Tag Archive: EuroZone

Jul 20 2015

Anti-Capitalist Meetup: A Tale of Two Countries

By NY Brit Expat

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only (Charles Dickens, 1859, A Tale of Two Cities, Book I, Chapter 1).”

Jul 13 2015

Eating Worms

All that is left for Greece is to eat worms and it still would not satisfy Kaiser Merkel. #ThisIsACoup

A list of draconian new austerity demands handed to the Greek government in Brussels Sunday ignited a global backlash against Germany, German Prime Minister Angela Merkel and finance minister, Wolfgang Schaeuble.

#ThisIsACoup became the top trending hashtag on Twitter worldwide – and is #1 in Germany and Greece.

The tag was attached to tens of thousands of angry comments denouncing Germany’s aggressive demands that the Greek parliament pass new severe austerity laws within days to raise taxes, privatize public assets and cut back on pensions. [..]

Here are the EU proposals that outraged many around the globe:

1. Streamlining the VAT

2. Broadening the tax base

3. Sustainability of pension system

4. Adopt a code of civil procedure

5. Safeguarding of legal independence of ELSAT – the statistic office

6. Full implementation of spending cuts

7. Meet bank recovery and resolution directive

8. Privatize electricity transmission grid

9. Take decisive action on non-performing loans

10. Ensure independence of privatization body TAIPED

11. De-Politicize the Greek administration

12. Return of the Troika t0 Athens (the paper calls them the institutions)

Those are the demands that must be approved by Wednesday. The only thing they forgot to ask for is resignation of the prime minister, his cabinet and the Greek parliament.

From Ian Welsh

Basically the Greeks offered the EU everything they had asked for before and then some, but the EU won’t take it, they want their pound of flesh for being embarrassed by the referendum.

I get that Syriza and some Greeks don’t want Grexit, and will do virtually anything to avoid it, but I’m hoping (probably vainly) that there might be some depths to which they will not sink, some abasement they will not endure, some calamity they will not inflict upon the weakest and poorest in their own society.

Probably not. Not quite sure why I still have faith in humanity to ever do the right thing when any other option exists.

“OK, now that you’re crawling, down on your belly!”

Worms.

Jul 06 2015

Greek Voters Say NO to Austerity

On Sunday Greek voters went to the polls to vote on a simple referendum on a bail out deal proposed by the country’s international creditors, which demanded new austerity measures in return for emergency funds. A simple yes or no. The voters gave a resounding NO to the deal.

The win for the “no” camp constituted a major victory for Greek Prime Minister Alexis Tspiras, who had campaigned heavily against the deal put forward by the European Central Bank, the International Monetary Fund and the European Commission. But it also raised uncertainty about the country’s financial future and its place in the eurozone.

“Even in the most difficult circumstances, democracy can’t be blackmailed — it is a dominant value and the way forward,” Tsipras tweeted on Sunday night, adding that Greece intends to restart negotiations with Europe next week.

A final tally of votes indicated that 61.31 percent of voters decided against the bailout deal. More than 60 percent of Greeks participated in the vote, well over the 40 percent turnout needed for the referendum to be valid.

Needless to say the responses to the vote and PM Tspiras’ decision to attempt to negotiate better terms cams fast and furious. First, Greece’s radical and outspoken Finance Minister Yanis Varoufakis resigned, stating that he had been made aware that his “style” was considered disruptive:

Mr. Varoufakis, an academic with no political experience before he joined the leftist Tsipras government, had consistently argued that Greece desperately needed debt relief more than anything else. While that view was shared by many economists, he quickly became a lightning rod among Greece’s creditors for his aggressive negotiating style and heated language. Before the referendum vote, he had publicly accused the creditors of “terrorism” against his country.

With Mr. Varoufakis gone, Greece’s eurozone creditors may be more willing to continue negotiations on a further aid package. His departure, apparently at the urging of Mr. Tsipras, could be seen as a concession to the sensibilities of other eurozone leaders. But the next few days could determine whether the gulf between Greece and its creditors is now too wide to bridge.

You can read his resignation statement here. He has been replaced by Euclid Tsakalotos, another academic economist, but not as vocal as Mr. Varoufakis and, apparently, more acceptable to Eurogroup participants.

Next came the markets’ reactions, not drastic but not good, either:

Global stock markets mostly dropped on Monday but did not plunge, as investors reacted with muted dismay to the results of the Greek referendum and showed nervousness about steep declines in China’s stock market over the past three weeks. [..]

At midday in New York, stocks were just below break-even. The Dow Jones industrial average was down 0.2 percent, while the Standard & Poor’s 500-stock index was off 0.3 percent.

The euro ticked down 0.4 percent to $1.1033.

Oil prices also fell on Monday, as traders placed bets that recent events could lead to slower global economic activity and weaker demand. [..]

In Asia on Monday, the Shanghai market jumped sharply in early trading as the Chinese government poured money into brokerage firms to help them and their customers buy shares. The market leapt 7.8 percent at the start, but it surrendered half of those gains in the first 10 minutes of trading and closed 2.4 percent higher. The smaller Shenzhen stock market also started strongly but fell 2.7 percent by the end of trading.

And the vote has only served to harden German Chancellor Angela Merkel’s stand:

The German government signaled a tough line towards Greece on Monday, saying it saw no basis for new bailout negotiations and insisting it was up to Athens to move swiftly if it wanted to preserve its place in the euro zone.

With opinion towards Greece hardening in Germany’s ruling coalition following the landslide rejection of European bailout terms in a Sunday referendum, the government indirectly raised the prospect of a Greek exit from the currency bloc.

Chancellor Angela Merkel’s spokesman said it was up to Athens to act so that it could remain in the currency bloc, and Vice Chancellor Sigmar Gabriel went further by saying the Greek government needed to improve on its previous proposals. [..]

Pressed on what concessions Berlin might be willing to make to Tsipras, a finance ministry spokesman dismissed the idea of a debt restructuring sought by Athens and favored by the International Monetary Fund (IMF).

Economic and political pundits responded as well:

Thomas Piketty: Germany Shouldn’t Be Telling Greece To Repay Debt

Thomas Piketty isn’t mincing words when it comes to the Greek debt crisis.

In an interview with German newspaper Die Ziet last month (and translated recently by business analyst Gavin Schalliol), the leading French economist pummeled Germany for its hypocrisy in demanding debt repayment from Greece. [..]

Greece on Sunday voted a resounding “no” on a bailout plan proposed by its creditors, making its continued membership in the eurozone more tenuous. German Chancellor Angela Merkel and French President Francois Hollande will hold an emergency summit on Tuesday to discuss the crisis.

But Piketty, who penned the blockbuster 2013 book on income inequality Capital in the Twenty-First Century, slammed conservatives who favor the economic austerity measures Germany and France are demanding of Greece, saying they demonstrate a “shocking ignorance” of European history.

“Look at the history of national debt: Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted,” Piketty said. “The first lesson that we can take from the history of government debt is that we are not facing a brand new problem.”

Germany, Piketty continued, has “no standing” to lecture other nations about debt repayment, having never paid back its own debts after both World Wars (pdf).

Nobel Prize winning economist and New York Times columnist, Paul Krugman, also “cheered” the vote:

The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients – and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.

Renowned dissident Noam Chomsky spoke with [Democracy Now! ]’s Amy Goodman back in March aboutGreece and Spain the “savage response” to taking on austerity calling it a “class war.”

The “what next” is still very unknown. From Yves Smith at naked capitalism

After the momentous “No” vote in support of the Greek ruling coalition Greece’s lenders and most important, the Eurozone leaders of the countries that have made 60% of Greece’s outstanding loans, are officially still figuring out what to do. Merkel is going to Paris to confer with Hollande today. The Eurogroup has set a meeting for tomorrow at 1:00 PM

However, despite the responses of media outlets and many pundits that the Eurocrats will have to beeat a retreat and offer Greece concessions, it’s not clear that this event strengthens the Greek government’s hand with its counterparties. Remember, Tsipras enjoyed popularity ratings of as high as 80% and has always retained majority support in polls. And it’s all too easy to forget that “the creditors” are not Merkel, Hollande, Lagarde and Draghi. The biggest group of “creditors” are taxpayers of the 18 other countries of the Eurozone. The ugly design of the Eurozone means that the sort of relief that Greece wants most, a reduction in the face amount of its debt (as opposed to the sort of reduction they’ve gotten, which is in economic value, via reductions in interest rates and extensions of maturities) puts the interest of those voters directly at odds with those in Greece. Our understanding is that a reduction in principal amount, under the perverse budgetary and accounting rules of the Eurozone, would result in those losses showing up as losses for budget purposes, now. They would need to be funded by increased taxes. Thus a reduction in austerity for Greece, via a debt writeoff, simply transfers austerity from Greece to other countries. It’s not hard to see why they won’t go for that. And Eurozone rules require unanimous decisions.

Even though the ruling coalition had said it wanted to restart negotiations immediately upon getting a “no” vote, the lenders have asked Greece to send a new proposal, apparently deeming the one it submitted on June 30 to be out of date. It’s doubtful anything will happen before the Eurogroup meeting tomorrow.

Apr 15 2013

Austerity and Growth Don’t Mix

Former Greek Prime Minister of Greece George Papandreou inherited a failing economy when he was sworn in on October 9, 2009. He resigned two years later during failed talks of a bailout with the “troika” of the International Monetary Fund (IMF), the European Central Bank and the European Union. Mr. Papamdreou discussed the cost of austerity with Chris Hayes, the host of “All In,” economics journalist Chrystia Freeland, managing director and editor of Consumer News at Thomson Reuters, and  economics professor Radhika Balakrishnan,  executive director of the Center for Women’s Global Leadership at Rutgers University.

In the news today, Greek Finance Minister Yannis Stournara announced that Greece had reached an agreement on economic measures for the release of €2.8bn in the coming weeks, followed by a further €6bn in May. The cost to bail out the banks: some 15,000 employees would be fired by 2015 with 4,000 redundancies by the end of the year.

Meanwhile Greek unemployment has reached a record high:

Greece’s unemployment rate reached a new record of 27.2 percent in January, new data has showed, reflecting the depth of the country’s recession after years of austerity imposed under its international bailout. [..]

The jobless rate has almost tripled since the country’s debt crisis emerged in 2009, and was more than twice the eurozone’s average unemployment reading of 12 percent. [..]

Unemployment among youth aged between 15 and 24 stood at 59.3 percent in January, up from 51 percent in the same month in 2012.

Despite the “happy talk” from Prime Minister Antonis Samaras about this deal showing that the six years of austerity was paying off, the people of Greece are not very optimistic and are still suffering under the weight of EU demands for more austerity.

Sep 27 2012

More Pain for Spain as Unemployment & Hunger Increase

Spain has announced its budget that imposes more austerity that emphasizes spending cuts over revenue:

Government ministries saw their budgets slashed by 8.9 percent for next year, as Prime Minister Mariano Rajoy’s battle to reduce one of the euro zone’s biggest deficits was made harder by weak tax revenues in a prolonged recession. [..]

“This is a crisis budget aimed at emerging from the crisis … In this budget there is a larger adjustment of spending than revenue,” Deputy Prime Minister Soraya Saenz de Santamaria told a news conference after a marathon six-hour cabinet meeting.

Spain, the euro zone’s fourth largest economy, is at the centre of the crisis. Investors fear that Madrid cannot control its finances and that Rajoy does not have the political will to take all the necessary but unpopular measures.

Madrid is talking to Brussels about the terms of a possible European aid package that would trigger a European Central Bank bond-buying program and ease Madrid’s unsustainable borrowing costs. [..]

The measures continue to heap pressure on the crisis-weary population and are likely to fuel further street protests, which have become increasingly violent as tensions rise and police are given the green light to use force to disperse crowds.

A quarter of all Spanish workers are unemployed and tens of thousands have been evicted from their homes after a burst housing bubble in 2008 and plummeting consumer and business sentiment tipped the country into a four-year economic slump.

Analysis of the budget from Trevor Greetham at The Guardian‘s Live Blog compares Spain to the US and the UK:

I’ve always opposed austerity as the solution to the global debt crisis and the strictures of the common currency make it particularly ill-suited to the euro periphery. Efforts to deflate Spain into competitiveness raise the prospect of many years of wage cuts and property price falls that will necessitate ever larger fiscal transfers from the stronger countries, either directly or via pan-euro institutions like the central bank.

Five years into the worst financial crisis in generations we are starting to see how effective various policies have been. Spain, the UK and the US offer three interesting test cases, each dealing with the after effects of a real estate bust in different ways:

· Spain = austerity with tight money (austerity, no devaluation, no quantitative easing, market interest rates too high)

· UK = austerity but with loose money (austerity, currency devaluation, quantitative easing)

· US = no austerity with loose money (no austerity, stable currency, quantitative easing)

Activity in both the UK and Spain remains well below its pre-crisis level – suggesting the benefits of the UK printing its own currency may not be as great as might be supposed. It appears to be the lack of austerity in the US that is the distinguishing aspect of a successful policy mix.

With overall unemployment at 25% and the rising cost of food through increases in value added taxes (VAT), the many of the Spanish poor and unemployed have resorted to scavenging for food shocking many of their fellow citizens:

MADRID – On a recent evening, a hip-looking young woman was sorting through a stack of crates outside a fruit and vegetable store here in the working-class neighborhood of Vallecas as it shut down for the night.

At first glance, she looked as if she might be a store employee. But no. The young woman was looking through the day’s trash for her next meal. Already, she had found a dozen aging potatoes she deemed edible and loaded them onto a luggage cart parked nearby. [..]

Such survival tactics are becoming increasingly commonplace here, with an unemployment rate over 50 percent among young people and more and more households having adults without jobs. So pervasive is the problem of scavenging that one Spanish city has resorted to installing locks on supermarket trash bins as a public health precaution.

A report this year by a Catholic charity, Caritas, said that it had fed nearly one million hungry Spaniards in 2010, more than twice as many as in 2007. That number rose again in 2011 by 65,000. [..]

The Caritas report also found that 22 percent of Spanish households were living in poverty and that about 600,000 had no income whatsoever. All these numbers are expected to continue to get worse in the coming months.

About a third of those seeking help, the Caritas report said, had never used a food pantry or a soup kitchen before the economic crisis hit. For many of them, the need to ask for help is deeply embarrassing. In some cases, families go to food pantries in neighboring towns so their friends and acquaintances will not see them.

Expect to see more demonstrations like these as hunger increases:

 

Sep 14 2012

European Central Bank Buys Bonds, US Fed Funds Jobs

European Central Bank president Mario Draghi won the approval of the German court to implement his [plan to buy up the bonds of ailing Eurozone members and the Netherlands rejected ant-euro candidates in Parliamentary elections www.nytimes.com/2012/09/14/world/europe/european-union-celebrates-german-and-dutch-decisions.html?_r=1&ref=europe]:

PARIS – There was a general sigh of relief in the European Union this week. The cause was not better performance in the troubled and highly indebted southern countries of the euro zone, but crucial decisions made in the rich northern nations with perfect credit ratings, where skepticism about the common currency is running high.

On Wednesday, the German Constitutional Court found a way to declare that the permanent bailout fund, the European Stability Mechanism, is legal, clearing the way to use it in time to recapitalize troubled banks as well as governments. And the Dutch voted for mainstream parties in a parliamentary election, choosing not to be enticed by parties wanting to leave the euro.

Combined with the European Central Bank’s decision to restart its bond-buying program in return for more budget discipline, immediately lowering interest rates on Italian and Spanish bonds, European leaders could begin to feel that perhaps the worst is over in the euro crisis, at least for now.

The markets also “cheered” Federal Reserve president Ben Bernake’s open ended third round of quantitative easing (QE-3, not a criuse ship)

The Fed on Thursday said it would buy $40 billion of mortgage-backed securities every month until the labor market improves. The rate-setting Federal Open Market Committee, or FOMC, also said it plans to keep its federal funds rate near zero though at least mid-2015.

“While we will hear a lot of criticism on the FOMC’s aggressive moves, we shouldn’t forget that for markets, it usually doesn’t pay to fight the Fed,” wrote strategists at KBC Bank in Brussels.

The S&P 500 SPX on Thursday ended 23.43 points higher at 1,459.99, a 1.6% rise, and its highest finish since 2007. The Dow DJIA jumped 206.51 points to close at 13,539.86. The Nasdaq Composite Index COMP rose 41.52 points to 3,155.83.

From a technical standpoint, the Fed-inspired rally drove the S&P 500 above key resistance in the 1,440 to 1,445 range, said analysts at Credit Suisse. They now see room for the index to rise toward the 1,480 level or possibly 1,500 during the next one to six months.

Greece may get some wiggle room to find its way out of it financial crisis:

The Fed on Thursday said it would buy $40 billion of mortgage-backed securities every month until the labor market improves. The rate-setting Federal Open Market Committee, or FOMC, also said it plans to keep its federal funds rate near zero though at least mid-2015.

“While we will hear a lot of criticism on the FOMC’s aggressive moves, we shouldn’t forget that for markets, it usually doesn’t pay to fight the Fed,” wrote strategists at KBC Bank in Brussels.

The S&P 500 SPX on Thursday ended 23.43 points higher at 1,459.99, a 1.6% rise, and its highest finish since 2007. The Dow DJIA jumped 206.51 points to close at 13,539.86. The Nasdaq Composite Index COMP rose 41.52 points to 3,155.83.

From a technical standpoint, the Fed-inspired rally drove the S&P 500 above key resistance in the 1,440 to 1,445 range, said analysts at Credit Suisse. They now see room for the index to rise toward the 1,480 level or possibly 1,500 during the next one to six months.

These latest actions may have aided Spain’s economy, as well, but not to the extent that they won’t have to ask the ECB for help:

The turnaround has been so dramatic that it’s allowed Spain, one of the most badly affected countries, to suggest that it may not need aid after all.

“I don’t know if Spain needs to ask for it,” Spain’s Prime Minister Mariano Rajoy told parliament on Wednesday, referring to external aid.

But according to Nicholas Spiro, managing director of Spiro Sovereign Strategy, even though the ECB bond plan is “working wonders,” it won’t prevent Spain from eventually seeking a bailout.

Sep 08 2012

Eurozone Bailout, Not So Fast

Last Thursday Mario Draghi, the president of the European Central Bank, won almost unanimous support for an unlimited bond purchase that would relieve the pressure on financial troubled countries by spreading the repayment of debt to Euro Zone countries as a whole:

The central bank’s program will not solve the deep structural problems of the euro, Europe’s common currency. But it will buy time for the political leaders of the 17-nation euro zone to follow through on their past promises to discipline each others’ spending more closely and work harder to relax labor regulations and barriers to business creation that are regarded as impediments to growth.

The central bank will buy bonds on open markets, without setting any limits, in contrast to an earlier bond-buying program that proved too hesitant to be effective. The bank said it would act only after countries agreed on certain conditions with the euro zone rescue fund, the European Stability Mechanism. That fund, known as the E.S.M., would buy bonds directly from governments, taking responsibility for imposing the conditions, while the central bank would intervene in secondary markets. [..]

The one dissenting vote came from Germany’s central bank, the Bundesbank, that was cast by Jens Weidmann despite Chancellor Andrea Merkel’s support for the plan.

But no so fast. The plan relies heavily on Spain and Italy to ask for help from the ECB. Both governments expressed reluctance for fear of political back lash at home and the harsh policy changes that they would have to accept. Spanish  Prime Minister Mariano Rajoy took the stance that Spain would not be forced into asking for assiatance from the ECB until the conditions were made “crystal clear”:

After Mario Draghi, European Central Bank governor, made clear that any assistance from the central bank to reduce Spanish borrowing costs would come with “strict and effective” conditionality, the Rajoy government remained steadfast in its view that a request would only be made if, and when, it is ready. High quality global journalism requires investment.

“There is no urgency,” a Spanish official said following a joint press conference between Mr Rajoy and Angela Merkel, where the German Chancellor deftly avoided a series of questions over possible new conditions for Spain. [..]

The Spanish prime minister is aware of the disastrous political consequences a direct request for a bailout would have on a nine-month-old government that was elected on a pledge to avoid the fate of Greece, Portugal and Ireland.

At the FDL News Desk, David Dayen gives his analysis:

Basically, Rajoy is saying “do your worst.” And he has some leverage. The Eurozone might be able to survive without Greece, but Spain is too big to fail. Draghi is adamant that he will not rescue the bond yields of any state that does not comply, but that has not been confirmed by events. So we have a game of chicken. And Rajoy, who campaigned on avoiding the fate of Ireland and Greece and Portugal, has political reasons to remain steadfast. He wants to keep the troika out of Spain; it’s political suicide if they come in and tell him how to manage the Spanish economy.

The knowledge among bondholders that Rajoy could at any time sign up for aid may be enough to keep them at bay relative to Spanish debt, and the debt of other sovereigns. That’s my hope, anyway. Because forcing Spain into more brutal austerity will turn out just the way it has turned out in Britain and any other country with a fragile economy.

From the annual Ambrosetti Forum at Lake Como on Friday, economist Nouriel Roubini gave his assessment:

“The ECB move is helpful but is not a game-changer. The eurozone is still in crisis,” said Nouriel Roubini, head of Roubini Global Economics.

“Unless Europe stops the recession and offers people in the peripheral countries some light at the end of the tunnel – not in five years but within 12 months – the political backlash will be overwhleming, with strikes, riots and weak governments collapsing.”

Professor Roubini said the German Bundesbank and will insist that “severe” conditions are imposed on Spain once the country requests a rescue from the eurozone EFSF/ESM bail-out funds and signs a memorandum ceding budgetary sovereignty.

“Plenty of accidents can still occur. There is austerity fatigue in the periphery and bail-out fatigue in the core. Eveybody is restless,” he said [..]

This current plan only kicks the can down the road. There are structural problems of the Eurozone system that must be addressed to adequately resolve this crisis:

There is a structural contradiction within the euro system, namely that there is a monetary union (common currency) without a fiscal union (e.g., common taxation, pension, and treasury functions). In the Eurozone system, the countries are required to follow a similar fiscal path, but they do not have common treasury to enforce it. That is, countries with the same monetary system have freedom in fiscal policies in taxation and expenditure. So, even though there are some agreements on monetary policy and through European Central Bank, countries may not be able to or would simply choose not to follow it. This feature brought fiscal free riding of peripheral economies, especially represented by Greece, as it is hard to control and regulate national financial institutions. Furthermore, there is also a problem that the euro zone system has a difficult structure for quick response. Eurozone, having 17 nations as its members, require unanimous agreement for a decision making process. This would lead to failure in complete prevention of contagion of other areas, as it would be hard for the Euro zone to respond quickly to the problem.

In addition, as of June 2012 there was no “banking union” meaning that there was no Europe-wide approach to bank deposit insurance, bank oversight, or a joint means of recapitalization or resolution (wind-down) of failing banks. Bank deposit insurance helps avoid bank runs.

So countries like Greece, Ireland, Italy, Spain and Portugal, who find themselves in a financial crunch, must rely on the not so “goodwill” of countries like Germany who are reluctant to share the pain.

Jul 24 2012

Austerity Insanity

Insanity: doing the same thing over and over again and expecting different results.

~Albert Einstein~

Europe losing battle against debt crisis

Europe is fighting losing battles on two fronts. The debt crisis which began in Greece almost three years ago has spread to other countries. The recovery from the global financial crisis is ending, and the region will be in recession during the rest of the year. To combat the debt crisis, Greece, Ireland and Portugal have received bailout funds from the EU, European Central Bank and the International Monetary Fund (the “troika”), but are required to reduce borrowing through cuts in spending and higher taxes. To offset the recessionary impact of the fiscal tightening, the ECB has repeatedly eased monetary policy to encourage lending to the private sector.

Neither measure has worked as intended. The eurozone’s latest unemployment figure of 11.1 per cent in May is the highest in the euro era. Spain, the country recording the region’s highest unemployment rate of 24.6 per cent, announced a €65bn fiscal tightening programme this month. The new austerity measures will result in a deeper recession and even higher unemployment.

On the monetary front, the ECB implemented two repurchase agreements totalling €1tn with the region’s banks. While the aim was to ease the liquidity crisis that the banks experienced in November, the ECB move had the perverse impact of making those banks the principal purchasers of their own governments’ debt as foreign investors exited. This raises the risk for banks in case their governments default on their debt, or restructure payments. After a cut in the deposit rate the ECB pays the banks to zero on July 5, the central bank expected the banks to increase loans. Instead, they appear to be sitting on the funds.

The austerity measures that Germany has insisted on imposing on financially strapped countries as a requirement for bailing out the banks that caused it all, is coming back to bite the hand that fed it.

Germany Under Cloud From Euro Zone Woes

FRANKFURT – Germany’s stellar credit rating has been thrown into doubt because of the cost of holding together the euro zone, potentially making it more difficult for Chancellor Angela Merkel to muster political support to aid Greece and Spain.

Moody’s Investors Service said late Monday that it was changing the outlook on Germany, as well as on the Netherlands and Luxembourg, to “negative,” citing what it said was an increased risk that those countries will have to bear the cost of propping up Spain and Italy.

That helped push up borrowing costs Tuesday for both Germany and Spain ahead of talks late in the day between the finance ministers of both countries in Berlin.

While Germany’s bond yields remain near record lows, Spain’s have reached levels that are considered unsustainable for long, raising fears that it will have to ask for aid that its European partners cannot afford.

Austerity’s Big Winners Prove To Be Wall Street And The Wealthy

Governments in Europe, most notably the United Kingdom, have also pursued tax cuts for the rich while imposing austerity measures on the working classes. And the European financier class has benefited even more directly than their American counterparts from these budgets.

Every time the European Union has reached a crisis point on the debt carried by Greece or Spain, EU leaders, especially German Chancellor Angela Merkel, have come to the rescue with bailout funds. That money goes to the banks that own Greek and Spanish debt, whose holdings would take a hit if either country were unable to repay. But the bailout comes with harsh austerity requirements intended to encourage budgetary discipline, so it’s ordinary citizens who end up taking the hit. The most vulnerable populations are harmed by the bailouts, while the well-paid financial professionals who made the deals to finance Greek and Spanish deficits in the first place continue profiting handsomely.

“Imposing pain on Greeks is … a blood price for the ever-repeated bailouts whose actual beneficiaries are said to be Greeks, but are in fact French and German bankers,” said (James) Galbraith.

Eventually it will all come to an end. Then what?

Jul 09 2012

The Dragging US Economy

Austerity is not going well for Europe or the US.

U.S. Stocks Post Longest Slump in 1 Month on Europe Woes

by Rita Nazareth and Julia Leite

U.S. stocks fell, giving benchmark indexes the longest slump in more than a month, after a jump in Spanish bond yields above 7 percent intensified concern about Europe’s crisis and as investors awaited Alcoa (AA) Inc.’s results.

The Standard & Poor’s 500 Index slid 0.2 percent to 1,352.45 at 4 p.m. New York time, according to preliminary closing data, paring an earlier loss of as much as 0.6 percent. The benchmark index dropped 1.6 percent over three days.  [..]

Stocks joined a global slump as the yield on Spain’s 10- year bond rose above the threshold that prompted bailouts in Greece, Ireland and Portugal. German Finance Minister Wolfgang Schaeuble dismissed a rapid move toward direct bank recapitalization by the European rescue fund, limiting the tools for shoring up Spanish banks as the euro-area crisis simmers.

Stocks Retreat as Spanish 10-Year Bond Yield Exceeds 7%

By Stephen Kirkland and Rita Nazareth

U.S. stocks fell for a third day as Spain’s 10-year debt yield topped 7 percent, fueling concern the debt crisis is worsening, and investors awaited the start of the earnings season. Corn and soybeans surged on forecasts for more dry U.S. weather. Treasuries rose.

The Standard & Poor’s 500 Index slipped 0.2 percent at 4 p.m. in New York and the Stoxx Europe 600 Index fell 0.4 percent. Ten-year Spanish yields jumped 11 basis points to 7.06 percent after rising as high as 7.108 percent. The euro climbed 0.2 percent to $1.2319, rebounding from a two-year low of $1.2251. Corn rose as much as 5.8 percent and soybeans jumped to a four-year high. Oil added 1.8 percent to $85.99 a barrel and natural gas rallied as a strike threatened supplies from Norway.

E.U. Seeks to Dispel Doubts About Bank Bailouts

by Paul Geitner and Stephen Casstle

BRUSSELS – With borrowing costs for Spain and Italy climbing again to critical levels, European officials sought Monday to dispel doubts about a deal struck last month to break the “vicious circle” between shaky banks and weak governments.

Spain, suffering through its second recession in three years, was also expected to win more time to rein in its budget deficit even as euro zone finance ministers haggled in Brussels over terms of a bailout for its troubled banks.

Amid the unrelenting market pressure, the European Central Bank reaffirmed that it stood ready to do more to stem the crisis – within the limits of its mandate – while urging euro zone governments to press ahead with closer integration.

Even here in the US, the Federal Reserve admits that they may be reaching there limits on their ability to fix unemployment and are at odds as to what to do next.

Fed’s Lacker Says U.S. May Be Close to Maximum Employment

By Kathleen Hays and Jeff Kearns

Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. may already be close to maximum employment from a monetary policy standpoint and that policy makers can’t do much more to cut the jobless rate.

“Given what’s happened to this economy, I think we’re pretty close to maximum employment right now,” Lacker said today in a Bloomberg radio interview on “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “That might be shocking. That might be surprising.”

Fed policy makers believe the U.S. central bank has limited control over the jobless rate because the employment level is driven by “non-monetary factors that affect the structure and dynamics of the labor market,” according to the January statement from the Federal Open Market Committee. The jobless rate was unchanged at 8.2 percent in June.

Lacker, who has dissented from all four FOMC decisions this year, is at odds with colleagues on what the Fed should do to boost the economy. He said in a June 22 statement that he opposed the FOMC’s $267 billion extension of its Operation Twist program because it may spur inflation and won’t give the economy a significant boost.

San Francisco Fed President John Williams said today the U.S. central bank must maintain “extraordinary vigilance” to see if the slowing economy requires additional monetary stimulus. “If further action is called for, the most effective tool would be additional purchases of longer-maturity securities, including agency mortgage-backed securities,” Williams said in a speech in Coeur D’Alene, Idaho.

While all the PTB debate how to save banks and the markets, the 99% are getting poorer putting an even bigger drag on the economy. For most the recession never ended.

Jun 28 2012

Bailing Out Europe

The heads of state of the EuroZone countries met in Brussels today for a two day summit to  try to come to an agreement on how to bail out two of its biggest members, Italy and Spain:

The 27 government chiefs will discuss buying Spanish and Italian government bonds to bring down borrowing costs that are near euro-era records, Finnish Prime Minister Jyrki Katainen said. He also proposed that bailout funds buy collateralized government debt in primary markets.

“I’ve come for very rapid solutions to support countries in difficulty on the markets,” French President Francois Hollande told reporters as he arrived in Brussels. Without specifying Spain or Italy, he said they “have made considerable efforts to deal with their public accounts.”

Leaders will consider short-term measures to stem the sovereign debt turmoil as EU President Herman Van Rompuy’s road map to strengthen the bloc’s common currency and financial oversight ran into immediate opposition from Germany. German Chancellor Angela Merkel has become increasingly isolated as Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy unite to push for quicker action to ease the crisis that emerged in Greece in late 2009.

Apparently all did not go German Chancellor Merkel’s way as she canceled her scheduled evening press conference. Or maybe she was watching her country’s football team get trounced by the Italians.

Euro 2012 Live Blogging: Italy 2 Germany 0

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