He has threatened to veto any new budget that does not at least freeze spending,
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European Union Leaders Gather in Brussels Over Budget - NYTimes.com - 0 views
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“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.
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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
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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.
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“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.”
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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.
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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.”
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Why Is Zambia So Poor? And Will Things Ever Get Better? - 0 views
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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.
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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.
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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.
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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.
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Many of the mining companies pay just 0.6 percent royalties to Zambia, far below the already-meager industry standard of three percent.
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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.
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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.
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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.
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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.
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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).
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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“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.”
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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?
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What if the Secret to Success Is Failure? - NYTimes.com - 0 views
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In the winter of 2005, Randolph read “Learned Optimism,” a book by Martin Seligman, a psychology professor at the University of Pennsylvania who helped establish the Positive Psychology movement.
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Seligman and Peterson consulted works from Aristotle to Confucius, from the Upanishads to the Torah, from the Boy Scout Handbook to profiles of Pokémon characters, and they settled on 24 character strengths common to all cultures and eras. The list included some we think of as traditional noble traits, like bravery, citizenship, fairness, wisdom and integrity; others that veer into the emotional realm, like love, humor, zest and appreciation of beauty; and still others that are more concerned with day-to-day human interactions: social intelligence (the ability to recognize interpersonal dynamics and adapt quickly to different social situations), kindness, self-regulation, gratitude.
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Six years after that first meeting, Levin and Randolph are trying to put this conception of character into action in their schools. In the process, they have found themselves wrestling with questions that have long confounded not just educators but anyone trying to nurture a thriving child or simply live a good life. What is good character? Is it really something that can be taught in a formal way, in the classroom, or is it the responsibility of the family, something that is inculcated gradually over years of experience? Which qualities matter most for a child trying to negotiate his way to a successful and autonomous adulthood? And are the answers to those questions the same in Harlem and in Riverdale?
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According to a report that KIPP issued last spring, only 33 percent of students who graduated from a KIPP middle school 10 or more years ago have graduated from a four-year college.
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As Levin watched the progress of those KIPP alumni, he noticed something curious: the students who persisted in college were not necessarily the ones who had excelled academically at KIPP; they were the ones with exceptional character strengths, like optimism and persistence and social intelligence. They were the ones who were able to recover from a bad grade and resolve to do better next time; to bounce back from a fight with their parents; to resist the urge to go out to the movies and stay home and study instead; to persuade professors to give them extra help after class.
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“The thing that I think is great about the character-strength approach,” he told me, “is it is fundamentally devoid of value judgment.”
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Duckworth’s early research showed that measures of self-control can be a more reliable predictor of students’ grade-point averages than their I.Q.’s.
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People who accomplished great things, she noticed, often combined a passion for a single mission with an unswerving dedication to achieve that mission, whatever the obstacles and however long it might take. She decided she needed to name this quality, and she chose the word “grit.”
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Last winter, Riverdale students in the fifth and sixth grades took the 24-indicator survey, and their teachers rated them as well. The results were discussed by teachers and administrators, but they weren’t shared with students or parents, and they certainly weren’t labeled a “report card.”
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Back at Riverdale, though, the idea of a character report card made Randolph nervous. “I have a philosophical issue with quantifying character,” he explained to me one afternoon. “With my school’s specific population, at least, as soon as you set up something like a report card, you’re going to have a bunch of people doing test prep for it. I don’t want to come up with a metric around character that could then be gamed. I would hate it if that’s where we ended up.”
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She and her team of researchers gave middle-school students at Riverdale and KIPP a variety of psychological and I.Q. tests. They found that at both schools, I.Q. was the better predictor of scores on statewide achievement tests, but measures of self-control were more reliable indicators of report-card grades.
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The CARE program falls firmly on the “moral character” side of the divide, while the seven strengths that Randolph and Levin have chosen for their schools lean much more heavily toward performance character: while they do have a moral component, strengths like zest, optimism, social intelligence and curiosity aren’t particularly heroic; they make you think of Steve Jobs or Bill Clinton more than the Rev. Martin Luther King Jr. or Gandhi.
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The topic for the assembly was heroes, and a half-dozen students stood up in front of their classmates — about 350 kids, in all — and each made a brief presentation about a particular hero he or she had chosen:
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I came to Witter’s class to observe something that Levin was calling “dual-purpose instruction,” the practice of deliberately working explicit talk about character strengths into every lesson.
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It is a central paradox of contemporary parenting, in fact: we have an acute, almost biological impulse to provide for our children, to give them everything they want and need, to protect them from dangers and discomforts both large and small. And yet we all know — on some level, at least — that what kids need more than anything is a little hardship: some challenge, some deprivation that they can overcome, even if just to prove to themselves that they can.
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The idea of building grit and building self-control is that you get that through failure,” Randolph explained. “And in most highly academic environments in the United States, no one fails anything.”
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The Greek package: Eurozone rescue or seeds of an unravelled monetary union? | vox - 0 views
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The IMF has the option of suspending its disbursements and forcing a default, as it did with Argentina.
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Once the markets realise this, they will further raise the interest that they request to roll over the maturing debt or simply refuse to refinance the debt.
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At least, this will clarify the situation: the plan is about bailing out a Eurozone government, in direct violation of Art. 125 of the European Treaty, the so-called no-bail-out clause.
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So, one more time, a (dwindling) group of deficit-stricken countries will have to provide money to increasingly large debtors. In fact, this process means that ultimately there is no national debt anymore, at least for the next few years.
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The ECB does not buy assets outright, so the loss would be borne by the banks that used the Greek bonds as collateral for repo operations with the ECB. But banks are the ECB’s counterparties; if they default, the loss is the ECB’s.
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Was there no other way? It would have been very easy to let Greece go straight to the IMF months ago and reschedule its debt with IMF’s assistance. This would have been a partial default, and the haircut could have been quite small. Most banks that are exposed to the Greek debt should have been able to withstand such losses. With a grace period of, say, three years, Greece would have had the breathing space that the latest plan tries so hard to organise
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Wonkbook: Should high schoolers be reading Executive Order 13423? - geneell@gmail.com -... - 0 views
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More than 25% of U.S. technology companies have at least one foreign-born founder, a majority of Silicon Valley startups have a foreign-born founder, and 40% of Fortune 500 companies were created by an immigrant or first-generation American.”
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Eurozone: Looking for growth | vox - 0 views
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Empirical evidence suggests deleveraging episodes accompanied by a housing crisis will take on average five and a half years across high-income OECD countries (or seven years when accompanied by a banking crisis (Aspachs-Bracon et al. 2011, IMF 2012).
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Little resolution of banking-sector difficulties in the Eurozone suggests that deleveraging and credit will probably remain slow and impaired for much longer than previously thought. Recoveries that happen without credit are, on average, a third longer than recovery episodes with credit (Darvas 2013).
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A common feature of all economies is a collapse in productivity, which is typical of a big recession. In addition, Spain and Italy also underwent a very sharp labour contraction.
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A downside risk is that investment growth does not recover fully (for example, because banks fail to provide the necessary funding). In this case, we assume investment growth is only half what it was before the onset of economic turmoil.
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We also estimate productivity through a convergence equation, which would slightly lift productivity in peripheral countries in the future.
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This exercise suggests that in the absence of policy reforms, trend growth will have been damaged significantly, by at least one percentage point, post-crisis, compared with pre-crisis levels,
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or unemployment levels take longer to fall than in previous recovery episodes, then trend growth would be significantly lower for longer. Trend growth might well remain negative in Spain and Italy, and may fail to increase for Germany or France.
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this exercise shows the damage will indeed be long lasting, permanently impairing growth in a context of an ageing population that needs higher growth capacity than ever before.
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George Soros: how to save the EU from the euro crisis - the speech in full | Business |... - 0 views
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The crisis has also transformed the European Union into something radically different from what was originally intended. The EU was meant to be a voluntary association of equal states but the crisis has turned it into a hierarchy with Germany and other creditors in charge and the heavily indebted countries relegated to second-class status. While in theory Germany cannot dictate policy, in practice no policy can be proposed without obtaining Germany's permission first.
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Italy now has a majority opposed to the euro and the trend is likely to grow. There is now a real danger that the euro crisis may end up destroying the European Union.
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The answer to the first question is extremely complicated because the euro crisis is extremely complex. It has both a political and a financial dimension. And the financial dimension can be divided into at least three components: a sovereign debt crisis and a banking crisis, as well as divergences in competitiveness
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My interpretation of the euro crisis is very different from the views prevailing in Germany. I hope that by offering you a different perspective I may get you to reconsider your position before more damage is done. That is my goal in coming here.
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I regarded the European Union as the embodiment of an open society – a voluntary association of equal states who surrendered part of their sovereignty for the common good.
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The process of integration was spearheaded by a small group of far sighted statesmen who recognised that perfection was unattainable and practiced what Karl Popper called piecemeal social engineering. They set themselves limited objectives and firm timelines and then mobilised the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent and require a further step.
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Unfortunately, the Maastricht treaty was fundamentally flawed. The architects of the euro recognised that it was an incomplete construct: a currency union without a political union. The architects had reason to believe, however, that when the need arose, the political will to take the next step forward could be mobilized. After all, that was how the process of integration had worked until then.
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For instance, the Maastricht Treaty took it for granted that only the public sector could produce chronic deficits because the private sector would always correct its own excesses. The financial crisis of 2007-8 proved that wrong.
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When the Soviet empire started to disintegrate, Germany's leaders realized that reunification was possible only in the context of a more united Europe and they were prepared to make considerable sacrifices to achieve it. When it came to bargaining, they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement.
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The financial crisis also revealed a near fatal defect in the construction of the euro: by creating an independent central bank, member countries became indebted in a currency they did not control. This exposed them to the risk of default.
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Developed countries have no reason to default; they can always print money. Their currency may depreciate in value, but the risk of default is practically nonexistent. By contrast, less developed countries that have to borrow in a foreign currency run the risk of default. To make matters worse, financial markets can actually drive such countries into default through bear raids. The risk of default relegated some member countries to the status of a third world country that became over-indebted in a foreign currency.
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The emphasis placed on sovereign credit revealed the hitherto ignored feature of the euro, namely that by creating an independent central bank the euro member countries signed away part of their sovereign status.
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Only at the end of 2009, when the extent of the Greek deficit was revealed, did the financial markets realize that a member country could actually default. But then the markets raised the risk premiums on the weaker countries with a vengeance.
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Then the IMF and the international banking authorities saved the international banking system by lending just enough money to the heavily indebted countries to enable them to avoid default but at the cost of pushing them into a lasting depression. Latin America suffered a lost decade.
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In effect, however, the euro had turned their government bonds into bonds of third world countries that carry the risk of default.
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The burden of responsibility falls mainly on Germany. The Bundesbank helped design the blueprint for the euro whose defects put Germany into the driver's seat.
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he fact that Greece blatantly broke the rules has helped to support this attitude. But other countries like Spain and Ireland had played by the rules;
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the misfortunes of the heavily indebted countries are largely caused by the rules that govern the euro.
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Germany did not seek the dominant position into which it has been thrust and it is unwilling to accept the obligations and liabilities that go with it.
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As soon as the pressure from the financial markets abated, Germany started to whittle down the promises it had made at the height of the crisis.
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What happened in Cyprus undermined the business model of European banks, which relies heavily on deposits. Until now the authorities went out of their way to protect depositors
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Banks will have to pay risk premiums that will fall more heavily on weaker banks and the banks of weaker countries. The insidious link between the cost of sovereign debt and bank debt will be reinforced.
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In this context the German word "Schuld" plays a key role. As you know it means both debt and responsibility or guilt.
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If countries that abide by the fiscal compact were allowed to convert their entire existing stock of government debt into eurobonds, the positive impact would be little short of the miraculous.
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Germany is opposed to eurobonds on the grounds that once they are introduced there can be no assurance that the so-called periphery countries would not break the rules once again. I believe these fears are misplaced.
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Losing the privilege of issuing eurobonds and having to pay stiff risk premiums would be a powerful inducement to stay in compliance.
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There are also widespread fears that eurobonds would ruin Germany's credit rating. eurobonds are often compared with the Marshall Plan.
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It is up to Germany to decide whether it is willing to authorise eurobonds or not. But it has no right to prevent the heavily indebted countries from escaping their misery by banding together and issuing eurobonds. In other words, if Germany is opposed to eurobonds it should consider leaving the euro and letting the others introduce them.
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Individual countries would still need to undertake structural reforms. Those that fail to do so would turn into permanent pockets of poverty and dependency similar to the ones that persist in many rich countries.
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If Germany left, the euro would depreciate. The debtor countries would regain their competitiveness. Their debt would diminish in real terms and, if they issued eurobonds, the threat of default would disappear.
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What If We Never Run Out of Oil? - Charles C. Mann - The Atlantic - 1 views
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Walking around town, my friend and I had noticed that almost every home had a pile of coal outside, soft dark chunks that people shoveled into stoves for cooking and heating. Thousands upon thousands of coal fires were loading the air with tiny dots of soot. Scientists have taken to calling these dots “black carbon,” and have steadily ratcheted up their assessments of its harm. In March, for instance, a research team led by a Mumbai environmental group estimated that black carbon and other particulate matter from India’s coal-fired power plants cause about 100,000 deaths a year.
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A 31-scientist team from nine nations released a comprehensive, four-year assessment in January arguing that planetary black-carbon output is the second-biggest driver of anthropogenic (human-caused) climate change; the little black specks I found on my glasses and clothes have roughly two-thirds the impact of carbon dioxide.
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The rule of thumb is that if a well leaks more than about 3 percent” of its methane production into the air, “natural gas actually becomes dirtier than coal, from a climate-change perspective,
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Worse still, the aging natural-gas infrastructure is riddled with holes and seeps; early this year, a survey of gas mains along Boston’s 785 miles of road, the first-ever such examination, found 3,356 leaks.
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When renewables supply 20 to 30 percent of all electricity, many utility-energy engineers predict, the system will no longer be able to balance supply and demand. Brownouts will ripple across the landscape
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As an example, typical solar cells today have an EROEI of about 10—better than tar sands but worse than most oil and gas.
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is like asking a shipping firm to replace its huge, professionally staffed container ships with squadrons of canoes paddled by random adolescents.
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But even if such techniques work in the way researchers hope, the infrastructure transformation ahead is daunting in scale and scope. It’s like setting up a second Industrial Revolution, only all over the world and in one-third the time.
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Euro Zone Interest Rate Remains Unchanged - NYTimes.com - 0 views
www.nytimes.com/...st-rate-remains-unchanged.html
euro zone interest interest rate rate remains nytimes nytimes com com
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But some analysts warn that the calm could prove temporary because the underlying causes of the crisis remain: too much debt and poorly performing national economies. “The E.C.B. has been very active since Mr. Draghi has been president, and this has been a major factor contributing to stabilize financial markets and thereby avoid much worse outcomes for the euro zone,” Marie Diron, an economist who advises the consulting firm Ernst & Young, said in a note.
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“But the E.C.B. is not the sole actor and cannot save the euro on its own,” Ms. Diron said. “Ultimately the sustainability of the euro zone is down to structural changes at the country and European levels that are beyond the E.C.B.’s remit.”
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Banks in the euro zone can borrow unlimited funds from the E.C.B. at the benchmark rate, provided they post collateral. But banks are not obligated to pass that rate on to their customers and might not do so in countries like Spain where banks are already struggling with large numbers of bad loans.
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Meanwhile, interest rates may be too low for countries like Germany, helping to fuel a rise in real estate prices, Dirk Schumacher, an economist at Goldman Sachs in Frankfurt, said. “Cutting rates in the current environment of segmented markets is likely to boost growth in those places where it is needed least,” he wrote in a note to clients before the rate decision.
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PORTFOLIO.HU | Blanchard: Eurozone integration needs to go forward or go back, but it c... - 0 views
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And, while lower investment since the beginning of the crisis has led to a smaller capital stock, again the effect appears quantitatively small. It is also difficult to see why the crisis would have led to a large decrease in total factor productivity. This being said, I would have expected a large output gap to lead to more downward pressure on inflation than we have seen. I see the fact that inflation is roughly stable is a puzzle. We are doing more research on this issue at the IMF.
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O.B.:There is no question internal devaluations are tougher to achieve than when you can adjust the nominal exchange rate. That’s well understood. A number of European countries have a competitiveness problem, which shows up in a large current account deficit.
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olve it. And there is no alternative for them than to become more competitive, to decrease the real exchange rate. Is it happening? I think it’s starting to happen, but it’s happening slowly, and it’s going to take a long time.
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Many countries have a tough adjustment to achieve. In doing so, they indeed have to be careful about their social implications. When adjustment requires a decrease in the real wage (or at least a decrease relative to productivity), it is essential that the decrease be fairly shared. You have to make sure that there is a safety net in place. If the pension system has to be made less generous, which is the case in a number of countries, you have to make sure the lowest pensions are protected.
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It is clear that adjustment in the Euro zone requires a decrease in the relative price of periphery countries and an increase in the relative price of core countries. If the ECB wants to maintain two percent inflation for the Euro zone as a whole, this implies, arithmetically, that core countries have to have inflation higher than two percent, periphery countries have to have inflation lower than two percent, until the adjustment has taken place.
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"A Centerless Euro Cannot Hold" by Kenneth Rogoff | Project Syndicate - 0 views
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The bad news is that it has become increasingly clear that, at least for large countries, currency areas will be highly unstable unless they follow national borders.
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With youth unemployment touching 50% in eurozone countries such as Spain and Greece, is a generation being sacrificed for the sake of a single currency that encompasses too diverse a group of countries to be sustainable?
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What of Nobel Prize winner Robert Mundell’s famous 1961 conjecture that national and currency borders need not significantly overlap? In his provocative American Economic Review paper “A Theory of Optimum Currency Areas,” Mundell argued that as long as workers could move within a currency region to where the jobs were, the region could afford to forgo the equilibrating mechanism of exchange-rate adjustment.
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if intra-eurozone mobility were anything like Mundell’s ideal, today we would not be seeing 25% unemployment in Spain while Germany’s unemployment rate is below 7%.CommentsView/Create comment on this paragraph
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Peter Kenen argued in the late 1960’s that without exchange-rate movements as a shock absorber, a currency union requires fiscal transfers as a way to share risk.
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Europe, of course, has no significant centralized tax authority, so this key automatic stabilizer is essentially absent.
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Many Germans today rightly feel that any system of fiscal transfers will morph into a permanent feeding tube, much the way that northern Italy has been propping up southern Italy for the last century. Indeed, more than 20 years on, Western Germans still see no end in sight for the bills from German unification.
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Later, Maurice Obstfeld pointed out that, in addition to fiscal transfers, a currency union needs clearly defined rules for the lender of last resort. Otherwise, bank runs and debt panics will be rampant. Obstfeld had in mind a bailout mechanism for banks, but it is now abundantly clear that one also needs a lender of last resort and a bankruptcy mechanism for states and municipalities.
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A logical corollary of the criteria set forth by Kenen and Obstfeld, and even of Mundell’s labor-mobility criterion, is that currency unions cannot survive without political legitimacy,
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European policymakers today often complain that, were it not for the US financial crisis, the eurozone would be doing just fine. Perhaps they are right. But any financial system must be able to withstand shocks, including big ones.
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German and French banks call the shots - European, Business - Independent.ie - 0 views
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German and French banks call the shots Print Email NormalLargeExtra Large ShareNew 0 0 Also in European Debt crisis: European shares edge lower and growth worries persist Bank of England's Tucker 'wasn't encouraged to lean on Barclays' Draghi keeps door open to further interest rate cuts Marks and Spencers sales hit by summer deluge Spain's debt tops 7pc danger level as Madrid gets more time European Home "Shocking" 2012 HoroscopeWhat Does 2012 Have In Store For You? Shockingly Accurate. See Free!www.PremiumAstrology.comExpat Health InsuranceQuick, Compare, Trusted Website Expatriate Health Insurance Quoteswww.ExpatFinder.com/Instant-Quoteshttp://www.googleadservices.com/pagead/aclk?sa=L&ai=BMEejVeb8T8fDKoSG_QaAhrTCB-q_1OYBmoqphxvAjbcB0NkREAMYAyDgw6kIKAU4AFD4gumFAmCpsL6AzAGgAairsfEDsgESd3d3LmluZGVwZW5kZW50LmllyAEB2gFfaHR0cDovL3d3dy5pbmRlcGVuZGVudC5pZS9idXNpbmVzcy9ldXJvcGVhbi9nZX
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known to itself, the ECB -- in clear contravention of both previous market precedent and financial logic -- has insisted that the senior bondholders be repaid in full and has lent the Irish banks, institutions which it must have known were hopelessly insolvent, €70bn to do so.
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Top of the list are German banks, to whom we owe €92bn with a further €38bn of other exposures. Does the fact that Irish banks potentially owe their counterparts up to €146bn explain the German government's implacable opposition to any write-down of the Irish banks' debts? After the British and the Germans, it is the French banks -- with total Irish bank loans of almost €32bn and a further €23bn of other exposures -- who have the biggest exposure to Ireland. Does this provide at least a partial explanation for French president Nicolas Sarkozy's truculence when faced with Irish requests that senior bondholders be forced to accept a haircut?
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No ordinary recession: There is much to fear beyond fear itself | vox - 0 views
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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.
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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.
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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.
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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.
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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.
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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.
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er self-imposed constitutional balanced budget requirements and are consequently acting as powerful amplifiers of recession with respect to both income and employment.
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Euro crisis deepens as time starts to run out for Spain's banks and regions | Business ... - 0 views
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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.
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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.
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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.
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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.
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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.
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Last year the regions not only failed to meet government-set deficit reduction targets, but actually increased their joint deficit.
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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.
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it was startling to see international investors fearful of getting their money back from members of the single currency.
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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.
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Seven ways to clean up a banking stench | Martin Wolf, Financial Times | Commentary | B... - 0 views
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As Per Kurowski, a former executive director of the World Bank, reminds me regularly, crises occur when what was thought to be low risk turns out to be very high risk.
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Not least, I would do everything I can to eliminate the idea that the state stands behind investment banking. That is an insane idea.
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IMF's Blanchard: Global Economy Gripped By Meta-Uncertainty - WSJ.com - 0 views
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In 2008-09, there was a collapse of global trade. We were all very surprised. Output was not doing well, but the collapse in global trade was enormous. We realized at the time that the elasticity of trade with respect to global output was not 1, as you might think, but more like 3 to 4. So this explained it. And then it recovered like crazy.
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These countries have to do what they need to do. There’s no question there has to be fiscal consolidation. We can discuss the pace, but it has to happen. The other is competitiveness, which I see as much tougher of the two.
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It has to be through a combination of structural reforms, hoping they will work, and nominal wage adjustments, although one cannot be incredibly optimistic about the scope there. We know that that’s going to take a while.
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Take the big two, Italy and Spain. You can always dream of more, but I think they’re serious about doing it, both on the fiscal front and the structural-reforms front. I think it may well be that even if they do everything they can, and do it right, it’s still not enough. They have to have help — I would say when needed rather than if needed.
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The banks have to be recapped, and they have to be recapped not using sovereign money. I think that is really very, very high on the agenda. I don’t think they can make it without help to the banks.
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And the sovereigns have to be able to borrow at reasonable rates. As long as they behave and they do all the things they’re asked to do, they have to be able to borrow at lower rates than they currently do. Some way has to be found to do it.
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It’s not that I don’t care about the way it’s done. But I care about the result. These countries, if they’re doing the right things, they have to be able to finance themselves.
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Some people say a euro depreciation would help Europe a lot. I think there is an argument for it, even in a multilateral context. You have to depreciate vis-a-vis somebody, so somebody has to appreciate. My sense is we would like most of the depreciation to be vis-a-vis emerging-market countries. Even if there was a depreciation vis-a-vis the dollar, I still think it would be a good thing.
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We’ve done simulations. Other people have done simulations as well. 10% real depreciation would lead to a 1.4% increase in growth for a year — which at this stage, given the numbers, would be nice. The footnote, and it’s a very big footnote, is that … how much you benefit depends on how big your exports are related to your GDP and where you export — whether you export in the euro zone or outside. Unfortunately the countries that benefit the most are the countries that really don’t need it — Germany, the Netherlands. The countries that benefit the least are Greece, Portugal, Italy, Spain
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There’s no question, the periphery countries have to improve their competitiveness. That’s not something even monetary policy at the level of the euro or fiscal policy can do. This they have to do through productivity improvements or nominal wage adjustments.
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At this stage I think there is a genuine commitment to thinking about the whole beast. That’s why these words — fiscal union, banking union — have come in.
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Where I think there is still a problem is that all these things will take a lot of time. And some of these things may not happen because they’re unpopular. And meanwhile, there is a fire in the house. So they have to be willing to do more in the short term.
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Worried Banks Pose Obstacle to Forming Financial Union - NYTimes.com - 0 views
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French loans to Spanish banks plunged 34 percent in the fourth quarter of 2011 compared with the previous quarter, according to the latest data from the Bank for International Settlements.
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For Italian banks, French bankers cut their exposure by 16 percent. German banks have also been increasingly wary of their Italian and Spanish peers, reducing lending to them by about 19 percent last year
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In the last six months, as fears about Spain and Greece have intensified, Spanish and Italian banks have been by far the biggest users of the European Central Bank’s program of cut-rate, three-year loans to banks that cannot find money elsewhere.
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But instead of funneling that money back into the Spanish and Greek economies as loans to cash-starved businesses and individuals, these banks have become the primary buyers of their governments’ bonds.
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Most delicate will be whether the Spanish banks receiving the largest cash injections, like the nationalized mortgage giant Bankia, will be forced to impose losses on holders of their subordinated bonds. Those are the investors whose bonds are not backed by collateral and are thus considered more risky.
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In Spain, though, the problem is that 62 percent of the holders of Bankia’s subordinated debt are Spanish individual investors, not overseas hedge funds and investment banks. It is not likely that Madrid will be willing to hit those citizens with a 65 percent loss — the loans are currently priced at about 35 cents on the dollar — at a time of 25 percent unemployment in the country.
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“There are compelling reasons for the euro zone to insist on losses for subordinated and even senior bondholders, the least of which is a reduction in moral hazard,” said Adam Lerrick, an expert on banking and sovereign debt at the American Enterprise Institute. “Losses for bondholders is now euro zone policy, so Europe’s credibility is also at stake.”
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Op-ed: The End of the Euro: A Survivor's Guide - 0 views
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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.
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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.
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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.
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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.
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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,
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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.
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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.
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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.
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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.
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Statistics in Africa: Making Africa count | The Economist - 0 views
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IN 2013 Nigeria’s GDP could increase by 40%, which would be impressive even by Africa’s recent bouncy growth standards. The rise will come not from a surge in economic activity but because the country is rejigging the way it calculates its accounts.
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Nigeria’s real GDP is based on 1990 prices. It plans to update them to ones from 2008. Ghana did the same in 2010, revising its base year from 1996 to 2006. Its GDP shot up by 60%, propelling it overnight from being a poor to middle-income country, defined by the IMF as having a GDP per person of at least $1,026 a year.
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In 2005 its government brought in fertiliser subsidies. It reported a maize crop of 3.4m tonnes in 2006-7, up from 2.6m tonnes the year before. The aid lobby said this justified the subsidies and the budget support which enables them to be paid for.
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But figures released in 2010, disputed by Malawi’s ministry of agriculture, suggest that the harvest was only 2.1m tonnes. If maize production had risen as much as claimed, Malawians should have have had a surplus of maize and prices should have dropped. That did not happen, says Mr Jerven.