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Gene Ellis

Robert Samuelson: A dishonest budget debate - The Washington Post - 0 views

www.washingtonpost.com/...2-9f54-f3fdd70acad2_story.html

budget debate washington

shared by Gene Ellis on 18 Mar 13 - No Cached
  • t’s the math: In fiscal 2012, Social Security, Medicare, Medicaid and civil service and military retirement cost $1.7 trillion, about half the budget.
  • As a share of national income, defense spending ($670 billion in 2012) is headed toward its lowest level since 1940.
  • States’ Medicaid costs will increase with the number of aged and disabled, which represent two-thirds of Medicaid spending. All this will force higher taxes or reduce traditional state and local spending on schools, police, roads and parks.
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  • Almost everything is being subordinated to protect retirees.
  • “for how long will we continue to sacrifice investments in our nation’s children and youth ... to spend more and more on the aged?”
  • In a Pew poll, 87 percent of respondents favored present or greater Social Security spending; only 10 percent backed cuts. Results were similar for 18 of 19 programs, foreign aid being the exception.
  • an aging America needs a new social compact: one recognizing that longer life expectancies justify gradual increases in Social Security’s and Medicare’s eligibility ages; one accepting that sizable numbers of well-off retirees can afford to pay more for their benefits or receive less; one that improves generational fairness by concentrating help for the elderly more on the needy and poor to lighten the burdens — in higher taxes and fewer public services — on workers; and one that limits health costs.
  • Government is being slowly transformed into a vast old-age home, with everything else devalued and degraded.
Gene Ellis

European Union Leaders Agree to Slimmer Budget - NYTimes.com - 0 views

www.nytimes.com/...ropean-union-budget-talks.html

european union

shared by Gene Ellis on 09 Feb 13 - No Cached
  • Why should a Latvian cow deserve less money than a French, Dutch or even Romanian one?
  • In a system that requires unanimous approval of budget decisions, what Latvia wants for its dairy farmers — or Estonia for its railways, Hungary for its poorer regions or Spain for its fishermen — is no small matter.
  • The colossal effort that was required to agree to a sum of about 960 billion euros ($1.3 trillion), a mere 1 percent of the bloc’s gross domestic product, exposed once again the stubborn attachment to national priorities that has made reaching agreements on how to save the euro so painful in recent years.
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  • the ordeal as “not a pleasant experience,” but said, “It only happens every seven years, so we can tolerate it.”
  • Britain, Sweden and the Netherlands were among the Northern European nations that fought hard to reduce agricultural subsidies and increase spending on research and development to bolster the bloc’s global competitiveness.
  • The spectacle of European leaders haggling through the night over amounts of money representing rounding errors in their national accounts demonstrated vividly their reluctance to make collective policies that erode their nations’ sovereignty.
  • “What we’re seeing is that European integration is very important to European leaders as long as it doesn’t imply that someone has to be paying for someone else,”
  • farm spending remained the largest single portion of the budget, accounting for about 38 percent of the total — although that was down from about 42 percent in the previous seven-year budget period.
Gene Ellis

European Union Leaders Gather in Brussels Over Budget - NYTimes.com - 0 views

www.nytimes.com/...r-in-brussels-over-budget.html

shared by Gene Ellis on 05 Feb 13 - No Cached
  • He has threatened to veto any new budget that does not at least freeze spending,
  • “Europeans who are attached to the European Union are now in a minority.” Fifty-two percent of those surveyed said they felt little or no attachment, up seven percentage points since 2010. In Britain, only 27 percent felt attached to the union.
  • Ahead of this week’s negotiations, at least seven countries, mostly those that contribute more to Europe’s coffers than they get back in farm subsidies and other payments, have already warned that they may veto a budget that does not give them a better deal. Among these is Austria, where, according to Mr. Ehrenhauser, who sits on the European Parliament’s budgetary control committee, “there is a critical mass building against the European Union.”
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  • The rethink, which would have scrapped spending on agricultural subsidies, ran into heavy opposition and stalled
  • All long-term budget decisions require unanimous approval by the member states, a rule first established when the grouping, then known as the European Economic Community, had just six members, not 27. The power of veto makes any major change to spending all but impossible and entrenches the status quo, no matter how unworkable or unpopular.
  • “It is extremely difficult to change anything,” Mr. Sapir said. “Everyone is always fighting at the margins over narrow national interests. They try to make sure they get money for their own countries and that cuts go to other countries.”
  • After months of arguments, two broad alliances have emerged. The first comprises countries like Britain, Germany and Sweden that are big net contributors and want to keep a tighter rein on spending. The second, known as the “Friends of Cohesion,” after a class of development grants aimed at less wealthy areas, includes Poland, Spain, Portugal and others that want to make sure the union’s largess does not dry up.
  • The European Commission, however, has been far less forthcoming. It told Mr. Ehrenhauser that it could not give a breakdown of spending in recent years on wine because that would require “lengthy research” and “it cannot consider doing this at the present time because of other priorities.”
Gene Ellis

European Union Leaders Agree to Slimmer Budget - NYTimes.com - 0 views

www.nytimes.com/...ropean-union-budget-talks.html

shared by Gene Ellis on 09 Feb 13 - No Cached
  • Galileo, a grossly overbudget and still unfinished satellite navigation project that aims to free Europe from its dependence on the United States’ global positioning system, escaped the cuts and is to receive 6.3 billion euros from 2014 to 2020.
  • But he cheered the preservation of heavy spending on farm subsidies, of which France is the biggest beneficiary.
  • And about 1 billion euros in cuts came from the part of the budget used to employ 55,000 people, including 6,000 translators,
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  • he devoted much of a postsummit news conference to boasting about his steadfast defense of British interests, particularly a multibillion-dollar rebate that Britain receives each year on its payments.
  • In the Baltic nations, for example, farmers are furious that a system of cash payments to support agriculture is skewed in favor of farmers from richer countries like France and the Netherlands. Latvian farmers say they get less than 40 percent of the European Union’s average payment level for each acre of land. Dairy farmers say they fare even worse, getting just 20 percent of what their Dutch counterparts receive.
Gene Ellis

"The Euro's Latest Reprieve" by Joseph E. Stiglitz | Project Syndicate - 0 views

www.project-syndicate.org/...the-euro-s-latest-reprieve

shared by Gene Ellis on 10 Jul 12 - No Cached
  • Like an inmate on death row, the euro has received another last-minute stay of execution. It will survive a little longer. The markets are celebrating, as they have after each of the four previous “euro crisis” summits – until they come to understand that the fundamental problems have yet to be addressed.
  • Europe’s leaders have finally understood that the bootstrap operation by which Europe lends money to the banks to save the sovereigns, and to the sovereigns to save the banks, will not work.
  • Likewise, they now recognize that bailout loans that give the new lender seniority over other creditors worsen the position of private investors, who will simply demand even higher interest rates.CommentsView/Create comment on this paragraph
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  • It is deeply troubling that it took Europe’s leaders so long to see something so obvious
  • What is now proposed is recapitalization of the European Investment Bank, part of a growth package of some $150 billion. But politicians are good at repackaging, and, by some accounts, the new money is a small fraction of that amount, and even that will not get into the system immediately. In short: the remedies – far too little and too late – are based on a misdiagnosis of the problem and flawed economics.
  • Eurobonds and a solidarity fund could promote growth and stabilize the interest rates faced by governments in crisis. Lower interest rates, for example, would free up money so that even countries with tight budget constraints could spend more on growth-enhancing investments.
  • Even well-managed banking systems would face problems in an economic downturn of Greek and Spanish magnitude; with the collapse of Spain’s real-estate bubble, its banks are even more at risk.
  • Europe’s leaders did not recognize this rising danger, which could easily be averted by a common guarantee, which would simultaneously correct the market distortion arising from the differential implicit subsidy.
  • The euro was flawed from the outset, but it was clear that the consequences would become apparent only in a crisis.
  • Workers may leave Ireland or Greece not because their productivity there is lower, but because, by leaving, they can escape the debt burden incurred by their parents.
  • Germany worries that, without strict supervision of banks and budgets, it will be left holding the bag for its more profligate neighbors. But that misses the key point: Spain, Ireland, and many other distressed countries ran budget surpluses before the crisis. The down
  • turn caused the deficits, not the other way around.CommentsView/Create comment on this paragraph
  • If these countries made a mistake, it was only that, like Germany today, they were overly credulous of markets, so they (like the United States and so many others) allowed an asset bubble to grow unchecked.
  • Moreover, Germany is on the hook in either case: if the euro or the economies on the periphery collapse, the costs to Germany will be high.
  • While structural problems have weakened competitiveness and GDP growth in particular countries, they did not bring about the crisis, and addressing them will not resolve it.CommentsView/Create comment on this paragraph
Gene Ellis

Italy Falls Back Into Recession, Raising Concern for Eurozone Economy - NYTimes.com - 0 views

www.nytimes.com/...cern-for-eurozone-economy.html

shared by Gene Ellis on 05 Feb 15 - No Cached
  • Italy Falls Back Into Recession, Raising Concern for Eurozone Economy
  • The economic data and news that Russia was massing troops and military equipment on the Ukrainian border caused stock prices to fall across Europe on Wednesday.
  • Analysts surmised that the strained relations with Russia as well as turmoil in the Middle East had undercut demand for Italian exports, in particular fashion and other luxury goods.
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  • “I definitely expect that things will get worse,” he said.
  • The European Union exported agricultural goods worth 11.8 billion euros, or $15.8 billion, to Russia last year, and sales have been rising at a rate of almost 15 percent a year.
  • Some economists argue that the region is already well into a so-called lost decade.
  • Separately, the German Federal Statistical Office reported on Wednesday that new industrial orders in Germany fell 3.2 percent in June compared with May. Analysts had expected orders to increase.
  • For Italy, the deteriorating economy puts greater pressure on Prime Minister Matteo Renzi, who less than a week ago promised not to impose any more government budget cuts and to invest in improving the country’s roads and other infrastructure. Such promises will be difficult to keep if slower growth, which usually translates into higher unemployment and lower corporate profits, limits tax receipts.A slower economy also endangers Italy’s ability to comply with eurozone rules on budget deficits.
  • Italy’s 2.1 trillion euro government debt equals 136 percent of its annual gross domestic product, the second-highest debt ratio in the eurozone, after Greece.
  • They said Italy’s problems stemmed more from its failure make changes needed to improve the performance of its economy.
  • The slow pace of structural reforms is worrisome,” said Paolo Manasse, a professor of macroeconomics at Bologna University. He said there was no sign of progress on necessary steps like selling off state-owned assets or overhauling the labor market or public pension system.
Gene Ellis

Germany's Insistence on Austerity Meets With Revolt in the Eurozone - NYTimes.com - 0 views

www.nytimes.com/...s-insistence-on-austerity.html

shared by Gene Ellis on 18 Feb 15 - No Cached
  • Germany’s Insistence on Austerity Meets With Revolt in the Eurozone
  • Ms. Merkel and her finance minister, Wolfgang Schäuble, are far more likely to stick to balancing Germany’s federal budget, “a very strange objective to announce in current circumstances,” Mr. Fratzscher, who is president of the German Institute of the Economy in Berlin, said in an interview.
  • While they may agree to increase spending on roads, bridges and other infrastructure in Germany, he added, the German leaders are not likely to back similar policies for France and Italy, which in Berlin’s view cannot afford it.
Gene Ellis

Citi Cuts Costa Rica Growth Forecast After Firings - Bloomberg - 0 views

www.bloomberg.com/...-intel-fire-3-000-workers.html

shared by Gene Ellis on 25 Apr 14 - No Cached
  • Citi Cuts Costa Rica Growth Forecast After Firings
  • Hours later, BofA said it would be exiting operations in Costa Rica, Guadalajara, Mexico and Taguig, Philippines, without saying how many jobs would be lost. Costa Rica’s foreign investment agency said the BofA move would result in 1,500 layoffs.
  • “This is a strong call to the country to keeps tabs on things like the rising cost of electricity, telecommunications, wages and social guarantees.”
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  • The country of 4.7 million people climbed seven spots to 102nd in the World Bank’s annual “Doing Business” report this year, lagging behind China, Vietnam and Namibia. Moody’s Investors Service lowered its outlook on Costa Rica to negative from neutral in September, citing a rising debt burden and widening budget deficit. Moody’s rates the country Baa3, putting it in the same category as Turkey and Iceland.
  • In a Bloomberg survey published last month, Costa Rica was ranked fourth behind Russia, Argentina and Ukraine on a list of countries confronting the biggest loss of investor confidence. The survey cited data including the rising cost of credit default swaps and the currency’s performance against the dollar.
  • California-based Intel, whose processors run more than 80 percent of personal computers shipped worldwide every year, originally chose to establish operations in Costa Rica after studying sites in Indonesia, Thailand, Brazil, Argentina, Chile and Mexico, according to a 2000 case study by Harvard University’s Center for International Development. The company’s $600 million investment at the time represented about 4.2 percent of GDP, prompting the company’s then-Vice President Bob Perlman to say Intel’s arrival was like “putting a whale in a swimming pool,” according to the study.
  • n 2013, about 21 percent of Costa Rica’s exports of goods came from Intel, according to investment promotion agency CINDE
Gene Ellis

Even Greece Exports Rise in Europe's 11% Jobless Recovery - Bloomberg - 0 views

www.bloomberg.com/...ope-s-11-jobless-recovery.html

undefined greece exports rise europe recovery bloomberg

shared by Gene Ellis on 21 Mar 13 - No Cached
  • “The current- account deficits of countries that have been under stress diminished over the last years considerably.”
  • Just two of 14 euro-zone government leaders have kept their posts in elections since late 2009 and extremists such as Golden Dawn in Greece are gaining support.
  • “The internal rebalancing in the euro area is progressing,” said Fels. “Some of them, especially Spain but also Portugal not to speak of Ireland, are regaining competitiveness.”
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    • Gene Ellis
      Gene Ellis on 21 Mar 13
       
      This is the same sort of response which companies would have made to a depreciation in the local currency without the euro, but with the added problem of deflationary effects on the rest of the economy.
  • Ford Motor Co. (F) (F) said at the end of last year it will increase capacity near Valencia as it shuts plants in the U.K. and Belgium.
  • While a slide in imports accounts for some of the correction, Greece boosted its exports outside the EU by about 30 percent in the fourth quarter of 2012 from the previous year, while Italy’s rose 13 percent in January from a year ago, he said.
  • In Ireland, U.S. companies such as EBay Inc (EBAY) (EBAY)., Google Inc. (GOOG) (GOOG) and Facebook Inc (FB). all have expanded in the past two years, taking advantage of a corporate-tax rate of just 12.5 percent compared to Spain’s 30 percent.
    • Gene Ellis
      Gene Ellis on 21 Mar 13
       
      'Beggar thy neighbor' kinds of effects.
  • The metamorphosis is known as internal devaluation
  • Prevented by membership of the euro from driving down currencies, governments and companies are squeezing labor costs to spur productivity.
  • aising the retirement age, making it easier to fire workers in downturns and preventing unions from clinging to boom-time wage deals.
  • reducing social- security payments
  • On average, the periphery is about halfway to eliminating large structural current-account deficits, which allow for declines related to recession-driven weaker import demand, estimates Goldman Sachs (GS).
  • The OECD today published an index showing that relative labor costs in Spain and Portugal have now dropped below Germany’s for the first time since 2005.
  • “It’s potentially good for the economy but only if it results in faster investment,”
  • “If not then there’s a downward spiral risk.”
  • It’s the mirror image of the euro’s first decade, when historically low interest rates in the periphery fueled inflationary spending booms, reflected in credit bubbles and deteriorating current accounts and government budgets.
  • The smaller trade imbalances really reflect a collapse in demand for imports as consumers and companies hunker down,
    • Gene Ellis
      Gene Ellis on 21 Mar 13
       
      An important point.
  • “At this stage it is still demand destruction which has helped current-account deficit countries balance their accounts,” said Mayer. “It’s not a healthy situation.”
  • They also say countries will need to run even healthier current accounts than now if they are to stabilize the debts they owe abroad.
  • Gene Ellis on 21 Mar 13
     
    Good update article, as of March, 2013.
Gene Ellis

The Eurozone's Delayed Reckoning by Nouriel Roubini - Project Syndicate - 0 views

www.project-syndicate.org/...pe-s-crisis-by-nouriel-roubini

shared by Gene Ellis on 19 Dec 12 - No Cached
  • For starters, the European Central Bank’s “outright monetary transactions” program has been incredibly effective: interest-rate spreads for Spain and Italy have fallen by about 250 basis points, even before a single euro has been spent to purchase government bonds.
  • The introduction of the European Stability Mechanism (ESM), which provides another €500 billion ($650 billion) to be used to backstop banks and sovereigns, has also helped, as has European leaders’ recognition that a monetary union alone is unstable and incomplete, requiring deeper banking, fiscal, economic, and political integration.
  • But, perhaps most important, Germany’s attitude toward the eurozone in general, and Greece in particular, has changed. German officials now understand that, given extensive trade and financial links, a disorderly eurozone hurts not just the periphery but the core.
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  • GDP continues to shrink,
  • Moreover, balkanization of economic activity, banking systems, and public-debt markets continues, as foreign investors flee the eurozone periphery and seek safety in the core.
  • Likewise, competitiveness losses have been partly reversed as wages have lagged productivity growth, thus reducing unit labor costs, and some structural reforms are ongoing.
    • Gene Ellis
      Gene Ellis on 19 Dec 12
       
      This, indeed, is the crux of the matter.
  • either the eurozone moves toward fuller integration (capped by political union to provide democratic legitimacy to the loss of national sovereignty on banking, fiscal, and economic affairs), or it will undergo disunion, dis-integration, fragmentation, and eventual breakup.
  • but countries like Germany, which were over-saving and running external surpluses, have not been forced to adjust by increasing domestic demand, so their trade surpluses have remained large.
  • German leaders fear that the risk-sharing elements of deeper integration
  • imply a politically unacceptable transfer union whereby Germany and the core unilaterally and permanently subsidize the periphery.
  • Of course, Germany fails to recognize that successful monetary unions like the United States have a full banking union with significant risk-sharing elements, and a fiscal union whereby idiosyncratic shocks to specific states’ output are absorbed by the federal budget. The US is also a large transfer union, in which richer states permanently subsidize the poorer ones.
    • Gene Ellis
      Gene Ellis on 19 Dec 12
       
      These are key features, built into the over-representation of the poorer, smaller, more agricultural, states; as well as in the central institutions.
  • But the fundamental crisis of the eurozone has not been resolved, and another year of muddling through could revive these risks in a more virulent form in 2014 and beyond. Unfortunately, the eurozone crisis is likely to remain with us for years to come, sustaining the likelihood of coercive debt restructurings and eurozone exits.
  • Gene Ellis on 19 Dec 12
     
    Late 2012 reading
Gene Ellis

Kenen on the euro | vox - 0 views

www.voxeu.org/kenen-euro

shared by Gene Ellis on 26 Jan 13 - No Cached
  • Early work on optimum currency areas by Robert Mundell had emphasised the symmetry or asymmetry of disturbances hitting different regional economies as a key criterion on which to gauge their suitability for sharing a common currency.
  • Peter took this insight further by arguing that disturbances were often sector specific and that the diversification of regional economies was therefore a key consideration in gauging their suitability for monetary union (the better diversified an economy was, the less likely it was to be badly destabilised by a sector-specific shock). (Kenen 1969).
  • We now know that Kenen flagged a problem for which the Eurozone could have been better prepared. With an outsized capital-goods producing sector, Germany benefitted from a strong positive shock as a result of China’s emergence onto the global stage, given the Chinese economy’s voracious appetite for capital goods.
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  • Portugal and Italy, on the other hand, specialised much more heavily in consumer-goods producing sectors and felt the brunt of Chinese competition. No Eurozone member was sufficiently well diversified to shrug off this kind of shock, something that should have made the euro’s architects think twice.
  • Specifically, they should have thought again, Kenen argued, about the coordination of national fiscal policies, the need for a common Eurozone budget, and mechanisms for transferring fiscal resources from booming to depressed regions.
  • More than any other economist, Peter understood that monetary union was a legal as well as an economic construct. His careful parsing of the Maastricht Treaty explained to the economics profession exactly what the treaty did and did not allow (Kenen 1992).
  • Peter even anticipated the debate over TARGET2 imbalances, observing in 1999 that it was possible to “easily conceive of conditions…in which one [national central bank] would be reluctant to build up claims indefinitely on some other national central bank.” (Kenen 1999).
  • Finally, Peter observed that the possibility of a member state exiting from the Eurozone could not be ruled out but warned that European officials should be cautious in bandying about the idea (Kenen 1999). “The costs of defecting,” he wrote back in 1999, “could be very high.”
  • Gene Ellis on 26 Jan 13
     
    Good Eichengreen, Wyplosz EUVox article on Peter Kenen and insights on why the Euro might have difficuties.
Gene Ellis

Europe's Galileo GPS Plan Limps to Crossroads - NYTimes.com - 0 views

www.nytimes.com/...-plan-limps-to-crossroads.html

shared by Gene Ellis on 07 Feb 13 - No Cached
  • Galileo — first proposed in 1994, more than 20 years after America started its own system, and initially promoted as a big potential moneymaker — “can’t give a direct return on investment, but politically it is very important for Europe to have its own autonomous system,” said Mr. Magliozzi of Telespazio.
  • It is also designed to be far more precise than the American version.
  • Galileo has been financed almost entirely by the European Union since 2007. It is the first and so far only major infrastructure project managed by the European Commission.
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  • Critics mocked it as “the Common Agricultural Policy in the sky,” a reference to Europe’s program of subsidies for farmers, which eats up nearly 40 percent of the union’s total budget.
  • A 2011 report to the European Parliament listed a catalog of troubles, noting that Galileo had been particularly blighted in its early years by a familiar problem: political pressure from individual countries to skew the project in favor of their own companies and other immediate interests.
  • It quoted the OHB chief, Berry Smutny, describing Galileo as doomed to fail without major changes and “a waste of E.U. taxpayers’ money championed by French interests.” Mr. Smutny, who disputed the comments attributed to him, was fired by the company.
  • Astrium won an initial Galileo contract for four satellites. But contracts worth $1 billion for 22 more satellites have all gone to OHB, now one of the primary corporate beneficiaries of Galileo. British companies have also done well, a boon that has helped erode Britain’s initial hostility to the project.
  • Washington also asked why, when many European nations were increasingly unable to fulfill their military obligations as members of NATO because of defense cuts, they wanted to splash billions on a project that replicated an existing system paid for by the United States.
  • They acknowledge that Galileo, most of whose services will be free like those of GPS, will not earn much.
Gene Ellis

Germany May Not Offer Best Lessons for Weaker Euro-Zone States - WSJ.com - 0 views

online.wsj.com/...4543904577396391401884860.html

shared by Gene Ellis on 11 May 12 - No Cached
  • In fact, some economists view the German reform narrative as a myth
  • Wage restraint was instead a function of weak demand after the collapse of the reunification-fueled construction boom in the mid-1990s.
  • Even if one accepts the story, economists also point out that Germany undertook its labor-market reforms when the winds of the world economy were extremely favorable. The global economy was growing, and China and other emerging economies were sucking in machine tools and other capital goods in which German manufacturers excelled.
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  • While German interest rates remained little changed, rates in Greece, Spain, Portugal, Ireland and Italy tumbled, fueling consumption and swelling their imports of German cars and other products.
  • Now, budget stringency is being accompanied by labor-market reforms across Southern Europe.
  • At best, these adjustments yield benefits only after several years,
  • "The ECB was created with the mission to avoid the inflation of the 1970s and 1980s, when there was global inflation. Now we have global deflationary pressure, we need a different point of view," he says.
  • They say it's arithmetically impossible for every economy in the world to build growth on the German model of export success; and if every country in the euro zone is to do it, they need to find others willing to run big deficits in the rest of the world.
Gene Ellis

EMU and International Conflict | Foreign Affairs - 0 views

www.foreignaffairs.com/...emu-and-international-conflict

shared by Gene Ellis on 30 May 12 - No Cached
  • Indeed, the adverse economic effects of a single currency on unemployment and inflation would outweigh any gains from facilitating trade and capital flows among the EMU members.
  • There is no sizable country anywhere in the world that does not have its own currency. A national currency is both a symbol of sovereignty and the key to the pursuit of an independent monetary and budget policy.
Gene Ellis

Martin Feldstein: The Euro Zone's Double Failure - WSJ.com - 0 views

online.wsj.com/...3893404577098252697593684.html

shared by Gene Ellis on 31 May 12 - No Cached
  • but that they don't constitute an official EU treaty and therefore cannot be enforced by the commission and other EU institutions.
  • Italy has a good shot at persuading investors that it has a favorable long-term budget outlook. Its fiscal deficit is now less than 4% of GDP.
  • If the new government can now enact changes in labor rules and investment incentives that raise GDP growth to a 2% annual rate, Italy's ratio of debt to GDP could fall to 60% in less than 15 years.
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  • Greece cannot hope to get its deficit under control fast enough to stabilize its debt and attract private lenders. Instead of remaining a permanent ward of Germany and the IMF, Greece should default on its debt, leave the euro zone, and return to a more competitive drachma.
  • But he should also make it clear that lending against private collateral should not be used by commercial banks to free up funds to purchase newly issued government bonds
  • As Italy shows its determination and its ability to reduce future deficits, it should be welcomed back to the capital markets.
Gene Ellis

No ordinary recession: There is much to fear beyond fear itself | vox - 0 views

www.voxeu.org/...e-much-fear-beyond-fear-itself

shared by Gene Ellis on 18 Jul 12 - No Cached
  • Richard Koo (2003) coined the term “balance sheet recession” to characterise the endless travail of Japan following the collapse of its real estate and stock market bubbles in 1990. The Japanese government did not act to repair the balance sheets of the private sector following the crash. Instead, it chose a policy of keeping bank rate near zero so as to reduce deposit rates and let the banks earn their way back into solvency. At the same time it supported the real sector by repeated large doses of Keynesian deficit spending. It took a decade and a half for these policies to bring the Japanese economy back to reasonable health.
  • At the time, a majority of forecasts predicted that the economy would slip back into depression once defence expenditures were terminated and the armed forces demobilised. The forecasts were wrong. This famous postwar “forecasting debacle” demonstrated how simple income-expenditure reasoning, ignoring the state of balance sheets, can lead one completely astray.
  • The lesson to be drawn from these two cases is that deficit spending will be absorbed into the financial sinkholes in private sector balance sheets and will not become effective until those holes have been filled.
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  • The present administration, like the last, would like to recapitalise the banks at least partly by attracting private capital. That can hardly be accomplished as long as the value of large chunks of the banks’ assets remains anybody’s guess.
  • When the entire private sector is bent on shortening its balance sheet and paying down debt, the public sector’s balance sheet must move in the opposite, offsetting direction. When the entire private sector is striving to save, the government must dis-save. The political obstacles to doing these things on a sufficient scale are formidable.
  • The Swedish policy following the 1992 crisis has been often referred to in recent months. Sweden acted quickly and decisively to close insolvent banks, and to quarantine their bad assets into a special fund.2 Eventually, all the assets, good and bad, ended up in the private banking sector again. The stockholders in the failed banks lost all their equity while the loss to taxpayers of the bad assets was minimal in the end. The operation was necessary to the recovery but what actually got the economy out of a very sharp and deep recession was the 25-30% devaluation of the krona which produced a long period of strong export-led growth.
  • So the private sector as a whole is bent on reducing debt.
  • Businesses will use depreciation charges and sell off inventories to do so. Households are trying once more to save. Less investment and more saving spell declining incomes.
  • now that they know how dangerous their leverage of yesteryear was.
  • Fiscal stimulus will not have much effect as long as the financial system is deleveraging.
  • er self-imposed constitutional balanced budget requirements and are consequently acting as powerful amplifiers of recession with respect to both income and employment.
  • Almost all American states now suffer und
Gene Ellis

Greece to Slash Benefits Paid to Retired Civil Servants:Union Group - WSJ.com - 0 views

online.wsj.com/...BT-CO-20120719-715036.html

shared by Gene Ellis on 21 Jul 12 - No Cached
  • After meeting with Greek Labor and Social Security Minister Yiannis Vroutsis, Adedy cited the minister as telling them that Greece's coalition government plans to slash the payments by 22.7% after having already reduced the amount by 20%.
  • "I cannot accept the financing of the fund's deficits from the state budget by either imposing new taxes or additional social security contributions on the new generation of workers so that older workers can receive sums that are not in line with their contributions," said Mr. Vroutsis.
Gene Ellis

Euro crisis deepens as time starts to run out for Spain's banks and regions | Business ... - 0 views

www.guardian.co.uk/...spain-crisis-eurozone-valencia

shared by Gene Ellis on 21 Jul 12 - No Cached
  • But the shortcomings of the agreement have once again undermined renewed confidence in the eurozone and sent the bond yields of several countries higher, including Spain and Italy.
  • The Spanish government said a predicted rise in GDP next year of 0.4% had proved optimistic, and the economy would suffer another year of recession.
  • Regional governments deliver the key parts of the welfare state, including health, education and social services.
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  • Eastern Valencia said it was asking for central government help as it could not refinance loans that must be paid off this year.
  • Valencia, which has long been run by Rajoy's PP, is emblematic of Spain's current crisis. A property crash has hit both regional government income and the region's banks, with its three main banks having to be rescued. Local politicians, meanwhile, have a growing reputation for corruption and frivolous spending.
  • Valencia mopped up a quarter of the €17bn (£13.2bn) of extra money made available by central government in April to pay a backlog of regional government bills.
  • Last year the regions not only failed to meet government-set deficit reduction targets, but actually increased their joint deficit.
  • Analysts believe most regions will miss this year's 1.5 percent deficit target. The government last week asked at least eight of them to revise their 2012 budgets, threatening to take over the finances of some of them.
  • it was startling to see international investors fearful of getting their money back from members of the single currency.
  • He said the eurozone's total public sector debt will reach 90% at the end of the year compared to 106% in the US and 235% in Japan.
Gene Ellis

Mario Draghi Cannot Save the Euro - Bloomberg - 0 views

www.bloomberg.com/...aghi-cannot-save-the-euro.html

Simon_Johnson

shared by Gene Ellis on 06 Aug 12 - No Cached
  • Once you have understood that the ECB does not necessarily stand behind euro-area government debt, it is hard to disabuse yourself of the notion.
  • A broader question is what, if anything, Draghi might achieve with a looser monetary policy.
  • The euro area has many problems, including a lack of competitiveness in the periphery, chronically poor growth in countries such as Portugal and Italy, deeply damaged public finances in Greece and Spain, and a labor force that’s not mobile enough to go where the jobs are. Which of these could be resolved by reducing interest rates across the board?
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  • Maybe Draghi’s policies can buy time for deeper “structural changes” in the periphery, although quite what those are and what difference they would make in the near term remains elusive
  • It’s hard to see how providing politicians in troubled countries with unlimited credit will increase the likelihood of real reform of any kind.
  • More likely, a shift in ECB policies would make the European situation uglier. For one, Draghi would essentially be conceding fiscal dominance, demonstrating that if governments run budget deficits, they can count on the central bank to finance them.
  • Perhaps Draghi is planning the same game with fiscal authorities that the Banca d’Italia used to play with Italian politicians in the 1980s and early 1990s -- keep interest rates low enough to prevent fiscal collapse, yet high enough to keep fiscal prudence as a priority. Make no mistake about it, inflation or not, this is a strategy of high real interest rates.
  • Gene Ellis on 06 Aug 12
     
    Simon Johnson article - good
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