European governments have been saying that it would be insane and inconceivable for a
country to leave the euro. But this second option is now all but inevitable, and the sooner it
happens the better. We have had the hamartia - the tragic flaw in the system that allowed high-
spending countries to free ride on low interest rates. We have had the hubris - the belief the good
times would never end. We have had nemesis - disaster. We now need the anagnorisis - the
moment of recognition that Greece would be better off in a state of Byronic liberation, forging a
new economic identity with a New Drachma. Then there will be catharsis, the experience of
purgation and relief.
I dont believe that Greece would be any worse off with a new currency. Look at what happened to
us after we left the ERM, or to the Latin American economies who abandoned the dollar peg. In
both cases, it was the route to cutting interest rates and export-led recovery
Enough with the phoney philhellenism. Read on, and you get to Mr Johnson's conclusion:
The euro has exacerbated the financial crisis by encouraging some countries to behave as
recklessly as the banks themselves. We are supposedly engaging in this bail-out system to protect
the banks, including our own. But as long as there is the fear of default, as long as the uncertaintycontinues, confidence will not return across the whole of Europe - and that is bad for the UK and
everyone else.
It is time for a resolution. And remember - if Greece defaults or leaves the euro, then we will not
see that UK cash again. Indeed, we are more likely to be repaid in stuffed vine leaves or olive oil
than we are in pounds or euros. We should stop chucking good money after bad
We are back with our old arguments about Britain having to guarantee bail-out funds for
euro-zone countries, in this case Greece via Britain's membership of the IMF (Britain is
not involved in a separate EU-organised series of loans from European governments to
Greece). The sceptics filled with sympathy for Greece and so excited about its prospects
with a new currency are in fact mostly worried about having to put "good" British money
into the "bad" eurozone.
To be fair to the sceptics, several of their contentions are correct.
Greece should not have been allowed to join the single currency. Even at the moment of
joining, I have been told by senior EU officials, other European governments did not
believe the Greek numbers purporting to show that they had met euro entry convergence
criteria. Letting them in was a purely political decision, with the disastrous economic
consequences we now see.
It is also clear that Greece has no chance of paying back the crushing burden of
sovereign debt that it already owes, and that offering Greece further bail-out funds is no
more than a ploy to kick the problem down the road, as European finance chiefs fret
about the potential losses to European banks, and politicians agonise over a set of
unpalatable choices.
Finally, it is true that the brutal austerity measures being imposed on Greece are choking
off growth, making it even less likely that the country can pay it own way out of this
crisis.
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Greece will end up defaulting on its debts in some form, and if that default is messy and
uncontrolled, there are scenarios in which the country could end up crashing out of the
single currency.
But where do British eurosceptics get their certainty that Greece would do well to crash
out of the euro as soon as possible? They talk cheerily about Greece bounding back to
health once it is freed from the straitjacket of the euro. Mr Johnson told television
cameras Greece stood to enjoy a nice export-led recovery once it started printing new
drachmas, triggering a rapid devaluation. "Bob's your uncle," he said. Other
commentators have talked about how Greece would be a nice, cheap holiday destination
once it used devalued drachmas.
But this cheeriness ignores some rather painful problems.
1. Greece is in a mess not simply because it borrowed too much. It is in a mess because
it spent a decade enjoying the easy life that came with low, Germanic interest rates, and
did more or less nothing to equip its economy or labour markets to compete with its new
currency-mates in the eurozone. Before the euro came along, Greece was a serialdevaluer of the drachma, but the effect was not to turn Greece into a lean, mean
competitive economy. The effect was years of painfully high inflation ( topping 20% at
several points in the 1970s, 1980s and 1990s), sky-high interest rates (routinely
reaching double-digits) and endlessly eroded savings. Put Greece back on the drachma
and its economy would still be a sclerotic, unreformed mess.
2. While it is true that each new bail-out is only postponing the evil day when Greece has
to restructure its sovereign debt, that does not mean that short-circuiting the whole
process and crashing out of the euro now would be to Greece's advantage. Even if
Greece were to declare it was not going to repay a penny and invite its international
creditors to whistle for their money (as some protestors in Athens urge) the country is
still broke.
Strip out interest payments on its national debts, and the Greek government is currently
running a hefty primary deficit: ie, it has to pay bills each week and month that are
larger than the tax revenues it is able to collect (Wolfgang Munchau has numbers in
today's FT). If Greece were to turn its back on its current arrangements with the EU, the
IMF and the euro-zone, and yank out the life support tubes that connect its banking
sector to the European Central Bank in Frankfurt, where would Greece get the money,
tomorrow or next week, to pay the salaries of policemen, firemen or teachers, or pay
pensions?
Re-read the British MPs quoted above, and it is pretty clear that (for all that the sceptics
yearn to be proved right in their contempt for the euro project), they have no intention of
lending Greece a single penny should that country burn its bridges with Brussels and
Frankfurt. The international capital markets are already effectively closed to Greece in
anticipation of a default, so calling on them for help would not be much use.
None of which is to say that Greece can avoid default at some point. Mr Munchau
suggests a rational Greek who hates austerity might like to wait a couple of years and
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then default, assuming the country is running a primary surplus by then. Others may
doubt that Greek belt-tightening will work by 2013.
I am making a simpler point, that there are no happy, Bob's Your Uncle solutions out
there, whatever British Eurosceptics pretend. Pretty much every option looks bad: the
British should not be blinded by thei r hostilty to the single currency into imagining that a
switch to drachmas would be a magic solution.