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Gene Ellis

Dani Rodrik reviews the fundamental lessons about emerging economies that economists ha... - 0 views

www.project-syndicate.org/...onomists-have-refused-to-learn

shared by Gene Ellis on 11 Feb 14 - No Cached
  • Death by Finance
  • First, emerging-market hype is just that. Economic miracles rarely occur, and for good reason. Governments that can intervene massively to restructure and diversify the economy, while preventing the state from becoming a mechanism of corruption and rent-seeking, are the exception.
  • the rapid industrialization that they engineered has eluded most of Latin America, the Middle East, Africa, and South Asia.
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  • We have long known that portfolio and short-term inflows fuel consumption booms and real-estate bubbles, with disastrous consequences when market sentiment inevitably sours and finance dries up. Governments that enjoyed the rollercoaster ride on the way up should not have been surprised by the plunge that inevitably follows.
  • Third, floating exchange rates are flawed shock absorbers. In theory, market-determined currency values are supposed to isolate the domestic economy from the vagaries of international finance, rising when money floods in and falling when the flows are reversed. In reality, few economies can bear the requisite currency alignments without pain.
  • They must resist the temptation to binge on foreign finance when it is cheap and plentiful.
  • It is true, but unhelpful, to say that governments have only themselves to blame for having recklessly rushed into this wild ride. It is now time to think about how the world can create a saner balance between finance and the real economy.
  • Death by Finance
Gene Ellis

The Greek Austerity Myth by Daniel Gros - Project Syndicate - 0 views

www.project-syndicate.org/...ty-myth-by-daniel-gros-2015-02

shared by Gene Ellis on 15 Feb 15 - No Cached
  • The Greek Austerity Myth
  • Greece actually spends less on debt service than Italy or Ireland, both of which have much lower (gross) debt-to-GDP ratios. With payments on Greece's official foreign debt amounting to only 1.5% of GDP, debt service is not the country's problem.
  • The new Greek government's argument that this is an unreasonable target fails to withstand scrutiny. After all, when faced with excessively high debt, other European countries – including Belgium (from 1995), Ireland (from 1991), and Norway (from 1999) – maintained similar surpluses for at least ten years each, typically in the aftermath of a financial crisis.
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  • To be sure, one can reasonably argue that austerity in the eurozone has been excessive, and that fiscal deficits should have been much larger to sustain demand. But only governments with access to market finance can use expansionary fiscal policy to boost demand.
  • Had Greece not received financial support in 2010, it would have had to cut its fiscal deficit from more than 10% of GDP to zero immediately. By financing continued deficits until 2013, the troika actually enabled Greece to delay austerity.
  • Of course, Greece is not the first country to request emergency financing to delay budget cuts, and then complain that the cuts are excessive once the worst is over. This typically happens when the government runs a primary surplus. When the government can finance its current spending through taxes – and might even be able to increase expenditure, if it does not have to pay interest – the temptation to renege on debt intensifies.
  • The practical problem for Greece now is not the sustainability of a debt that matures in 20-30 years and carries very low interest rates; the real issue is the few payments to the IMF and the ECB that fall due this year – payments that the new government has promised to make.
Gene Ellis

The delicate balance of fixing the eurozone | Martin Wolf's Exchange - 0 views

blogs.ft.com/...balance-of-fixing-the-eurozone

shared by Gene Ellis on 17 Jul 12 - No Cached
  • The euro itself was a leading cause of this crisis by ushering in a remarkably swift convergence in interest rates, which had the effect of directing too much capital into countries that formerly had had to pay high interest rates. This undermined the competitiveness of these countries through inflation and gave rise to huge deficits in their current accounts.
  • The euro is not suffering from a mere confidence crisis that can be resolved by assuaging the markets; it is experiencing a profound balance‐of‐payment crisis that is being prolonged by the expansion of public financial aid.
  • Since autumn 2007, long before the official bail‐out initiatives began, some of the crisis‐hit countries have replaced dwindling private capital imports and capital flight with their money‐printing presses (Target credits).
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  • 5. Export surpluses create no real value if they translate into claims vis‐à‐vis countries which ultimately cannot pay their debts,
  • 6. The ECB Council overstepped its mandate when it transferred to Eurozone national central banks, primarily the Bundesbank, the task of financing the public and private deficits of other countries.
  • 7. Germany’s liability for the bail‐out initiatives does not total 211 billion euros, as often cited, but is actually now close to 600 billion euros if the far larger bailout initiatives of the ECB are included in this figure.
  • 8. The Target credits and the purchase of government bonds by the ECB system transfer the investment risk of private investors and banks to the taxpayers of economically sound countries, posing a threat to the euro because they offer debtor countries incentives to advocate inflationary policies at the ECB Council which would help them defer their obligation to repay their foreign debts.
  • 9. Eurobonds would undermine debt discipline, lead to much higher interest burdens for the German state, and anew induce capital flows in Europe that would exacerbate the external imbalances.
  • ) Target debts are to be settled on an annual basis with interest‐bearing, marketable assets as in the US.
  • g) Countries that are not competitive enough to repay their foreign debts should, in their own interest, leave the Monetary Union.”
  • I also appreciate the fact that the declaration envisages a credit boom in Germany that would ultimately rebalance the eurozone economy. Nevertheless, this rebalancing is likely to prove painfully slow and certainly requires a prolonged period of relatively high inflation in Germany, to offset relatively low inflation in the vulnerable countries. It is far from clear that German public opinion is prepared for such an outcome.
  • More important, I do not believe a currency union that takes for granted the possibility of sovereign defaults and even exit would prove workable. It is a recipe for extreme financial instability, with huge runs on credit to banks, private non-banks and governments built in.
  • mechanisms of financing and adjustment. Permanent transfers from some countries to others, merely to offset a lack of
  • competitiveness (rather than accelerate income convergence), are indeed undesirable. Nevertheless, financing needs to be sufficiently large and generous to give vulnerable countries some chance of managing the adjustment to shocks, without sovereign default, mass private bankruptcies and implosion of financial systems.
  • Gene Ellis on 17 Jul 12
     
    The second major article on Professor Hans-Werner Sinn's attack on the premises of the eurozone. TARGET 2 analysis, plus...
Gene Ellis

Op-ed: The End of the Euro: A Survivor's Guide - 0 views

www.iie.com/...oped.cfm

EUROCRISIS

shared by Gene Ellis on 16 Jun 12 - No Cached
  • Ms. Lagarde's empathy is wearing thin and this is unfortunate—particularly as the Greek failure mostly demonstrates how wrong a single currency is for Europe.
  • The Greek backlash reflects the enormous pain and difficulty that comes with trying to arrange "internal devaluations" (a euphemism for big wage and spending cuts) in order to restore competitiveness and repay an excessive debt level.
  • During the next stage of the crisis, Europe's electorate will be rudely awakened to the large financial risks which have been foisted upon them in failed attempts to keep the single currency alive. When Greece quits the euro, its government will default on approximately 121 billion euros of debt to official creditors and about 27 billion euros owed to the IMF.
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  • More importantly and less known to German taxpayers, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro area). This includes 110 billion euros provided automatically to Greece through the Target2 payments system—which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the Target2 account. The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.
  • But between Target2 and direct bond purchases alone, the euro system claims on troubled periphery countries are now approximately 1.1 trillion euros (this is our estimate based on available official data). This amounts to over 200 percent of the (broadly defined) capital of the euro system.
  • No responsible bank would claim these sums are minor risks to its capital or to taxpayers. These claims also amount to 43 percent of German Gross Domestic Product,
  • Jacek Rostowski, the Polish Finance Minister, recently warned that the calamity of a Greek default is likely to result in a flight from banks and sovereign debt across the periphery, and that—to avoid a greater calamity—all remaining member nations need to be provided with unlimited funding for at least 18 months. Mr. Rostowski expresses concern, however, that the ECB is not prepared to provide such a firewall, and no other entity has the capacity, legitimacy, or will to do so.
  • The most likely scenario is that the ECB will reluctantly and haltingly provide funds to other nations—an on-again, off-again pattern of support—and that simply won't be enough to stabilize the situation.
  • he automatic mechanics of Europe's payment system will mean the capital flight from Spain and Italy to German banks is transformed into larger and larger de facto loans by the Bundesbank to Banca d'Italia and Banco de Espana—essentially to the Italian and Spanish states. German taxpayers will begin to see through this scheme and become afraid of further losses.
  • there will be recognition that the ECB has lost control of monetary policy, is being forced to create credits to finance capital flight and prop up troubled sovereigns—and that those credits may not get repaid in full. The world will no longer think of the euro as a safe currency; rather investors will shun bonds from the whole region, and even Germany may have trouble issuing debt at reasonable interest rates.
Gene Ellis

An interview with Athanasios Orphanides: What happened in Cyprus | The Economist - 0 views

www.economist.com/...nterview-athanasios-orphanides

shared by Gene Ellis on 29 Oct 13 - No Cached
  • Cyprus had developed its financial center over three decades ago by having double taxation treaties with a number of countries, the Soviet Union for example. That means if profits are booked and earned and taxed in Cyprus, they are not taxed again in the other country. Russian deposits are there because Cyprus has a low corporate tax rate, much like Malta and Luxembourg, which annoys some people in Europe.
  • In addition, Cyprus has a legal system based on English law and follows English accounting rules
  • This government took a country with excellent fiscal finances, a surplus in fiscal accounts, and a banking system that was in excellent health. They started overspending, not only for unproductive government expenditures but also they raised implicit liabilities by raising pension promises, and so forth.
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  • The size of the banking sector and exposure to Greece were known risks but at that time there was no banking problem in Cyprus
  • The containers were part of a shipment going from Iran to Syria that was intercepted in Cypriot waters after a tip from the U.S. The president took the decision to keep the ammunition. [NOTE: An independent prosecutor found that Christofias has ignored repeated warnings and pleas to destroy or safeguard the ammunition, apparently in hopes of one day returning it to Syria or Iran.]
  • Instead, they started lobbying the Russian government to give them a loan that would help them finance the country for a couple more years, and Russia came through, unfortunately,
  • I say unfortunately because as a result the government could keep operating and accumulating deficits without taking corrective action.
  • The next important date was the October 26-27, 2011 meeting of the EU council in Brussels where European leaders decided to wipe out what ended up being about 80% of the value of Greek debt that the private sector held. Every bank operating in Greece, regardless of where it was headquartered, had a lot of Greek debt.
  • For Cyprus, the writedown of Greek debt was between 4.5 and 5 billion euro, a substantial chunk of capital.
  • The second element of the decision taken by heads of states was to instruct the EBA to do a so- called capital exercise that marked to market sovereign debt and effectively raised abruptly capital requirements. The exercise required banks to have a core tier-1 ratio of 9%, and on top of that a buffer to make up for differences in market and book value of government debt. That famous capital exercise created the capital crunch in the euro area which is the cause of the recession we've had in the euro area for the last 2 years.
  • The Basle II framework that governments adopted internationally, and that the EU supervisory framework during this period also incorporated, specifies that holdings of government debt in a states' own currency are a zero-risk-weight asset, that is they are assigned a weight of zero in calculating capital requirements.
  • the governments should have agreed to make the EFSF/ESM available for direct recapitalization of banks instead of asking each government to be responsible for the capitalization.
  • Following a downgrading in late June 2012, all three major rating agencies rated the sovereign paper Cyprus below investment grade. According to ECB rules, that made the government debt not eligible as collateral for borrowing from the eurosystem, unless the ECB suspended the rules, as it had done for the cases of Greece, Portugal and Ireland. In the case of Cyprus, the ECB decided not to suspend the eligibility rule.
  • The governments have created risk in what before last week were considered perfectly safe deposits. This is going to have a chilling effect on deposits in any bank in a country perceived to be weak. This will mean the cost of funding will increase in the periphery of Europe and as a result, the cost of financing for businesses and households will increase. That will add to the divergences we already have and make the recession in the periphery of Europe deeper than it already is. This is really a disaster for European economic management as a whole. 
Gene Ellis

Emerging Europe's Deleveraging Dilemma by Erik Berglof and Božidar Đelić - Pr... - 0 views

www.project-syndicate.org/...-erik-berglof-and-bo-idar--eli

emerging europe dilemma erik project syndicate eli

shared by Gene Ellis on 01 Jan 13 - No Cached
  • Expansion was, for lack of other options, financed largely through short-term loans.
  • since the onset of the global financial crisis, eurozone-based banks’ subsidiaries in emerging Europe have been reducing their exposure to the region. In 2009-2010, the European Bank Coordination Initiative – known informally as the “Vienna Initiative” – helped to avert a systemic crisis in developing Europe by stopping foreign-owned parent banks from staging a catastrophic stampede to the exits.CommentsView/Create comment on this paragraphBut, in the second half of 2011, the eurozone-based parent banks that dominate emerging Europe’s banking sector came under renewed pressure to deleverage. Many are now radically changing their business models to reduce risk.
  • Over the last year, funding corresponding to 4% of the region’s GDP – and, in some countries, as much as 15% of GDP – has been withdrawn. Bank subsidiaries will increasingly have to finance local lending with local deposits and other local funding.
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  • excessive and chaotic deleveraging by lenders to emerging Europe – and the ensuing credit crunch – would destabilize this economically and institutionally fragile region.
  • View/Create comment on this paragraphFor Tigar, deleveraging has meant that banks that had pursued its business only a couple of years ago have suddenly cut lending – even though the company never missed a debt payment. Previous loans came due, while cash-flow needs grew. Despite its good operating margins, growing markets, and prime international clients, the company experienced a drop in liquidity, requiring serious balance-sheet restructuring.
  • Furthermore, collateral – especially real-estate assets – will continue to be downgraded.
  • Indeed, several Western financial groups are considering partial or complete exits from the region – without any clear strategic replacement in sight.
Gene Ellis

Europe's Irrelevant Austerity Debate by Daniel Gros - Project Syndicate - 0 views

www.project-syndicate.org/...ogoff-in-europe-by-daniel-gros

shared by Gene Ellis on 08 May 13 - No Cached
  • But the debate about austerity and the cost of high public-debt levels misses a key point: Public debt owed to foreigners is different from debt owed to residents.
  • If foreign debt matters more than public debt, the key variable requiring adjustment is the external deficit, not the fiscal deficit. A country that has a balanced current account does not need any additional foreign capital. That is why risk premiums are continuing to fall in the eurozone, despite high political uncertainty in Italy and continuing large fiscal deficits elsewhere. The peripheral countries’ external deficits are falling rapidly, thus diminishing the need for foreign financing.
  • And the evidence confirms that the euro crisis is not really about sovereign debt, but about foreign debt.
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  • Second, if foreign debt is the real problem, the escalating debate about the Reinhart/Rogoff results is irrelevant for the euro crisis. Countries that have their own currency, like the United Kingdom – and especially the United States, which can borrow from foreigners in dollars – do not face a direct financing constraint.
  • But austerity can never be self-defeating for the external adjustment. On the contrary, the larger the fall in domestic demand in response to a cut in government expenditure, the more imports will fall and the stronger the improvement in the current account – and thus ultimately the reduction in the risk premium – will be.
  • By contrast, in the case of debt owed to foreigners, higher interest rates lead to a welfare loss for the country as a whole, because the government must transfer resources abroad, which usually requires a combination of exchange-rate depreciation and a reduction in domestic expenditure.
  • But the eurozone’s peripheral countries simply did not have a choice: they had to reduce their deficits, because the foreign capital on which their economies were so dependent was no longer available.
Gene Ellis

Spain to Test Bond Markets as Economy Minister Warns on Debt - NYTimes.com - 0 views

www.nytimes.com/...daily-euro-zone-watch.html

shared by Gene Ellis on 17 Jul 12 - No Cached
  • the country’s economy minister, Luis de Guindos, warned Tuesday that European debt markets were not working properly because foreign investors were being deterred by the euro zone’s slow and complex decision-making procedures.
  • In recent weeks the interest demanded by investors on longer-term debt has crept up around 6 percent for Italy and 7 percent for Spain, close to the level that analysts say could make government finances unsustainable in the medium term.
  • In an interview in the Spanish daily La Vanguardia, Mr. de Guindos said that foreign investors were increasingly staying away from bond auctions, leaving only domestic buyers.
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  • Debt auctions in Italy at the end of last week came off better than some observers had expected and, although borrowing costs remain high, the successful debt sale has increased the prospect that the euro zone can avert another crisis during the summer break.
  • Mr. de Guindos said that debt purchases between countries within the 17-nation single currency area had virtually ground to a halt.
  • The ministers are expected to hold talks on Friday to agree to extend 30 billion euros for the rescue by the end of the month. By agreement of European Union leaders last month, the debt will go direct to banks, rather than being added to the Spanish government’s finances, once plans for a new regulatory structure for Europe’s banks is put in place.
Gene Ellis

Euro Crisis: Italy 'To Dump Public Holidays' - Yahoo! Eurosport UK - 0 views

uk.eurosport.yahoo.com/...lidays-121903420--finance.html

shared by Gene Ellis on 19 Jul 12 - No Cached
  • As a result, technocrat prime minister Mario Monti is considering cutting back on public holidays in a bid to increase growth after officials said even slashing days off by a working week would boost growth and raise GDP by as much as 1%.
  • Italy has a total of 11 recognised public holidays a year but unlike Britain these remain fixed and if they fall mid-week people traditionally take the days off either side as well in order to ''make a bridge'' until the weekend, which has drastic consequences on industrial output.
  • Sources say the Government will keep the ''main religious festivals such as Easter and Christmas'' but are looking at scrapping some of the secondary ones such as Boxing Day, Epiphany on January 6th and the Immaculate Conception on December 8th.
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  • One idea drawn up by ministers Antonio Catricala and Antonio Polillo, from the Finance ministry, is to move them and the military holidays to the nearest Sunday so they will in effect still be celebrated but not on the specific date itself.
  • 'These holidays represent the best of our past, the values on which our Republic was founded on, they are in a word history and they should not be touched. You cannot tell us that there are no other ways of boosting productivity and increasing growth. ''The country should be left its history and it should be allowed to conserve its values, values that the majority of the country are fully supportive of, that is what we are asking the government to remember.''
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
Gene Ellis

Why Is Zambia So Poor? And Will Things Ever Get Better? - 0 views

www.psmag.com/...zation-mining-corruption-66080

Zambia Why so poor?

shared by Gene Ellis on 09 Jan 14 - No Cached
  • Sixty-four percent of the population lives on less than $1 per day, 14 percent have HIV, 40 percent don’t have access to clean drinking water. Almost 90 percent of women in rural areas cannot read or write. Name a category—schools, health care, environment—and I’ll give you statistics that will depress the shit out of you.
  • For more than 150 years, the only reason to come to Kitwe—to Zambia, really—was the copper.
  • Most of the buildings in Kitwe, the roads, the health clinics, the schools, were built by the national mining company
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  • At its peak, the Zambia Consolidated Copper Mines company employed more than 65,000 Zambians and carried out services like water delivery and waste collection for five cities in the Copper Belt Province.
  • Mining employment has dropped to just 30,000, half of its glory-days peak, and the job of maintaining all that company housing and infrastructure has reverted back to the government.
  • The stats identify Switzerland as Zambia’s primary export market. This is not an indicator that Zambia hosts a thriving chocolate and suspenders sector, but rather that its copper trades are booked in the jurisdiction where they are least likely to be taxed.
  • Many of the mining companies pay just 0.6 percent royalties to Zambia, far below the already-meager industry standard of three percent.
  • And then there’s the Chinese. They arrived like a well-packed picnic, everything in shipping crates ready to be unpacked. Their own materials, their own equipment, their own workers, their own fences. If you were designing a foreign investment not to benefit the host community, this is what it would look like.
  • This is Namwile Uzondile, the director of a rural health education project.
  • Last year Namwile conducted a survey of prostitutes here in Kitwe, and found that at least half of them had education certificates, but couldn’t find work. Most had been married off early, 15 or 16, and since then had either left their husbands or lost them to AIDS.
  • First, you go to the tribal chief. Ninety-four percent of the land in Zambia is customary or traditional, no one has a title to it. It’s not just sitting there, people are living on it, farming, grazing animals, it’s just technically under the control of a chief.
  • In Zambia most of the chiefs require a gift just to get a meeting. This might mean taking them lunch at a restaurant in Lusaka, or it could mean buying their daughter a car—it’s up to them.
  • Another reason Zambia lacks skills is that some parts of the workforce operate as cartels. Take lawyers. Zambia only has 1,000 of them, and they’re concentrated where the money is: Lusaka (government), Copper Belt (mining) and Livingstone (safari tourists).
  • Last year, only six lawyers were admitted to the bar out of 164 who took the exam. The year before that, it was 16 out of 145. Keep in mind, these aren’t people coming in off the streets. These are people who have a law degree.
  • More than 60 percent of Zambia’s government revenue comes from the copper mines.
  • Taxing all this informal activity would be costly in both resources and voter goodwill. In 2012, Zambia collected just $2.3 million in income taxes from its citizens.
  • It goes as high up as you want to follow it. Michael Sata, the president of Zambia, appointed his uncle the finance minister, his nephew the deputy finance minister, his niece the local government minister, and cousins as ambassador to Japan and chief justice.
  • Zambia’s cabinet has ballooned to 20 ministers and 47 deputy ministers, the largest in Africa. With salaries three to four times higher than opposition MPs and each ministerial post bundled with perks like a company car, free fuel, house servants, and mobile phone talk-time, you get the feeling politicians aren’t jumping from opposition into government on moral sentiment alone.
  • But even if Zambia was run by a coalition of charitable technocrats and Mormon philanthropists, that wouldn’t solve the most fundamental problem of all: There simply isn’t that much money to go around.
  • In 2011, Zambia spent a total of $4.3 billion running itself. Stretch that to cover every man, woman, and child, and it amounts to just $325 per person per year. That amount—less than a dollar per person per day—has to cover education, health care, infrastructure, law enforcement, foreign debt … everything.
  • Now she goes all NGO. “Little government capacity,” she says, is the nicest way to put it. “There are simply no systems for routine government services,” she says. Getting a license, a permit, certificates, approvals to start work, visas for expats to fly down here—nothing is in one place, nothing is fast or easy.
  • And that’s just the bureaucracy. Then there are the cops that pull you over to ask for 50 kwacha ($10); the schools with slots reserved for paying parents; the hospitals that swear the earliest appointment, the only available medicine, is six months away until you reach into your pocket.
  • “Sometimes we have to pay for the inspectors to come to our mines,” Jane says.
  • The conversation goes like this: Jane tells the local certification body that she needs an inspector to sign off for a permit. The local certification body tells her that they would be happy to come out to the site, but they don’t have fuel for their cars, or enough petty cash to pay per diems. Jane offers to pay their costs, but only their costs, and the payments aren’t related to clearing the inspection.
  • The company has even paid the police to follow up on complaints or to investigate thefts. “They say, ‘We don’t have this in our budget’ or ‘We’ll need you to pay for it,’” Jane says. So the company fixes the police cars, covers their travel expenses, treats them to lunch.
  • “We tell them, ‘The company I work for, we’re not going to pay up.’ But at the end of the day, they know you’re on a short timeline, and they aren’t.”
  • Thomas’ family told him his nephews didn’t need to be in school. From their perspective, that’s not totally irrational. In a country with so few formal jobs and so much competition for getting them, I can see how spending hundreds of hours, thousands of kwachas, on education would seem superfluous. Thomas’ daughter wants to become a lawyer. You could almost forgive Thomas if he told her that the bar exam failure rate is more than 90 percent, so what’s the use?
  • International investors pledged $750 million last year to build infrastructure.
Gene Ellis

Eurozone crisis: can the centre hold? | Nouriel Roubini | Business | theguardian.com - 0 views

www.theguardian.com/...eurozone-crisis-euro-european

shared by Gene Ellis on 29 Oct 13 - No Cached
  • Several developments helped to restore calm. The European Central Bank (ECB) president, Mario Draghi, vowed to do "whatever it takes" to save the euro, and quickly institutionalised that pledge by establishing the ECB's "outright monetary transactions" programme to buy distressed eurozone members' sovereign bonds.
  • And, even if such adjustment is not occurring as fast as Germany and other core eurozone countries would like, they remain willing to provide financing, and governments committed to adjustment are still in power.
  • For starters, potential growth is still too low in most of the periphery, given ageing populations and low productivity growth, while actual growth – even once the periphery exits the recession, in 2014 – will remain below 1% for the next few years, implying that unemployment rates will remain very high.
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  • levels of private and public debt, domestic and foreign, are still too high, and continue to rise as a share of GDP, owing to slow or negative output growth. This means that the issue of medium-term sustainability remains unresolved.
  • At the same time, the loss of competitiveness has been only partly reversed, with most of the improvement in external balances being cyclical rather than structural.
  • The euro is still too strong, severely limiting the improvement in competitiveness that is needed to boost net exports in the face of weak domestic demand.
  • a continuing credit crunch, as undercapitalised banks deleverage by selling assets and shrinking their loan portfolios.
  • The larger problem, of course, is that progress toward banking, fiscal, economic and political union, all of which are essential to the eurozone's long-term viability, has been too slow.
  • all imply that banks will have to focus on raising capital at the expense of providing the financing needed for economic growth.
  • Moreover the ECB, in contrast to the Bank of England, is unwilling to be creative in pursuing policies that would ameliorate the credit crunch.
  • Meanwhile, austerity fatigue is rising in the eurozone periphery.
  • And bailout fatigue is emerging in the eurozone's core.
  • But the eurozone's political strains may soon reach a breaking point,
Gene Ellis

Slovenia's financial crisis: Stressed out | The Economist - 0 views

www.economist.com/...ut-reaches-climax-stressed-out

slovenia financial crisis

shared by Gene Ellis on 09 Jan 14 - No Cached
  • The banks’ plight arises from mounting losses on their loans. Between the middle of 2012 and of 2013, the ratio of non-performing to total loans rose from 13.2% to 17.4%, which is the highest level in the euro zone after Greece and Ireland (see chart). The bad debts have been incurred predominantly through lending to businesses.
  • Only the state can provide the funds needed to recapitalise the banks. It wants them to transfer a big chunk of their bad loans to a state-run “bad bank”, for much less than their original value.
  • In this respect Slovenia is a textbook case of the problem that has plagued other parts of the euro zone: the link between weak banks, which governments end up recapitalising at great expense, and weak government finances.
  • ...1 more annotation...
  • But Slovenia’s predicament also arises from its history. It has been slower to dismantle public ownership than Europe’s other formerly communist countries. Most notably, the three biggest ban
Gene Ellis

Greek Euro Exit Unavoidable if IMF, Euro Zone Can't Agree- IMF Stream - WSJ.com - 0 views

online.wsj.com/...4799904578053992740095654.html

greek euro imf zone

shared by Gene Ellis on 14 Oct 12 - No Cached
  • principle
  • So the need for an agreement between the euro zone and the IMF is paramount. The IMF as a senior creditor can't accept losses of its own in the Greek program and it has to convince unhappy members from the emerging world that lent it money to continue financing Greece that the country's debt is sustainable. For this to happen, about 50 billion euros ($65 billion) must be forgiven from Greece's giant debt and the decision for such action including the political backlash is squarely in Europe's court.
  • There are ways that the Europeans can make it happen. One would involve the European Stability Mechanism, a newly activated bailout mechanism that would take over the recapitalization of Greek banks, which is set to cost €50 billion, instead of the amount being added to the country's debt.
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  • In typical fashion the creditors are demanding from Athens another set of painful austerity cuts which the country can't afford and the IMF is openly saying that it won't sign off on the loan payment before a haircut takes place.
  • Another way would be the European Central Bank accepting losses to the Greek bonds it holds.
    • Gene Ellis
      Gene Ellis on 14 Oct 12
       
      Meaning:  that the IMF sees that austerity will kill Greece off, and wants to provide some breathing room...
Gene Ellis

Euro zone, IMF agree on Greece aid deal - The Washington Post - 0 views

www.washingtonpost.com/...2-b01f-5f55b193f58f_story.html

euro zone imf greece aid deal washington post

shared by Gene Ellis on 28 Nov 12 - No Cached
  • To reduce Greece’s debt pile, ministers agreed to cut the interest rate on official loans, extend their maturity by 15 years to 30 years, and grant Athens a 10-year interest repayment deferral.
  • They promised to hand back $14 billion in profits accruing to their national central banks from European Central Bank purchases of discounted Greek government bonds in the secondary market.
  • They also agreed to finance Greece to buy back its own bonds from private investors at what officials said was a target cost of about 35 cents in the euro.
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  • Draghi
  • a break from the era of missed targets and loose implementation towards a new paradigm of steadfast reform momentum,
  • Greece, where the euro zone’s debt crisis erupted in late 2009, is the currency area’s most heavily indebted country, despite a big “haircut” this year on privately held bonds.
  • The key question remains whether Greek debt can become sustainable without euro-zone governments having to write off some of the loans they have made to Athens.
Gene Ellis

Suntech Power on Financial Brink - NYTimes.com - 0 views

www.nytimes.com/...-power-on-financial-brink.html

shared by Gene Ellis on 13 Mar 13 - No Cached
  • Suntech announced Tuesday that it was closing its factory in Goodyear, Arizona, at the cost of 43 jobs there. The factory put aluminum frames and electrical junction boxes on solar cells imported from China, so that the fully assembled solar panels would qualify for “Buy American” programs.
  • But China’s approach to renewable energy has proved ruinous, both financially and in terms of trade relations with the United States and the European Union. State-owned banks have provided $18 billion in loans on easy terms to Chinese solar panel manufacturers, financing an increase of more than tenfold in production capacity from 2008 to 2012. This set off a 75 percent drop in panel prices over the same period, which resulted in Chinese companies’ losing as much as $1 for every $3 in sales last year.
  • he United States has responded with tariffs of about 40 percent on solar cells and solar panels from China,
Gene Ellis

Some thoughts on German politics and the saver's tax in Cyprus | Credit Writedowns - 0 views

www.creditwritedowns.com/...-the-savers-tax-in-cyprus.html

shared by Gene Ellis on 18 Mar 13 - No Cached
  • Now, the large 82.8% German government debt to GDP ratio is a source of shame for many because Germany was a driving force in enshrining the 60% government debt to GDP hurdle into the Maastricht Treaty that set out terms for the euro zone.
  • Moreover, the interest rate policy of the ECB, geared as it was to the slow growth core, produced negative real interest rates and credit bubbles in Spain and Ireland during the last decade. German banks piled in to those countries as prospects domestically stagnated.
  • “The average German worker feels like a cash cow being sucked dry by a quick succession of reforms and bailouts that take money out of her pocket. First it was for reunification, then for European integration, then to right the economy, then to bail out German banks, and finally to bail out the European periphery. Fatigue has set in.”
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  • The bottom line is that none of the major political parties in Germany are going to vote for bailouts for other euro zone countries unless massive strings are attached, since these bailouts are political losers.
  • The anti-bailout part of the FDP platform is the one part of their rhetoric which could successfully take them over the 5% hurdle. The FDP’s complicity in using German taxpayer money to bail out the so-called profligate periphery is a one-way ticket out of Parliament.
  • “First, the Greek reports come via statements made by Michael Fuchs, CDU deputy Bundestag head and a senior member of German Chancellor Angela Merkel’s party. Fuchs warned earlier today that Germany would veto further aid to Greece if the country has not met the conditions of its previous bailouts.
  • “Second, all along Germany has indicated that it is resistant to increasing funding of the ESM and EFSF bailout facilities. This presents a problem in the case of Spain and Italy because of the size of those economies.
  • Willem Buiter, Chief Economist at Citigroup, has been most vocal in predicting that these facilities will be inadequate when Spain and Italy hit the wall and that more extreme measures will have to be taken.
  • The basic dilemma here is that almost all of the eurozone governments including Germany carry high debt burdens in excess of the Maastricht Treaty. For example, Germany has been in breach of Maastricht Treaty in 8 of 10 years since 2002, has been over the Maastricht 60% hurdle in each of those ten years, and now carries a debt to GDP burden above 80%.
  • The long and short of it was that the Germans had reached the end of their ability to support bailouts.
  • All evidence is that this levy has created panic in Cyprus. After all, what is the use of having a deposit guarantee if government can arbitrarily circumvent it to impose losses on your deposits anyway?
  • One can't just blame Cyprus for this fiasco. The ECB, EC and European Union finance ministers signed off on the insured deposit grab too]
  • My view? It was inevitable that we would be in crisis again. The austerity world view of crisis resolution is completely at odds with the capacity of the euro zone’s institutional architecture to handle a crisis.
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