The Real Greek Tragedy

   Date: 24-02-2010
 Source: NEWSWEEK By Robert J. Samuelson | 

Why this is just the opening act.

It would be possible in other circumstances to disregard the ongoing story of Greece and its debts as a tedious tale of financial markets. But there’s much more to it than that. What’s happening in Greece speaks to two larger issues that affect hundreds of millions of people everywhere: the future of the welfare state and the fate of Europe’s single currency, the euro. The meaning of Greece transcends high finance.

Every advanced society, including the United States, has a welfare state. Though details differ, their purposes are similar: to support the unemployed, poor, and aged. All face similar problems: burgeoning costs as populations age, an overreliance on debt financing, and pressures to reduce borrowing that create parallel pressures to cut welfare spending. High debt and the welfare state are at odds. It’s an open question whether the collision will cause social and economic turmoil.

Euro, Au Revoir? PIIGS’ Term Structure of Default Probabilities

Paolo Manasse

Feb 23, 2010 12:28PM

Should the „Greek case“ infect the other high (public and foreign) debt – low competitiveness countries, the PIIGS (Greece, Ireland, Portugal, Spain, and Italy), the stability of the euro and the cohesion of the Euro zone would be in jeopardy. Are we on the verge of a new domino effect, a replay of the European crisis of 1992, but this time with a flight from the sovereign debts, rather the currencies? Or, absent painful reforms, are the PIIGS in for a slow agony of the fixed exchange rate and fiscal tightening? And which will be, after Greece, the next target?¹

Quiet Before the Storm in the Balkans

Emre Deliveli

Feb 23, 2010

When the Greek crisis hit, the biggest concern of economists following the region was Greek contagion. With their significant trade, foreign direct investment, or FDI, and banking exposure to Greece, the Balkans looked particularly vulnerable.

 

Those concerns have been eased for now. But a closer look at the region reveals that there are significant risks of contagion from the financial sector and fiscal problems although real sector linkages do not pose a significant threat.

Staatsschulden: Die ganze Wahrheit

aus MMNews, Friday, 12. February 2010

Die offiziellen Zahlen zur Verschuldung haben mit der Realität nichts zu tun. Die Wahrheit: Die Verschuldung der westlichen Industriewelt beträgt ein Mehrfaches der offiziellen Angaben. Das zeigt jetzt eine Analyse der Société Générale. Das Ergebnis könnte katastrophaler nicht sein.  In der aktuellen Analyse „Popular Delusions – Government hedonism and the next policy mistake“* von Dylan Grice, Global Strategy Team der Société Générale,  gehen die Analysten hart zur Sache mit den offiziellen Angaben zu den Staatsschulden der westlichen Industrienationen. Die Studie zeigt, was manche schon lange wissen: Die offiziellen Angaben zur Staatsverschuldung haben mit der Realität nichts zu tun, weil wesentliche Zukunftsfaktoren herausgerechnet wurden. Das betrifft beispielsweise Pensionsverpflichtungen und andere Zahlungsversprechen der Staaten, welche allerdings erst in der Zukunft abgerufen werden. Wenn man  die realen Schulden mit der offiziellen Darstellung vergleicht, tun sich Abgründe auf. So kommt Griechenland beispielsweise auf über 800% Schulden gemessen am Bruttoinlandsprodukt. In Europa steht nach einer anderen Erhebung Polen ganz weit oben mit sage und schreibe 1550% (Quelle: Cato, s.u.). Aber auch die deutschen Zahlen sind geschönt. Statt der offiziellen rund 60% kommen die Analysten auf 400% Schulden gemessen am BIP. Das ist nicht weit entfernt von den USA, welche in Richtung 500% tendieren.

Reigniting Growth in Emerging Europe

Marek Belka

Feb 10, 2010 5:55PM

As the deep recession in Europe’s emerging market countries finally comes to an end, the question on everyone’s minds is where  growth in the region will come from in the years ahead. Exports are rebounding, and domestic demand is showing signs of stabilization. Most countries will see positive GDP growth this year—a stark difference from 2009. But a return to the high growth rates that preceded the crisis is highly unlikely.

 An unbalanced picture

During the boom years, Eastern Europe grew rapidly, but growth in many countries was rather unbalanced. Capital inflows were large, but to a great extent went to the “non-tradable” sector—in particular, real estate, construction, and banking. Capital flows boosted domestic demand rather than supply—leading to a surge in imports, current account deficits that widened to unprecedented levels, and overheating economies.

The Option of Last Resort: A Two-Currency EMU

Michael Arghyrou and John Tsoukalas

Feb 7, 2010 5:57PM

First, we would like to clarify that we are strong supporters of the European monetary integration project. Our view is that the single currency involves significant potential economic and political benefits for all its participants which far outweigh its potential costs. We thus believe it is right to spare no effort to ensure the euro’s continued stability and success. 

Having said so, however, we cannot but admit that we are currently faced with hard facts that cannot be ignored by Europe’s policy-makers.

The New Banana Republics

Antonio Carlos Lemgruber

Feb 11, 2010 12:47PM

The same kind of macroeconomic irresponsibility that was typical of Latin America (including Brazil) in the second half of the last century is becoming a major characteristic of the following 20 countries: Iceland, Greece, Portugal, Spain, Latvia, Ireland, Ukraine, Romania, Lithuania, Turkey, Bulgaria, United States (yes, USA), Australia, Japan (yes, Japan), United Kingdom (yes, UK), South Africa, France (yes, France), Russia, New Zealand, and Italy.

 They have either current account balance-of-payments deficits greater than 4% of GDP (Greece has 12%) or Government deficits greater than 4% of GDP (Spain has 12%) – or both (the so-called „twin deficits“).

This explains basically why many of these countries are facing major increases in terms of country risk. In particular, Greece and Spain are major concerns now, as far as sovereign risk is concerned – and, additionally, Iceland, Portugal, Latvia, Lithuania.

Schwarzenegger is from Austria: Insolvent European vs American States

Barry Ritholtz, Feb 11, 2010 12:19AM

While all the investing world seems to be utterly fixated on the outcome of Greece’s solvency woes, perhaps we need to step back and put this into perspective. 

 

Another View: Looking Beyond the Volcker Rule

Daniel Alpert, Feb 5, 2010 NYT

Notwithstanding all the riveting talk about political motivations, President Obama has finally decided to wrest control of financial reform efforts from his somewhat tone-deaf minions and the “too-hard-to-tackle” crowd in Congress. Better late than never. But in belatedly joining forces with Paul Volcker, the man who will ultimately go down in history as the wisest regulator of his generation (sorry, Maestro Greenspan), Mr. Obama has waded into an immeasurably complicated debate that is enormously difficult for the general public to comprehend.

Regulation of the financial sector of economies is a subject that easily offers as many opinions as there are people who study, write on, and implement regulation. Mr. Volcker’s Group of Thirty report, compiled a year ago during the depths of the financial crisis, is a work we fundamentally agree with in most respects. But it is written in policymakers’ prose, the full meaning of which eludes many legislators—to say nothing of the public and some in the financial press. In his testimony Tuesday, Mr. Volcker did a yeoman’s job of laying things out for the Senate Banking Committee, and he dispensed with the notion that his proposals would be too difficult to implement or would yield consequences he neither intends or hasn’t already considered and accommodated. But the very fact that we so enjoyed the give-and-take between Chairman Volcker and the committee members, being way too wonkish ourselves, gives us pause with regard to the appreciation of this critical issue by a broader constituency.

Will Europe’s PIGS Learn to Fly?

The extent of the fiscal pressures facing Greece, and the inherent inability of the EU/ECB to handle such crises with the deliberation and conditionality required, suggest the need for IMF involvement if the EU is to avoid a larger, more devastating round of contagion across the weaker tier of eurozone members. The interlinked nature of EMU turns a relative midget–Greece, accounting for a mere 3% of the eurozone’s GDP, into a systemic entity. If Greece is, as RGE’s Nouriel Roubini and Arnab Das assert in this Analysis, “too-interconnected-to-fail,” the EU needs to put theoretical concerns about moral hazard and global prestige aside, involve the IMF and provide a properly tranched conditionality-based support package to stave off a refinancing crisis.