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The Eurozone's Narrowing Window by Ashoka Mody - Project Syndicate - 0 views

www.project-syndicate.org/...-becomes-harder-by-ashoka-mody
shared by Gene Ellis on 12 Dec 12 - No Cached
  • Ireland’s authorities have conducted similar recent operations, exchanging short-maturity paper for longer-term debt.
  • This strategy’s success presupposes that, in the interim, economic growth will strengthen the capacity to repay debt down the line.
  • But growth prospects remain grim. The Portuguese economy is now expected to contract by 1% in 2013.
  • ...7 more annotations...
  • Private investors are acknowledging the reality that repayments will likely be drawn out, because insisting on existing terms could cause an untenable bunching of debt-service payments, with possibly unpleasant consequences.
  • Moreover, Irish GNP (the income accruing to its nationals, as distinct from foreign firms operating in Ireland) continues to shrink.
  • Crucially for Europe, world trade has been virtually stagnant in recent months. Global trade and economic performance in the eurozone appear to be dragging each other down.
  • Thus, the eurozone faces three choices: even more austerity for the heavily-indebted countries, socialization of the debt across Europe, or a creative re-profiling of debt, with investors forced to accept losses sooner or later.
  • Special European facilities, along with the IMF, lend money at below-market interest rates, which reduces the extent of austerity required. But the facilities’ resources are dwindling, and they certainly would not be sufficient if Spain and Italy were to seek support.
  • More ambitious pan-European efforts are embodied in various Eurobond proposals. These schemes imply socialization of debt – taxpayers elsewhere in Europe would share a country’s debt burden. These proposals, once in great vogue, have receded. Not surprisingly, the political opposition to such debt mutualization was intense.
    • Gene Ellis
      Gene Ellis on 12 Dec 12
       
      This gets at the crux of the matter.
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Europe Eyes Trade Pact With Obama - NYTimes.com - 0 views

rendezvous.blogs.nytimes.com/...ope-eyes-trade-pact-with-obama europe eyes trade pact obama
shared by Gene Ellis on 08 Nov 12 - No Cached
  • “A car tested for safety in the United States could be sold in Europe without further tests, while a drug deemed safe by Brussels would not have to be approved as well by the U.S. government,” according to a Reuters report that cited examples of the benefits of a free-trade agreement.
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Africa losing billions from fraud and tax avoidance | Global development | The Guardian - 0 views

www.theguardian.com/...dering-illicit-financial-flows africa losing fraud tax development guardian
shared by Gene Ellis on 25 May 16 - No Cached
  • Africa losing billions from fraud and tax avoidance
  • Africa is losing more than $50bn (£33bn) every year in illicit financial outflows as governments and multinational companies engage in fraudulent schemes aimed at avoiding tax payments to some of the world’s poorest countries, impeding development projects and denying poor people access to crucial services.
  • African Union’s (AU) high-level panel on illicit financial flows and the UN economic commission for Africa (Uneca).
  • ...3 more annotations...
  • In total, the continent lost about $850bn between 1970 and 2008, the report said. An estimated $217.7bn was illegally transferred out of Nigeria over that period, while Egypt lost $105.2bn and South Africa more than $81.8bn.
  • Nigeria’s crude oil exports, mineral production in the Democratic Republic of the Congo and South Africa, and timber sales from Liberia and Mozambique are all sectors where trade mispricing occurs.
  • The bulk of Africa’s illicit transfers originated from west Africa, where 38% of all funds leaving the continent were generated. Profit-making activities in north Africa accounted for 28% of the flows, while southern Africa, central Africa and eastern Africa each made up about 10%, the report showed.
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Myanmar Faces Stumbling Blocks on Way to Growth - NYTimes.com - 0 views

www.nytimes.com/...ocks-in-a-booming-economy.html myanmar faces blocks way growth
shared by Gene Ellis on 13 Apr 12 - No Cached
  • Gene Ellis on 13 Apr 12
     
    THE DIFFICULTIES OF AUTARCHIC GROWTH.
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Europe to Germany: your eurocrisis 'answers' don't work for us - CSMonitor.com - 0 views

www.csmonitor.com/...3 GDP
shared by Gene Ellis on 01 May 12 - No Cached
  • Gene Ellis on 01 May 12
     
    Global
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EMU and International Conflict | Foreign Affairs - 0 views

www.foreignaffairs.com/...emu-and-international-conflict
shared by Gene Ellis on 30 May 12 - No Cached
  • Indeed, the adverse economic effects of a single currency on unemployment and inflation would outweigh any gains from facilitating trade and capital flows among the EMU members.
  • There is no sizable country anywhere in the world that does not have its own currency. A national currency is both a symbol of sovereignty and the key to the pursuit of an independent monetary and budget policy.
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Op-Ed Contributor - The Greek crisis shows why Germany should leave the European Moneta... - 0 views

www.nytimes.com/...29Starbatty.html
shared by Gene Ellis on 09 Jul 12 - Cached
  • THE European Monetary Union, the basis of the euro, began with a grand illusion. On one side were countries — Austria, Finland, Germany and the Netherlands — whose currencies had persistently appreciated, both within Europe and worldwide; the countries on the other side — Belgium, France, Greece, Italy, Portugal and Spain — had persistently depreciating currencies.
  • Rather than pulling the lagging countries forward, the low interest rates of the European Central Bank have lured governments and households, especially in the southern part of the euro zone, into frivolous budgetary policies and excessive consumption.
  • the solution is clear: the only way to avoid further harm to the global economy is for Germany to lead its fellow stable states out of the euro and into a new and stronger currency bloc.
  • ...8 more annotations...
  • Unlike their northern neighbors, the countries in the zone’s southern half have difficulty placing bonds — issued to finance their national deficits — with international capital investors. Nor are these countries competitive in the global economy, as shown by their high trade deficits.
  • If Greece were outside the euro zone, for example, it could devalue its currency
  • Instead, the fiscal strictures of the euro zone are forcing the country to curtail public expenditures, raise taxes and cut government employees’ salaries, actions that may push Greece into a deep depression and further undermine its already weak international credit standing.
  • In short, th
  • e euro is headed toward collapse.
  • hat opportunity and pull out of the euro, it wouldn’t be alone. The same calculus would probably lure Austria, Finland and the Netherlands — and perhaps France — to leave behind the high-debt states and join Germany in a new, stable bloc, perhaps even with a new common currency.
  • If Germany were to take t
  • A strong-currency bloc could fulfill the euro’s original purpose. Without having to worry about laggard states, the bloc would be able to follow a reliable and consistent monetary policy that would force the member governments to gradually reduce their national debt. The entire European economy would prosper. And the United States would gain an ally in any future reorganization of the world currency system and the global economy.
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PrudentBear - 0 views

prudentbear.com/...featuredcommentaryview GEP com nytimes nytimes com global europe GDP crisis syndicate euro
shared by Gene Ellis on 09 Jul 12 - No Cached
  • German exporters were major beneficiaries of this growth. German banks and financial institutions helped finance the growth.
  • Exports have provided the majority of Germany’s growth in recent years. Germany is heavily reliant on a narrowly based industrial sector, focused on investment goods—automobiles, industrial machinery, chemicals, electronics and medical devices. These sectors make up a quarter of its GDP and the bulk of exports.
  • Germany’s service sector is weak with lower productivity than comparable countries. While it argues that Greece should deregulate professions, many professions in Germany remain highly regulated. Trades and professions are regulated by complex technical rules and standards rooted in the medieval guild systems. Foreign entrants frequently find these rules difficult and expensive to navigate.
  • ...18 more annotations...
  • Despite the international standing of Deutsche Bank, Germany’s banking system is fragile. Several German banks required government support during the financial crisis. Highly fragmented (in part due to heavy government involvement) and with low profitability, German banks, especially the German Länder (state) owned Landsbanks, face problems. They have large exposures to European sovereign debt, real estate and structured securities.
  • Prior to 2005, the Landesbanken were able to borrow cheaply, relying on the guarantee of the state governments. The EU ruled these guarantees amounted to subsidies. Before the abolition of the guarantees, the Landesbanks issued large amounts of state-guaranteed loans which mature by December 2015.
  • While it insists on other countries reducing public debt, German debt levels are high—around 81% of GDP. The Bundesbank, Germany’s central bank, has stated that public debt levels will remain above 60% (the level stipulated by European treaties) for many years.
  • Germany’s greatest vulnerability is its financial exposures from the current crisis. German exposure to Europe, especially the troubled peripheral economies, is large.
  • German banks had exposures of around US$500 billion to the debt issues of peripheral nations. While the levels have been reduced, it remains substantial, especially when direct exposures to banks in these countries and indirect exposures via the global financial system are considered. The reduction in risk held by private banks has been offset by the increase in exposure of the German state, which assumed some of this exposure.
  • For example, the exposure of the ECB to Greece, Portugal, Ireland, Spain and Italy is euro 918 billion as of April 2012. This exposure is also rising rapidly, especially driven by capital flight out of these countries.
  • Germany is now caught in a trap. Irrespective of the resolution of the debt crisis, Germany will suffer significant losses on its exposure – it will be the biggest loser.
  • Once the artificial boom ends, voters will discover they were betrayed by Germany’s pro-European political elite. There will be an electoral revolt and, as in the rest of Europe, a strong challenge from radical political forces with unpredictable consequences.
  • In late May 2012, French President Francois Hollande provided a curious argument in support of eurozone bonds: “Is it acceptable that some sovereigns can borrow at 6% and others at zero in the same monetary union?”
  • Political will for integration
  • In the peripheral economies, continued withdrawal of deposits from national banks (a rational choice given currency and confiscation risk) may necessitate either a Europe wide deposit guarantee system or further funding of banks.
  • A credible deposit insurance scheme would have to cover household deposits (say up to euro 100,000), which is around 72% of all deposits, in the peripheral countries. This would entail an insurance scheme for around euro 1.3 trillion of deposits.
  • Given that the Spanish Economy Ministry reports that euro 184 billion in loans to developers are “problematic,” the additional recapitalization needs of Spain’s banks may be as high as euro 200-300 billion in additional funds (20-30% of GDP)
  • A Greek default would result in losses to Germany of up to around euro 90 billion. Germany’s potential losses increase rapidly as more countries default or leave the eurozone.
  • Austerity or default will force many European economies into recession for a prolonged period. German exports will be affected given Europe is around 60% of its market, including around 40% within the eurozone. In case of a break-up of the euro, estimates of German growth range from -1% to below -10%. It is worth remembering that the German economy fell in size by around 5% in 2008, the worst result since the Second World War, mainly on the back of declining exports.
  • For example, Greece owes about euro 400 billion to private bondholders but increasingly to public bodies, such as the IMF and ECB, mainly due to the bailouts. If Greece walks away as some political parties have threatened, then the fallout for the lenders, such as Germany, are potentially calamitous.
  • But the largest single direct German exposure is the Bundesbank’s over euro 700 billion current exposure under the TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) to other central banks in the Eurozone.
  • by Satyajit Das
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Seven ways to clean up a banking stench | Martin Wolf, Financial Times | Commentary | B... - 0 views

www.businessspectator.com.au/...ty-regulation-pd20120713-W5SJ6 martin wolf banking stench
shared by Gene Ellis on 15 Jul 12 - No Cached
  • 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.
  • 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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Understanding the European Crisis Now - Graphic - NYTimes.com - 0 views

www.nytimes.com/...nding-the-european-crisis.html understanding european crisis graphic nytimes
shared by Gene Ellis on 18 Jun 12 - No Cached
  • Gene Ellis on 18 Jun 12
     
    Well, not an understanding, but a graphic overview... useful.
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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.
  • ...7 more annotations...
  • 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.
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