A riot police officer is engulfed by petrol bomb flames thrown by protesters in front of the parliament during clashes in Athens
A protester holds a petrol bomb during clashes with riot police as the demonstration quickly turned violent
Posted at 04:55 PM ET, 10/10/2012
The ‘corruption capital of Europe’: Dozens of Greek MPs accused of tax evasion while 700 people claim they’re blind on Zakynthos (even though only 60 of them are)
Politicians and celebrities on list of 54,000 investigated for corruption
One person declared less than £4,000 in 2010 but deposited £17 million offshore. But the poor and homeless are forced to live off food donated by the Greek church
Transparency International Greece chairman, Costas Bakouris, believes the country is ‘very bad now as a society’. These men and women were among those queueing to be fed in Athens today.
Greek poverty so bad families ‘can no longer afford to bury their dead’
Second general strike in less than a month takes place amid latest round of draconian measures
Greek trade unions have called a general strike to coincide with the debate Photo: EPA
Greek death spiral raises heat for German-bloc creditors
Greece’s debt-load is rising much faster than expected as the country spirals into a sixth year of depression, ratcheting up the pressure on Germany and Europe’s creditor states to accept debt-forgiveness for the first time.
Hit by crisis, Greek society in free-fall
ELENA BECATOROS | November 1, 2012 07:05 AM EST |
ATHENS, Greece — A sign taped to a wall in an Athens hospital appealed for civility from patients. “The doctors on duty have been unpaid since May,” it read, “Please respect their work.”
Patients and their relatives glanced up briefly and moved on, hardened to such messages of gloom. In a country where about 1,000 people lose their jobs each day, legions more are still employed but haven’t seen a paycheck in months. What used to be an anomaly has become commonplace, and those who have jobs that pay on time consider themselves the exception to the rule.
To the casual observer, all might appear well in Athens. Traffic still hums by, restaurants and bars are open, people sip iced coffees at sunny sidewalk cafes. But scratch the surface and you find a society in free-fall, ripped apart by the most vicious financial crisis the country has seen in half a century.
It has been three years since Greece’s government informed its fellow members in the 17-country group that uses the euro that its deficit was far higher than originally reported. It was the fuse that sparked financial turmoil still weighing heavily on eurozone countries. Countless rounds of negotiations ensued as European countries and the International Monetary Fund struggled to determine how best to put a lid on the crisis and stop it spreading.
The result: Greece had to introduce stringent austerity measures in return for two international rescue loan packages worth a total of (EURO)240 billion ($312.84 billion), slashing salaries and pensions and hiking taxes.
The reforms have been painful, and the country faces a sixth year of recession.
Life in Athens is often punctuated by demonstrations big and small, sometimes on a daily basis. Rows of shuttered shops stand between the restaurants that have managed to stay open. Vigilantes roam inner city neighborhoods, vowing to “clean up” what they claim the demoralized police have failed to do. Right-wing extremists beat migrants, anarchists beat the right-wing thugs and desperate local residents quietly cheer one side or the other as society grows increasingly polarized.
“Our society is on a razor’s edge,” Public Order Minister Nikos Dendias said recently, after striking shipyard workers broke into the grounds of the Defense Ministry. “If we can’t contain ourselves, if we can’t maintain our social cohesion, if we can’t continue to act within the rules … I fear we will end up being a jungle.”
CRUMBLING LIVING STANDARDS
Vassilis Tsiknopoulos, runs a stall at Athens’ central fish market and has been working since age 15. He used to make a tidy profit, he says, pausing to wrap red mullet in a paper cone for a customer. But families can’t afford to spend much anymore, and many restaurants have shut down.
The 38-year-old fishmonger now barely breaks even.
“I start work at 2:30 a.m. and work `till the afternoon, until about 4 p.m. Shouldn’t I have something to show for that? There’s no point in working just to cover my costs. … Tell me, is this a life?”
The fish market’s president, Spyros Korakis, says there has been a 70 percent drop in business over the past three years. Above the din of fish sellers shouting out prices and customers jostling for a better deal, Korakis explained how the days of big spenders were gone, with people buying ever smaller quantities and choosing cheaper fish.
Private businesses have closed down in the thousands. Unemployment stands at a record 25 percent, with more than half of Greece’s young people out of work. Caught between plunging incomes and ever increasing taxes, families are finding it hard to make ends meet. Higher heating fuel prices have meant many apartment tenants have opted not to buy heating fuel this year. Instead, they’ll make do with blankets, gas heaters and firewood to get through the winter. Lines at soup kitchens have grown longer.
At the end of the day, as the fish market gradually packed up, a beggar crawled around the stalls, picking up the fish discarded onto the floor and into the gutters.
“I’ve been here since 1968. My father, my grandfather ran this business,” Korakis said. “We’ve never seen things so bad.”
Tsiknopoulos’ patience is running out.
“I’m thinking of shutting down,” he said, “I think about it every day. That, and leaving Greece.”
On a recent morning in a crowded civil cases court in the northern city of Thessaloniki, frustration simmered. Plaintiffs, defendants and lawyers all waited for the inevitable – yet another postponement, yet another court date.
Greece’s sclerotic justice system has been hit by a protracted strike that has left courts only functioning for an hour a day as judges and prosecutors protest salary cuts.
For Giorgos Vacharelis, it means his long quest for justice has grown longer. Vacharelis’ younger brother was beaten to death in a fairground in 2003. The attacker was convicted of causing a fatal injury and jailed. The family felt the reasons behind the 24-year-old’s death had never been fully explained, and filed a civil suit for damages. Nearly 10 years later, Vacharelis and his parents had hoped the case would finally be over.
But the court date they were given in late September got caught up the strike. Now they have a new date: Feb. 28, 2014.
“This means more costs for them, but above all more psychological damage because each time they go through the murder of their relative again,” said Nikos Dialynas, the family’s lawyer.
Vacharelis and his family are in despair.
“If a foreigner saw how the justice system works in Greece, he would say we’re crazy,” said the 35-year-old.
“Each time we come to court we get even more outraged,” he said. “We see a theater of the absurd.”
In September, gangs of men smashed immigrant street vendors’ stalls at fairs and farmers’ markets. Videos posted on the Internet showed the incident being carried out in the presence of lawmakers from the extreme right Golden Dawn party. Formerly a fringe group, Golden Dawn – which denies accusations it has carried out violent attacks against immigrants – made major inroads into mainstream politics. It won nearly 7 percent of the vote in June’s election and 18 seats in the 300-member parliament. A recent opinion poll showed its support climbing to 12 percent.
Immigrant and human rights groups say there has been an alarming increase in violent attacks on migrants. Greece has been the EU’s main gateway for hundreds of thousands of illegal migrants – and foreigners have fast become scapegoats for rising unemployment and crime.
While there are no official statistics, migrants tell of random beatings at the hands of thugs who stop to ask them where they are from, then attack them with wooden bats.
Assaults have been increasing since autumn 2010, said Spyros Rizakos, who heads Aitima, a human rights group focusing on refugees. Victims often avoid reporting beatings for fear of running afoul of the authorities if they are in the country illegally, while perpetrators are rarely caught or punished even if the attacks are reported.
“Haven’t we learned anything from history? What we are seeing is a situation that is falling apart, the social fabric is falling apart,” Rizakos said. “I’m very concerned about the situation in Greece. There are many desperate people … All this creates an explosive cocktail.”
In response to pressure for more security and a crackdown on illegal migration, the government launched a police sweep in Athens in early August. By late October, police had rounded up nearly 46,000 foreigners, of whom more than 3,600 were arrested for being in the country illegally.
Police say that in the first two months of the operation, there was also a 91 percent drop in the numbers of migrants entering the country illegally along the northeastern border with Turkey, with 1,338 migrants arrested in the border area compared to 14,724 arrested during the same two months in 2011.
At a demonstration by the disabled in central Athens, tempers were rising.
Healthcare spending has been slashed as the country struggles to reduce its debt. Public hospitals complain of shortages of everything from gauzes to surgical equipment. Pharmacies regularly go on strike or refuse to fill subsidized social security prescriptions because government funds haven’t paid them for the drugs already bought. Benefits have been slashed and hospital workers often go unpaid for months.
And it is the country’s most vulnerable who suffer.
“When the pharmacies are closed and I can’t get my insulin, which is my life for me, what do I do? … How can we survive?” asked Voula Hasiotou, a member of an association of diabetics who turned out for the rally.
The disabled still receive benefits on a sliding scale according to the severity of their condition. But they are terrified they could face cuts, and are affected anyway by general spending cuts and the pharmacy problems.
“We are fighting hard to manage something, a dignified life,” said Anastasia Mouzakiti, a paraplegic who came to the demonstration from the northern city of Thessaloniki with her husband, who is also handicapped.
With extra needs such as wheelchairs and home help for everyday tasks such as washing and dressing, many of Greece’s disabled are struggling to make ends meet, Mouzakiti said.
“We need a wheelchair until we die. This wheelchair, if it breaks down, how do we pay for it? With what money?”
Costas Kantouris in Thessaloniki, Greece contributed to this story.
John Kampfner: What the Italians can teach us about tax avoidance
The coastguard has mounted helicopter raids on mega-yachts off the Sardinian coast
Europe must face up to ongoing euro crisis
By Anne Applebaum, Published: July 25
Like the bass line in a pop song, the euro zone keeps pumping out bad news, even while the world is distracted by other themes. On a typical day this week — Tuesday, between 8 a.m. and 3 p.m. in Britain — one could learn that Moody’s, the rating agency, had just lowered its outlook on Germany from stable to negative; that there were “alarming signs for Italy in the bond markets”; that Spanish 10-year bond yields had hit a euro-era record high; and that the entire euro zone was suffering from a manufacturing slump. Besides all that, European stock markets had not yet recovered from the previous day’s crash, which had itself been caused by rumors that Spain would soon need a full-scale bailout.
Another day, another set of crisis headlines — but there is a silver lining: Finally, Europeans are being forced to face up to decades’ worth of fundamentally dishonest politics. Since the 1970s, one government after the next has spent, borrowed and then inflated its way out of the subsequent debt. Then they recovered — only to spend, borrow and inflate once again. Not coincidentally, this cycle was most severe in countries with weaker democracies. Spain ceased to be a dictatorship only after Franco’s death in 1975, Greece was ruled by a military junta from 1967 to 1974, and Italy has had more than 60 governments since World War II. Successive leaders in all of those countries have tried to “buy” the electorate with elaborate pensions, state-sector employment and other perks. Banks across the continent and around the world have greedily facilitated them.
Now they can’t. Though no one recognized it at the time, joining the euro was like adopting the gold standard: It meant that individual governments couldn’t inflate their way out of trouble anymore nor pass on to the next generation the bill for today’s expenditures — as they still can in the United States and Britain. All along, it has been a mistake to describe the euro zone’s difficulties as a “currency crisis.” In fact, it’s a political crisis, caused by an addiction to debt, and it requires a political solution. Electorates have learned the truth: They are bankrupt. Whatever decisions the European Union now makes, future recovery depends on how much of the plain facts ordinary people can bear to absorb.
As I wrote a few weeks ago, it’s not clear that the Greeks really understand their situation. Nearly a third of them voted last month for a party that promises, yet again, to create 100,000 state jobs without explaining who will pay for them. Nationalist rumblings about the authoritarian Germans who want Greece to cut its budget in order to remain in the euro zone are also a symptom of delusion: Whoever is lending to Greece, whether Germany or Ghana, would demand evidence of changed behavior.
In the past, Spanish politicians often played the blame-someone-else game too. The former socialist prime minister José Zapatero was unduly fond of conspiracy theories about the bond markets. Although his conservative successor, Mariano Rajoy, was elected with a large majority and a mandate to make major changes, it’s not clear whether he has the will or the popular support to push them all through. Major demonstrations by public-sector workers last week in Madrid ended with riots and rubber bullets. The Italian leader Mario Monti seems bound and determined to tell citizens the truth, and in his first six weeks in office in the autumn of 2011 he passed more reform measures than Italy had seen in a decade. But since then things have been rockier: This week, Monti put the bankrupt region of Sicily under what almost amounts to compulsory emergency rule.
This political unrest is happening after, not before, a series of bailouts, major and minor: These three nations, and their banks, have already received funding that ultimately comes from Germany, the only truly solvent member of the euro zone. They may need more help — but before that, German politicians will have to tell their electorate the truth too. Which is this: No country has made more money out of the euro than Germany; no other country has profited more from the current crisis — which has kept German borrowing rates relatively low — and no other country’s banks own more of the continent’s debt. Germans aren’t “rescuing” their neighbors out of magnanimity, as many seem to think, but out of self-interest. But does the German public know it? And do the southern Europeans understand how few options they really have? August is the traditional month for financial crises: We may be about to find out.
REPORT: GREEKS DODGE TENS OF BILLIONS IN TAXES
Posted on July 9, 2012 at 5:30pm by Becket Adams
In 2009, approximately €28 billion in taxes went unreported in Greece, according to a new reportfrom economists Nikolaos Artavanis, Adair Morse, and Margarita Tsoutsoura.
The Greeks have been dodging taxes! Stop the presses!
Yeah, yeah, we know: Tax evasion in Greece is nothing new. For instance, as the Wall Street Journal’s Justin Lahart notes, when tax collectors set out to compare swimming-pool ownership with incomes, Greece’s top earners actually camouflaged their pools.
Therefore, another story on Greek tax evasion doesn’t seem all that “newsy,” does it? Not really. But what is noteworthy is the amount of cash that has gone unreported. You see, because hidden income is, well, hidden, the Greek government has no idea how much Greek earners have been hiding from the taxman, which means there are no official figures.
So, in order to figure out how much the Greeks have avoided reporting, Artavanis, Morse, and Tsoutsoura turned to one of Greece’s ten largest banks.
“The banks, with tens of thousands of customers across the country, provided loan and credit-card application and performance data,” LaHart writes.
“That not only gave the economists access to self-reported incomes, but also allowed them to infer the banks’ estimates of true incomes — which are likely closer to the mark,” he adds.
What did the economists find?
After crunching the bank-provided numbers, the economists estimated that in 2009 some “€28 billion in income went unreported.”
You know what that means, right?
“Taxed at 40%, that equates to €11.2 billion – nearly a third of Greece’s budget deficit,” LaHart writes.
With all of its financial woes, you’d think Greek leaders would try a little harder to collect tax revenues, right? So what’s the deal?
“The economists were also able to identify the top tax-evading occupations — doctors and engineers ranked highest — and found they were heavily represented in Parliament,” LaHart reports.
So that’s it? It’s as simple as cronyism?
This is what’s going on in the graph [via WSJ]:
Depicted is the zip code-plotting of tax evasion. The authors of the study pool all individuals in a zip code covered in all samples (over all the years covered by each sample) and plot the average zip code percent of estimate true income evaded. Darker colors denote more tax evasion. The circled area (specifically, the dark area in the middle of the circle) is Larissa, an area targeted by news reports that has the largest number of Porsche Cayennes in Europe.
Greece’s super-rich maintain lavish lifestyles and low profiles
Since the outbreak of the Greek crisis, the country’s moneyed class has been notable mainly by its absence
Scudding across the turquoise waters of the Argo-Saronic gulf, Ioannis Arnaoutis singled out the pearl-white sands of a little bay. The shore glistened in the midday sun. “It was especially imported from Asia by the owner of the mansion above the bay,” said the boatman, one hand on the steering wheel of his water taxi, the other pointing in the direction of the cove. “It’s a private beach, which is why there is only one umbrella on it.”
Nearly three years into their country’s worst crisis in modern times, life goes on as normal for Greece’s super-rich. As the sun sets, oligarchs, shipowners, singers and media stars gather at the Poseidonion hotel on the island of Spetses opposite the little bay. They tuck into a menu that includes pasticcio laced with foie gras. Among them is a middle-aged man in a T-shirt proclaiming: “More is less”.
Three days before Greeks cast their ballots in a make-or-break election, their country could not be more divided. Here there is no talk of the pain of crisis – the only topic of conversation elsewhere in Greek society. The destitution and despair of Athens is a world away – and for many quite clearly it is best kept that way.
“Greeks brought this crisis upon themselves,” said a London-based shipowner upholding the sector’s vow of silence by insisting on anonymity. “They allowed crooks and corruption to prosper.”
Almost 100 years after it was built by a tobacco tycoon, the elegant Poseidonion remains the favourite playground for Athenian high society. The former King Constantine, who was schooled on the island, is a frequent visitor. Tonight, as the crowd sits on its terrace sipping cocktails, staff with long-handled brooms clean the bows of their mega-yachts moored in front of the hotel. A tiny pony takes their children – all guarded by nannies – around the plaza. While locals fret that Spetses, already known as the “new Monaco”, is at risk of becoming a “club for the rich” there are also obvious payoffs.
Christina Ioannidis, who runs a high-end clothes shop on the island, says one of them is that the crisis has not affected her at all. “If truth be told, business couldn’t be better,” she says, knocking on wood. “I’ve had to employ an assistant all year round because there’s such demand, even in winter.”
Pumping money into the economy of Spetses – or the islands from which they hail – is a far cry from the world of philanthropy with which Aristotle Onassis and Stavros Niarchos and other fabled shipowners were associated. Known as the Golden Greeks, both men left large bequests in the form of charitable foundations. The Niarchos foundation recently gave €100m (£81m) to help civic society fight the crisis’s many ills, with the aid including food vouchers for the children of the new poor and support for organisations dealing with the homeless.
But since the outbreak of Greece’s runaway debt crisis, its moneyed class has been notable more by its absence than presence. Oligarchs, who made vast fortunes cornering the oil, gas, construction and banking industries, as well as the media, have been eerily silent – often going out of their way to be as low a profile as possible.
Greek shipowners, who have gained from their profits being tax-free and who control at least 15% of the world’s merchant freight, have also remained low-key. With their wealth offshore and highly secretive, the estimated 900 families who run the sector have the largest fleet in the world. As Athens’ biggest foreign currency earner after tourism, the industry remitted more than $175bn (£112bn) to the country in untaxed earnings over the past decade. Greece’s debt currently stands at €280bn.
As ordinary Greeks have been thrown into ever greater poverty by wage and pension cuts and a seemingly endless array of new and higher taxes, their wealthy compatriots have been busy either whisking their money out of Greece or snapping up prime real estate abroad.
An estimated €8bn flowed out of the Greek banking system in May as speculation over the country’s possible exit from the eurozone mounted. Another €4bn was reported to have been withdrawn in the last two weeks – on top of an estimated €20bn since the start of the crisis in late 2009. Stories of rich Greeks sending their wives and best friends on “shopping missions” to remove secret hoards kept in banks in Switzerland and Cyprus are legion.
“At a time when Greece, more than ever, needs symbolic gestures from its rich citizens, they seem to be doing practically nothing to help their country,” said Theodore Pelagidis, professor of economic analysis at Piraeus University.
“We need to see cool-headed entrepreneurs not only complain about bureaucracy and corruption but do something for Greece.”
In an atmosphere that has become increasingly aggravated between the haves and have-nots, displays of wealth are clearly being downplayed, especially in Athens, where the majority of the 11 million-strong Greek population lives and which has been worst hit by the belt-tightening.
Over the past year, Pelagidis said a growing number of very wealthy Greeks had even taken to inviting academics, like himself, to their mansions, in the capital’s leafy northern suburbs, to be apprised of the situation. Lectures in particular demand were political, economic and historical in nature.
“They are so cut off they know nothing,” he said. “I’m not sure whether it’s a case of the spoiled and uneducated rich trying to overcome their remorse, or a case of them simply wanting to fight their boredom but after going once I decided never to go again. I came away thinking it was like a form of psychotherapy for them.”
What is sure, however, is that the super-rich appear to have come up with contingency plans to disperse their wealth as the crisis deepens. In recent months, acting on a trend that began soon after Greece’s debt woes erupted, a growing number have been snapping up property in London. Increasingly, many have made their way to the door of 88 (London) Ltd, a high-end property brokerage run by Panos Koutsogiannakis. Suddenly the Greek Australian has found himself investing in properties worth £5m and more.
“We’re talking about blue-chip areas such as Mayfair,” said Koutsogiannakis, who frequently flies to Athens to meet clients. “Shippers, bankers, entrepreneurs all want to buy properties with many now looking at fantastic office blocks in central London. The demand is just huge.”
Greece’s wealthy have long cited their country’s crushing bureaucracy as preventing them from investing in their homeland.
But it has not been lost on ordinary Greeks that those who benefited most from the crooked system that has brought Greece to its knees – starting with the construction firms that had contracts with the state – are now leading the exodus as the ship sinks.
The white sands of beaches that boatmen such as Arnaoutis like to point out have fast begun to symbolise everything that is rotten with Greece.
“I hope our country changes,” he says, “because if it doesn’t there will be blood in our midst.”
“What went wrong?…’Selfish interest prevailed. Business groups attempted to capture specific markets. Public-sector trade unions fought for preserving privileges. Tax discipline was further weakened. The welfare state was transformed into a system of endemic waste.’ As the economy went haywire, support for the two major political parties collapsed.
Eerily, when I hear people describe the downward spiral, it reminds me of descriptions of Germany at the end of the Weimar Republic, on the eve of the Nazi rise to power. The European parties that seem to be benefiting most from the current turmoil are those on the extreme right and left.
That’s not a prediction, mind you, just the observation of a worried traveler who likes Greece and wants to see it get healthy again but can’t yet see a cure. This patient is going to get sicker for a while longer, and it’s hard to know whether the acute stage of the crisis that precedes recovery will be economic or political, or both.”
In Greece, the money flowed freely, until it didn’t
By Howard Schneider, Published: June 14
ATHENS — The torrent of money that flooded into Greece when it joined the euro zone paid for roads, boosted wages and helped Constantine Choutlas build a major construction company. But all that cash did not build a competitive economy.
When the rest of the world discovered that and the money drained away, so did Choutlas’s business.
“You could see it wouldn’t last. The country was just borrowing money,” said Choutlas, whose Proodeftiki Technical grew into a major firm after building the athletes’ village for the 2004 Olympics. Now it has been scaled back from 1,000 employees to a mere handful.
“Nobody, nobody, nobody said let’s take a look at where we are going,” he said, jabbing a finger in the air for emphasis.
The crisis in Greece has been characterized in many ways: as an example of government profligacy and mismanagement; as a case study in bad economic policy or corruption; or, by apologists, simply as fallout from troubles rooted in the United States.
Less appreciated is what bankers, analysts and officials acknowledge was a massive market failure — the collective inability or unwillingness of investors, regulators, European officials and Greek politicians to acknowledge what was happening in the country and arrest it in real time.
That failure has pushed Greece into a five-year recession and put the entire euro zone — and in a sense the global economy — at risk. After a two-year diplomatic slog, European officials have failed to restore confidence that the currency union will not crack apart. The risks instead have widened, with Spain and Italy, the region’s third- and fourth-largest economies, under the same sort of pressure that pushed Greece into an international bailout. Government borrowing costs are on the rise. Recession has taken hold. Money is flowing out.
Greeks in an election that could determine their nation’s continued membership in the euro zone and whether it follows through on the terms of an international bailout meant to keep the country afloat as it tries to overhaul its economy. The terms of the package are considered harsh, aiming to drive down wages, cut the country’s reliance on international funding and allow it to live more within its means. Cast as a choice between growth and austerity, however, the bailout is in many ways trying to rewind the excesses that euro-zone bankers and regulators themselves helped fuel.
The first decade of the euro zone, a union built on the theory that member economies would converge around common levels of productivity, living standards and financial balance, instead proved it susceptible to the same flawed assumptions that drove the U.S. housing bubble — that smart investors would recognize and guard against undue risks and that regulators would step in as needed.
“Prevailing market theory was that certain countries at the start of ‘convergence’ can and should attract capital inflows to finance it,” said Platon Monokrousos, head of financial markets research at Eurobank EFG in Athens. But instead of financing factories, infrastructure and reforms that would boost future growth, the money was channeled into “consumption and investment in broadly unproductive areas,” Monokrousos said, facts evident in Greece’s steady wage increases through the 2000s, expansion of the government labor force and overspending on the Olympics.
One government adviser noted a 10 percent jump in the number of public employees in the years before the crisis. According to International Monetary Fund reports, Greece’s public-sector wages nearly doubled between 2000 and 2010.
The warning signs were plentiful. IMF reports from as early as 2004 cited all the major problems that many years later would drive Greece to the brink of dropping the euro, including suspect economic data, a rapid run-up in wages not justified by rising worker productivity, and unsustainable trade deficits between Greece and the rest of the world.
Still, money from Germany, France and elsewhere continued to rush in as investors ignored the issues cited by the IMF and focused instead on Greek economic growth, which was outpacing the euro average. Encouraged by regulations that considered the Greek government just as creditworthy as Germany, banks gravitated to Greek bonds that paid perhaps half a percentage point more in interest.
European regulators, meanwhile, scolded Greece for continued government deficits but largely stood aside. The country’s average 4 percent economic growth was considered a constructive example of a poorer nation catching up with its new partners in the euro — a success story, in other words, that validated the expectations set when the common currency began circulating in 2002.
It was also assumed that the currency union itself would immunize each member country against the sort of problems, for example, that racked Asia and Latin America when international capital pulled away. In the United States, individual states are protected from those sorts of crises because it is the country as a whole — the large economy, the strong reputation of the dollar and the functioning of the Federal Reserve — that attracts the money from overseas needed to fund trade and other deficits. “Imbalances” among the states are smoothed out by that, and by the relatively seamless flow of labor and capital across state lines.
Greece exposed a key flaw in the euro zone’s design, however, namely that its new “domestic” currency still behaved like an international one, and the euro-zone economy like a collection of nations rather than an integrated market. Just as dollars could disappear from a developing nation, euros could flee Greece by the tens of billions, forcing the government and banks into near-collapse as borrowing costs that had been close to Germany’s spiked to levels more akin to that of a credit card.
That realization — and the related risk that a country might be using euros one day and less valuable drachmas the next — has all but destroyed confidence in the weaker euro-zone nations.
Data from the Bank for International Settlements illustrate what happened. Investments by foreign banks in Greece more than quintupled from December 1999, just before the exchange rate between the drachma and the euro was fixed, to the peak of the boom in 2007, growing from $53 billion to $275 billion. Those investments have since collapsed to $119 billion as of December — and probably have diminished even more as companies withdraw from the country to protect against the risk that it may leave the euro zone.
Finding a solution has not been easy. Borrowing rates in Spain crept toward unsustainable levels this week despite plans for a bailout of the country’s banking system financed through Europe’s new crisis-fighting fund. It was disturbing evidence that even the firewalls built over the past two years may not hold and that the tight ties between bank and government finances in the euro zone continue to threaten both. Italy also is showing new signs of trouble, with its government borrowing costs moving higher.
Many analysts say the crisis won’t end until euro nations take a sort of final leap — into a federation that puts the collective economic strength of all 17 countries behind each one individually — and broadens the role of the European Central Bank to include crisis financing for governments when necessary.
Opponents of such steps argue that it would be an invitation to governments to overspend, the sort of moral hazard that countries such as Germany are determined to prevent. As Greece’s experience shows, moral hazard may have been wired into the euro from the beginning, to the detriment of workers who thought their nation was coming of age economically.
Christos Eftimiou saw it from his job as a marketing official with the quasi-public Organization for the Promotion of Greek Civilization, an agency that was supposed to modernize the shops around Greece’s archaeological sites ahead of the Olympics and generate a profit.
By the time the crisis hit, the agency’s payroll was stuffed with 227 people, including several dozen whom Eftimiou regarded as political patrons earning above-average salaries. The monthly wage bill had doubled in a few years from 300,000 euros to 600,000 euros per month.
The agency was shuttered in 2010, saddling the government with a loss of roughly $12 million.
“If we hadn’t had the salary expense, it could have flourished,” said Eftimiou, who is now trying his hand at exporting olive oil to Germany. “The friends of politicians were being paid a lot.”
John Kampfner: Greece may be the epicentre – but this is a European crisis
Which politician will be brave enough to tell voters the days of abundance are over?
John Kampfner Monday 18 June 2012
Elections grip the imagination because they combine drama with the rare moment of public participation in politics. Few elections are as significant as yesterday’s in Greece, amid dire warnings from Europe’s elite that voters must continue to embrace German-imposed austerity to stave off financial collapse.
The outcome will, in the short term, have a considerable impact on the livelihoods of millions of people, not just in Greece but far beyond. Last night’s early indications of an inconclusive result, with the centre-right pro-bailout New Democracy party running neck-and-neck with the radical-left anti-austerity Syriza, will only sharpen the mood of emergency. The result appeared merely to confirm the previously messy elections in May, which were seen as adding to the atmosphere of instability and fear. It is now likely to take days, if not weeks, for a new government to be formed, amid worries of a run on the banks and the need for the ECB and others to step in. As world leaders were gathering in Mexico for a G20 summit, the markets will look to them for instant reassurance, otherwise known as rhetorical sticking-plaster.
But for all the doom-laden predictions, the verdict of Greece’s despondent and angry voters will not influence the longer-term historical cycle: for what we are watching is the inexorable, albeit now-accelerated, decline of a political bloc wedded to two competing economic orthodoxies, each as self-indulgent as the other. While both models appear to be at loggerheads, they are each jointly and separately responsible for the mayhem that took hold in 2008 and continues to this day.
In one corner are the disciples of unbridled free markets. With their simplistic notions of the profit motive as a driver of growth, their selective disdain for state intervention (abhorrent except when it comes to propping up casino banks), and their dogged refusal to factor in broad consequences for their actions, they have propelled Europe and the US not just to the brink of financial ruin but to social strife.
In the other corner are the myopic advocates of the high-tax, high-subsidy model, based around 20th-century notions of a bloated public sector and unsustainable welfare. In Britain, low productivity remains endemic. In France, a laughably short working week requires industrious employees to take large chunks of time off in order not to get their bosses in trouble. In Spain, over-manning was long seen as a means of guaranteeing employment.
What unites these two approaches is a sense of entitlement, particularly among the post-war, baby-boom older generation. Just as CEOs of the most powerful private-sector corporations are intensely relaxed – to coin a Mandelsonian phrase – with exponential salary rises, so public authorities have felt little remorse in awarding ludicrous bonuses and pay-offs to their friends. Doctors in the UK complain about broken promises on pensions, but did they, or anyone else in a similar position for that matter, ever wonder about the sustainability of paying people large sums lasting decades?
Underpinning both flawed practices was a consumerist feeding frenzy that took hold in the 1990s, the era of post-Communist Western political and economic hegemony, the so-called “End of History”. Governments behaved recklessly, encouraging banks to encourage individuals to copy them.
In Greece, profligacy was boosted further by corruption. It was hard to resist the temptation to screw the system because pretty much everyone was doing it, led by the political and financial elite. Now that the music has stopped, as ever, the people being punished are not the ones who caused the problems to begin with.
With the recession in Greece now into its fifth year, the suffering for many is real and intense. It seems likely that the Greeks will be allowed to renegotiate parts of the bailout, but probably only at the fringes of the deal. It seems hard to imagine a time when the country will get back on its feet and when, or if, they do, it seems harder still to see the private sector producing the necessary impetus to growth. Under the straitjacket imposed by the ECB, IMF and the German government, the public sector will have nothing to offer.
Even if their medicine is far too severe, driving unemployment higher and choking growth, the German diagnosis of the original ailment is beyond dispute. The conspicuous consumption produced by the easy money of globalisation was never going to last. The more productive and less spendthrift Teutonic approach has, for all its sombreness, the merit of sustainability.
Austerity was always going to be hard sell, even if we were all going to be in it together. As we saw pretty much from the outset, that was not going to happen. The culprits – the bankers and their many associates – have emerged almost completely unscathed. The then Labour government in Britain had the opportunity, back in 2008-09, to punish them. Instead, ministers rolled over. The Coalition has since produced a series of reforms that are so lightweight as to be virtually meaningless.
Across Europe, the sense of dislocation is tangible. In Greece, this will be exacerbated among many by resentment at having been bullied into voting the “right way”. If, after years of misery, the Greeks, and not just the Greeks, feel that ordinary people have borne the pain, while the global super-rich have got even richer, playing the currency, equities and property markets, then nobody will be surprised if political extremism takes hold.
Greece may be the epicentre of the crisis, but this is a European crisis – of greed and irresponsibility. It will take far more than bailouts and exhortations to voters to solve. What is needed is a new economic paradigm that does not depend on public- and private-sector excess. But which politician anywhere in Europe will be brave enough to tell voters that the days of super-abundance are over and that societies will have to find less materially exuberant ways of determining success? In short, this is a matter of managing decline, as fairly as possible. But that is an election slogan that nobody, whatever their views on the bailout, the euro or the Germans, wishes to hear.
Europe’s troubles affect wide variety of U.S. Firms
By Zachary A. Goldfarb, Published: June 7
From manufacturers in the Midwest to upscale retail shops in Manhattan, a wide variety of American companies are feeling the pinch of Europe’s economic contraction, helping to hold back recovery in the United States.
Ford, the iconic U.S. car company, says that Europeans are not only buying fewer cars but also replacing fewer parts. Kraft Foods, which is behind such brands as Swedish Fish and Dentyne, says sales of candy and gum in Europe are lagging. And jeweler Tiffany & Co. says fewer European tourists are shopping at its flagship Fifth Avenue store.
Europe is suffering a financial crisis, fueled by dwindling investor confidence in the debts of such countries as Greece, Portugal, Spain and Italy and a beleaguered banking sector. In the United States, analysts are worried less about the financial system and more about the impact on companies outside Wall Street.
For companies in sectors such as food, apparel, hotels and technology, sales and profits will lag if the European crisis does not ease. The effect is direct, as Europeans buy fewer U.S. products and services, and indirect, as Europe’s crisis creates financial uncertainty in the United States and slows economic growth, leading American consumers and businesses to pull back, too.
“The crisis in Europe has affected the U.S. economy by acting as a drag on our exports, weighing on business and consumer confidence, and pressuring U.S. financial markets and institutions,” Federal Reserve Chairman Ben S. Bernanke said Thursday.
The problems in Europe add to the reasons that big U.S. Companies, despite record profitability, haven’t revved up domestic hiring enough to bring the unemployment rate below 8 percent. Other factors include the lingering wounds in the U.S. economy from the financial crisis and recession, as well as fears that the economy could dip back into recession if automatic tax hikes and sharp spending cuts take effect at year’s end.
The auto sector and its suppliers are among the most exposed to Europe’s problems.
“It’s a really, really tough environment,” Ford chief executive Alan Mulally said recently, comparing the auto business in Europe to conditions in the United States in 2008 and 2009, just before the auto bailout. “We’re not just seeing this on the new-vehicle side, but we’re seeing consumers, who are coming in for service, they’re not coming in as much and they’re not spending as much.”
American companies vulnerable to Europe’s slowdown have already begun to significantly roll back overhead. Staples, the Framingham, Mass., office-supply chain, reported lower sales, particularly of computers, in Europe this year and laid off hundreds of overseas employees.
“We expect trends in Europe to remain challenging,” Staples president Michael Miles said last month. “We’ll remain, and continue to be, consolidating business units, centralizing functions and reducing layers in complexity with an eye toward lower costs and better execution.”
Goodyear Tire & Rubber, based in Akron, Ohio, said that owners of consumer and commercial vehicles in Europe were buying fewer tires and dealers were selling out less frequently as a result.
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The Bundebank’s vice-president Sabine Lautenschlaeger hammered home the point in what is a clearly co-ordinated push to kill the plan. “The result would be a pooling of the governments’ liabilities through the back door,” she said.
Debt crisis: Bundesbank scuppers all talk of EU banking union
Germany’s central bank has shot down EU proposals for a European banking union, warning categorically that eurozone liabilities cannot be shared without a fundamental shift towards fiscal and political union.
By Ambrose Evans-Pritchard, International business editor
9:20PM BST 12 Jun 2012
Andreas Dombret, a key board member of the Bundesbank, said the grand plan by Brussels is premature and unworkable as constructed.
“It has to follow a deeper fiscal union as it would imply significantly increased risk sharing amongst countries,” he told a Bank of America conference in London.
Mr Dombret said a pan-EMU deposit-guarantee scheme and a debt resolution fund would require “a genuine, democratically legitimated fiscal union” and a new treaty.
“A banking union is a sensible way forward as long as liability and control are aligned. What I mean is you don’t give somebody your credit card if you don’t know what he or she is going to do with it,” he later told ITN.
The Bundesbank’s vice-president Sabine Lautenschlaeger hammered home the point in what is a clearly co-ordinated push to check the plan. “The result would be a pooling of the governments’ liabilities through the back door,” she said.
“Whoever is footing the bill must also have a right of control, particularly when it comes to the large sums that are seen in banking crises,” she added, alluding to rulings by German courts that unquantifiable EU liabilities breach Germany’s constitution.
Chancellor Angela Merkel endorsed the tough line at a party conference yesterday, insisting that Germany will not accept variants of debt pooling or eurobonds until Europe has created a machinery of joint government.
“We can’t take part in things that lead us into an even deeper disaster,” she said. “We want more Europe, but a Europe in which joint liability and joint control go hand in hand. What is not acceptable is shared liability and control remaining in national hands.”
Mrs Merkel said the failure of the European Banking Authority to uncover festering losses in Spanish banks in a series of stress tests showed that national regulators — acting out of “misguided national pride” — cannot be trusted to do the job.
The Chancellor said countries must be willing to give up sovereignty to an EU banking supervisor for “specific purposes”. This is not the same as a banking union. It is limited to financial policing — either beefing up the EBA’s existing powers or switching the oversight role to the European Central Bank.
A stronger regulator might prove a headache for Britain but it has little in common with the sweeping plans unveiled by the European Commission last week, which are viewed by Berlin as the slipperly slope towards a mutualization of debts. “We’re a very long way from any actual proposals for a banking union being put to the Bundestag,” said Raoul Ruparel from Open Europe.
The dawning realisation that Europe still has no unified response to the debt crisis led to a further day of extreme stress on the debt markets. Yields on Spanish 10-year bonds punched to a post-EMU high of 6.84pc on Tuesday, while contagion pushed Italian yields to 6.28pc.
Steen Jakobsen from Saxo Bank said the technical signals in the market are turning ugly. The Italian yield curve is “flattening” as investors short 2-year debt to hedge their holdings of long-term debt, the sort action seen in Greece, Portugal, Ireland, and Greece before they needed rescues. “This is bad, bad, bad,” he said.
The dash for save-havens pushed yields on Switzerland’s 2-year debt to minus 0.37pc, the lowest in history.
Meanwhile, the €100bn rescue deal for Spain has run aground on fears that mushrooming bank liabililities — amid a deep double-dip recession — will push Spain’s public debt above 100pc of GDP and break the sovereign state.
Leaked details of a four-way teleconference between the US, Italian, French, and German leaders two weeks ago show that Mr Merkel was warned explicitly that German insistence on a sovereign rescue for Spain risked great damage to confidence and a dangerous chain-reaction. This is exactly what has now occurred.
Italy’s Mario Monti argued — with US and French backing — for use of EU funds for a direct recapitalisation of Spanish banks in order to ring-fence the crisis. Mrs Merkel said she could not justify use of taxpayer funds to bail out banks.
The damage has been compounded by fears that the money will come from the European Stability Mechanism, or bail-out, fund. This will subordinate other creditors, leaving them with greater losses if Spain fails to recover and needs debt relief.
Germany’s daily Handelsblatt reported that German finance minster Wolfgang Schaeuble has vetoed attempts by EU officials to circumvent the problem by using the old (EFSF) bail-out out machinery instead.
Paul Marson, from the Swiss bank Lombard Odier, said bondholders are right to fear large losses. “There is a poison pill at the heart of the Spanish banking system. It will have to restructure its debt,” he said.
Europe’s leaders will chew over broad proposals for “fiscal union” at a summit in late June but France is opposed to any major loss of sovereignty. One EU diplomat said Germany itself seems to be schizophrenic. “If they woulld actually tell us what they meant by fiscal union, we may get somewhere. I don’t think we will have anything beyond a roadmap from this summit,” he said.
Italian law professor and elder statesman Antonio Padoa-Schioppa wrote in an open letter to Mr Schaeuble that “the German government is playing with fire” by blocking the crucial steps needed to halt the immediate crisis and restore faith in monetary union.
“The German federal republic has a heavy historical responsibility, more than any other country in the union,” he said, warning that the current course threatens “a catastrophe comparable to a third world war.”
Yet Germany is in an extremely difficult position. Bundesbank support for fellow central banks in southern Europe and Ireland through the ECB’s internal Target2 payments system has rocketed to €699bn, mostly to cover capital flight and emergency liquidity support for lenders. This alone is 27pc of German GDP.
The Bundesbank’s Mr Dombret had an extra warning to EU leaders. “Policymakers should refrain from a wild goose chase in pursuit of ever higher firewalls,” he said. “Making the firewalls higher and higher will not resolve the crisis. Policymakers should care that firewalls do not fall into a credibility trap.”
Angela Merkel’s fireside chat
By Matt Miller, Published: June 6
Can Angela Merkel give a good fireside chat? The fate of Europe may depend on it.
On one level it seems surreal that even an epic mistake involving an abstract concept like “money” — a tool, like the euro, meant to facilitate exchange and serve as a store of value — can now inflict immense suffering on millions. Life’s savings lost, jobs scarce, firms shuttered, the prospects of a generation darkened. All through a storm not of their own making.
How can people in Greece and Spain make sense of what’s happening? I certainly can’t claim to have wrapped my mind around it all.
But one thing is clear: Europe’s probable calamity — I hate to write those words, but that’s what it looks like to me, even if the can has a few good kicks left in it — throws into relief the profound way elites have failed. The euro crisis is a reminder of how much depends, in the end, on the quality of a society’s elites. This is an unfashionable sentiment in Western democracies, but it’s true nonetheless.
Consider a partial catalogue of elite miscalculations or misbehavior here:
First, elites across Europe decided that giving up the power to run an independent monetary policy was a good idea for a nation — even though that meant there would no longer be a way for individual countries to fight economic downturns by cutting interest rates, or to cure a loss of competitiveness by devaluing the national currency.
Next, elites assumed that at some point ordinary Europeans would agree to hand control over much of national spending and taxes to some pan-European authority as well. Huh?
What’s more, in a move that quietly helped fuel today’s crisis, regulators decided banks didn’t need to hold any capital in reserve against loans made to European governments. As a result, banks stocked up on sovereign debt that turned out not to be riskless but very risky indeed. Top bankers were happy to go along with this charade because running banks with even less capital and more leverage than the already reckless U.S. system turned out to be a way for bank executives to pay themselves more (since bonuses are often tied to a bank’s return on equity, which, at any given level of profit, rises the more leverage you employ).
What kind of “leaders” pursue such an irresponsible, shortsighted course? To ask the question is to answer it.
Can Germany come to the euro zone’s rescue?
By Robert J. Samuelson, Published: June 10
Can Germany save Europe?
It’s tempting to think so. Costs are mounting; over the weekend, European leaders offered Spain up to $125 billion to prop up its shaky banks. German Chancellor Angela Merkel has been cast as Europe’s Scrooge dispensing austerity and discouraging recovery. If Germany would only open its wallet, Europe’s instability and suffering would shrink. Well, maybe. But this seductive theory may be wishful thinking, overstating Germany’s power and understating Europe’s problems. The dark truth may be that even a willing Germany can’t rescue Europe.
Let’s start with facts. Germany’s economy is the colossus of the euro zone (the 17 countries using the euro), representing 27 percent of the total. German unemployment, 5.4 percent in April, is half the euro zone’s 11 percent average. Global investors so trust Germany that they’ve beaten down interest rates on its 10-year government bonds to a puny 1.3 percent.
What might Germany do? For starters, it could stimulate its own economy, hoping that spillovers would help Europe’s other economies. Next, it might embrace “eurobonds” backed by all 17 euro countries that, in effect, would be guaranteed by Germany. Weaker countries would benefit from Germany’s strong credit rating; they could borrow at lower interest rates.
Finally, Germany could prod the European Central Bank (ECB) — Europe’s equivalent of the Federal Reserve — to be more aggressive in supporting shaky banking systems and in promoting faster economic growth, even if that created somewhat higher German inflation.
Unfortunately, the effects would be modest. A “rise in domestic demand is unlikely to translate into much growth support for other countries,” concludes a report from the Organization for Economic Cooperation and Development. The reason: Exports to Germany represent only 3 percent of the economies (gross domestic product) of France and Italy, 2 percent for Spain and 1 percent for Greece.
As for eurobonds, they would have to be issued in huge amounts to have a noticeable impact. In 2011, the euro zone’s GDP totaled 9.4 trillion euros ($11.75 trillion). Floating 10 billion or 15 billion in eurobonds would be a nonevent. But large volumes of eurobonds might hurt Germany’s credit rating. “Interest rates would go down for everyone else and up for Germans,” says Stephen Silvia of American University, an expert on Germany.
Indeed, Germany’s costs of saving the euro could be immense. A report by Carmel Asset Management, an investment company, puts the bill at more than 500 billion euros, an amount that would raise Germany’s debt/GDP ratio from 2011’s 81 percent to 103 percent. The report is titled: “Achtung Baby: Germany Is Riskier than You Think.”
It’s true that the ECB, providing deposit guarantees for banking systems, might foster stability — that is, prevent things from getting worse. But with the ECB’s main interest rate at 1 percent, further cuts might not much increase economic growth. If different inflation rates emerged between Germany (where labor markets are tight) and debtor countries (where they aren’t), debtor countries could become more cost-competitive. But this would take years.
There’s a yawning gap between the rhetoric and the reality of what Germany might do. Merkel is understandably reluctant to make large commitments to pay other countries’ costs. In surveys, about four-fifths of Germans oppose eurobonds.
Fortune is fickle. Germany’s economy may not always be as strong as now. Its low birthrate (1.4 children per woman) virtually guarantees a shrinking labor force. Only a decade ago, Germany was regarded as Europe’s “sick man,” losing competitiveness to low-wage factories in former Soviet bloc countries.
“From Bavaria, it’s only an hour’s drive to the Czech Republic,” says Thomas Kleine-Brockhoff of the German Marshall Fund. “You could almost hear the sucking sound of the German industrial economy moving eastward.” But Germany adjusted. Unions and firms adopted wage restraint. From 1996 to 2007, annual gains in German compensation per worker averaged 0.9 percent compared with a euro zone average of 2.4 percent. Germany engineered a huge shift in competitive advantage.
To Germans, other European countries must now adjust to new, if unpleasant, realities. Chief among these is that the economies of many European countries are no longer strong enough to support their welfare states. Economic growth is too low, populations are aging and demands on pension and health-care systems are too high. Benefits must be cut or taxes raised without doing too much damage to economic growth or the social fabric.
It’s a tall order that would be aided by a large and stable source of credit: a rescue fund allowing embattled countries to borrow at low rates while instituting essential policy changes. So far, Europe’s response has been a series of stopgaps, the Spanish loan being the latest.
But Germany is not wealthy enough to anchor such a fund. Together, Italy’s and Spain’s economies equal Germany’s. What if France gets in trouble? Only the United States along with China and other countries with large foreign exchange reserves could create such a fund. That this now seems politically impossible is one measure of global peril.
Why Berlin Is Balking on a Bailout
By HANS-WERNER SINN
Published: June 12, 2012
ALTHOUGH Europe may seem far away from the economic life of the average American, the fate of the euro zone weighs heavily on the United States economy. Pension funds have invested in bonds issued by southern European states, while banks and insurance companies have underwritten a sizable fraction of the credit-default swaps protecting investors against default.
It’s no wonder, then, that President Obama is urging Germany to share in the debt of the euro zone’s southern nations. But in doing so, he and others overlook several critical facts.
For one thing, such a bailout is illegal under the Maastricht Treaty, which governs the euro zone. Because the treaty is law in each member state, a bailout would be rejected by Germany’s Constitutional Court.
Moreover, a bailout doesn’t make economic sense, and would likely make the situation worse. Such schemes violate the liability principle, one of the constituting principles of a market economy, which holds that it is the creditors’ responsibility to choose their debtors. If debtors cannot repay, creditors should bear the losses.
If we give up the liability principle, the European market economy will lose its most important allocative virtue: the careful selection of investment opportunities by creditors. We would then waste part of the capital generated by the arduous savings of earlier generations. I am surprised that the president of the world’s most successful capitalist nation would overlook this.
This does not mean there can be no systematic risk-sharing between the states of Europe. But for that to happen, the countries should first form a common nation, with a constitution, a common legal superstructure, a monopoly on power to ensure obedience to the law and a common army for external defense.
Otherwise, there is nothing to counter the strong centrifugal forces created by redistribution schemes, which would inevitably lead to political eruptions that would threaten the stability of the Continent. The European Union has enjoyed a long period of stability because it abstained from sizable interregional redistribution. This period would end if we redistributed incomes or debt without creating a United States of Europe.
Unfortunately, not one of these conditions is met in Europe today and won’t be in the foreseeable future, because the euro zone countries, above all France, are unwilling to give up sufficient sovereignty.
Even a European nation, however, should not socialize debt, a lesson demonstrated by the United States in the 19th century.
When Secretary of the Treasury Alexander Hamilton socialized the states’ war debt after the Revolutionary War, he raised the expectation of further debt socialization in the future, which induced the states to over-borrow. This resulted in political tensions in the early 19th century that severely threatened the stability of the young nation.
It took the experience of eight states and territories going bankrupt in http://online.wsj.com/article/SB10001424052748704835504576060193029215716.htmlthe 1830s and 1840s for the United States to shed socialization. Today no one suggests bailing out California, which is nearly bankrupt but is expected to find its own solutions.
Criticism of bailouts in general does not mean, however, that Europe should eschew immediate help to crisis-stricken southern European countries. While help to avoid insolvency is dangerous, help to overcome brief liquidity crises is justified. The European Economic Advisory Group, an international think tank, has proposed providing liquidity help in the first two years of a crisis, with selective defaults according to maturity and socialization of excessive losses thereafter.
We are, however, already in the fifth year of generous liquidity help to Europe’s uncompetitive members. Since late 2007, the European Central Bank has helped with an international shift of refinancing credit, also known as Target credit, from the core euro states to the periphery, to which the German Bundesbank has contributed $874 billion. Greece’s and Portugal’s entire current account deficits were financed that way.
Moreover, since May 2010, the E.C.B. has bought more than $250 billion in government bonds, while nearly $500 billion has come from rescue programs and help from the I.M.F. Add to that two European rescue funds, and you have a total of $2.63 trillion.
It is unfair for critics to ask Germany to bear even more risk. Should Greece, Ireland, Italy, Portugal and Spain go bankrupt and repay nothing, while the euro survives, Germany would lose $899 billion. Should the euro fail, Germany would lose over $1.35 trillion, more than 40 percent of its G.D.P. Has the United States ever incurred a similar risk for helping other countries?
Some critics have argued that Germany, having benefited from the Marshall Plan, now owes it to Europe to undertake a similar rescue. Those critics should look at the numbers.
Greece has received or been promised $575 billion through assistance efforts, including Target credit, E.C.B. bond purchases and a haircut after a debt moratorium. Compare this with the Marshall Plan, for which Germany is very grateful. It received 0.5 percent of its G.D.P. for four years, or 2 percent in total. Applied to the Greek G.D.P., this would be about $5 billion today.
In other words, Greece has received a staggering 115 Marshall plans, 29 from Germany alone, and yet the situation has not improved. Why, Mr. Obama, is that not enough?
Hans-Werner Sinn is the president of the Ifo Institute and the director of the Center for Economic Studies at the University of Munich.
This latest euro fix will come apart in less than a month
Another day, another sticking plaster solution from beleaguered eurozone policymakers.
The central bank had previously expected growth to be essentially unchanged in the three months from April through June Photo: Alamy
Bank of France cuts second-quarter growth forceast to -0.1pc
The Bank of France cut its growth estimate for French growth, saying the eurozone’s second biggest economy would now likely contract by 0.1pc in the second quarter.
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- Middle East History Egypt Libya
- Middle East History Syria
- Middle East History Turkey
- Militant Islam
- Mindless VIOLENCE and Senseless Cruelty
- Mitt Romney Bain Capital 2012 election
- More Climate Change FACTS
- MORE Divided than Ever
- More of the Same?
- MORE Soldier Stories HELP Taylor Morris
- Mullahs want the bomb
- Muslim Brotherhood revealed
- Muslim Democracy
- Neil Armstrong last interview
- Never Forget 9 11 Essay
- NEW 9-11 video
- New Pearl Harbor account
- Newsweek how Dumb Are We?
- Norway Nutjob Anders Behring Breivik
- NYC imam True Face of Islam
- Obama abandons white working class
- Obama AD 2010
- Obama affect on America
- Obama and Middle East Peace
- Obama and Syria
- Obama is a Phony
- Obama no sense of humor
- Obama not the anti-Christ
- Obama Re-elected Watch Out
- Obama Scorecard
- Obama supports gay marriage
- Obamacare is Poison
- Obamacare is Poison
- Oceans are dying SOS planet
- Ohio State Marching Band Star Trek Video
- Oil Prices means speculators
- Old Men Who Don’t Care
- On Planet Krauthammer
- Opinion about Fracking
- Opinion about Newt Gingrich
- Opinion about Obama
- Opinion About Obamacare
- Opinion about Romney
- Oregon Somali Terrorist
- Our country committing suicide
- Our Friends in Pakistan
- Pakistan Protected Osama bin-Laden updated
- Palin a Phony?
- Palin Book Tour
- past Present FUTURE America
- Pay Attention
- People Need Good Jobs
- Pluto in Capricorn
- Polar Bear Family
- Political Correctness in the UK
- Prairie Chapel Ranch
- Pray for the Children
- Pray for the Children
- Predatory Chinese
- President Cruz le Snooze le Pew
- President Santorum
- Progress in Iraq no democracy
- Rare Earth
- Read This MEMO
- Reality in Libya
- Republican Mandate?
- Robert Bales should be executed
- Rolling Stones at Fifty
- Romney and Afghanistan
- Romney and His Record
- Romney no military service
- Ron Paul
- Ronald Reagan Tax Review
- Ronald Reagan true myths
- SAD Obama
- Santa Muerte
- Screwing US
- Secure Protect Your Data
- See The Evidence PHOTOGRAPHS
- Sesquicentennial of the Civil War
- Sgt Dennis Weichel and Afghanistan
- Snow Scenes around the world
- Soldier Stories
- SSG Johnson surprises Skylar – HAPPY
- State by State casualties Afghanistan
- State of our Democracy
- State of the Economy
- Stories about the After life Service is the currency of Salvation
- Stories World War I and II
- Supercommittee FAILure
- Syrian Spring updated
- Tea Party Hearty
- Ten Conditions for Change
- Ten Conditions for Change I
- Ten Conditions for Change II
- The 911 Conspiracy
- The Connected Class con
- The FED is private
- The Great Helmsman
- The Know Nothing President-cy
- The Rich Get Richer
- There are the Jobs
- This Is EVIL
- Trump for President
- Truth to power The People
- Tunisian Revolution
- UNDERWATER PHOTOGRAPHY
- Unfair Competition equals Free Trade
- Veterans Aging Prematurely
- Veterans Issues
- Washington’s Farewell Address
- Waterloo and Trafalgar
- WEAKest President in History
- What about Scientology
- What Does Romney Stand For
- What I wrote in 2008
- What President Morsi Really Thinks
- What you think about Obama
- What you think about Romney
- who cares gr$$dy NFL
- Why Americans hate their government
- Why Romney Lost
- Why the Arab Spring is important
- Wisdom about Fools
- Xi Jinping and China
- Xi Jinping new leader in China
- Zero Some Game