recession we had to have

The Greece [and European] Crisis thread

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Greek public workers go on strike

JOHN HADOULIS

February 10, 2010 - 8:29PM AFP

Thousands of Greek civil servants have gone on strike against wage cuts, paralysing flights and disrupting rail traffic as Athens grapples to fight a debt crisis that has shaken Europe.

The day-long strike on Wednesday came amid reports Germany is considering how to help Athens and contain any spillover to the other 15 countries that share the euro.

The action - set to cripple the work of ministries, local administrations, educational institutions and tax offices - will be another test of the resolve of Greece's Socialist government.

Flights across Greece were suspended on Wednesday as air traffic controllers joined the protest. The two main Greek carriers, Olympic Air and Aegean, cancelled flights for the day.

The main union of public workers, which alone counts some 300,000 members, will stage protests in Athens and the second city of Salonika against the "unjust and meaningless sacrifices".

The state-run railways cut services following a nine-hour walkout announcement by unions but international train traffic will not be affected.

Since the government revealed late last year that the country's finances were in much worse shape than had been thought, the markets have punished Greece as they fear unions will beat back any cost-cutting plans.

Greek Prime Minister George Papandreou on Monday asked civil servants to accept bonus cuts saying they "must be the first to set an example."

The Greek crisis has driven up borrowing costs for governments across Europe, with pressure mounting on a number of other heavily-indebted eurozone members, and sent the euro sliding against the dollar.

The European Commission voiced concern on Tuesday that Greece's fiscal crisis could affect other parts of the 16-nation eurozone.

There is a "serious risk of spillover into other parts of the euro area," EU Economic Affairs Commissioner Joaquin Almunia told the European Parliament in Strasbourg.

But Alumnia ruled out the need for help from the International Monetary Fund and urged European leaders to offer "clear support" for Greece in return for real efforts from Athens to resolve its budget crisis.

A report in the Financial Times Deutschland on Wednesday suggested that Germany was preparing an aid plan for Greece, following weeks of speculation that eurozone nations may need to help Athens to avoid a humiliating turn to the IMF that would shatter confidence in the euro.

The newspaper said German Finance Minister Wolfgang Schaeuble was working on both a bilateral basis and at the European level on putting together a package to help Athens.

© 2010 AFP

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the Eurozone will need to finance, roll and fund deficits to the tune of €1.6 trillion in 2010 alone. Keep in mind that the U.S. faces a very similar situation, as it has to fund roughly $1.7 trillion in net issuance in this calendar year, and prior analyses indicate that there will likely be a $700 billion shortfall absent a dramatic upswing in rates.

http://www.zerohedge.com/article/deconstructing-europe-how-%E2%82%AC20-billion-liquidity-crisis-set-become-%E2%82%AC16-trillion-funding-crisi (more in the link)

BofA%20Sov%204.jpg

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if i was euro chief id let em hang. they want to break the rules and go playing with crooks like GS, then burn. like someone said greece is 3% of euro economy, drop em like a sack of potatoes and let em rot.

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I don't think the true catalyst for the final leg down, is going to be something the world is watching.

If everyone is aware of a problem it is not a problem.

I'm still an advocate for the "black swan" theory.

It will be something from completely out of left field, that no governments or markets were expecting that will rip the carpet out from under the feet of the decision makers.

Such a situation cannot be as easily or readily rectified, and can cause panic.

An earthquake, or a volcanic eruption, or even a tsunamai that is expected, can be dealt with even though there is injury and loss. But something unexpected is a different matter.

Similar to workers turning up one day to discover the factory closed, with no warning and no indication of any trouble looming.

I have no doubts that the sovereign debt issue is causing some anxiety, but I still think, it will be something under the radar, that will do the damage, and tip the tenuous over the edge.

I have no idea what that might be, but rest assured its origins are already underway.

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http://www.telegraph...government.html

Germany backs Greek bail-out as EU creates 'economic government'

Germany is preparing to drop its vehement opposition to a rescue package for Greece, fearing that a rapid escalation of the debt crisis in Southern Europe could endanger German banks and damage the euro.

By Ambrose Evans-Pritchard, International Business Editor

Published: 8:36PM GMT 09 Feb 2010

Wolfgang Schäuble, Germany's finance minister, has asked officials to prepare a plan in time for a summit of EU leaders on Thursday, according to reports in the German media. The options include either a loan from EU states or some sort of institutional EU response. The news pushed the euro to $1.38 against the dollar, the strongest one-day rally since the single currency began its nose-dive late last year. Yields on Greek 10-year bonds plummeted 36 basis points to 6.39pc in a matter of hours as speculators scrambled to exit overstretched positions, with synchronised moves for Portuguese, Spanish, and Italian bonds.

Michael Meister, parliamentary chief for Germany's Christian Democrats, said the crisis could not be allowed to drag on. "Our top priority is the stability of the euro," he told FT Deutschland. "Should Greece receive help, it will only be under tough conditions and if the Greek government undertakes root-and-branch reforms."

Germany's apparent backing for a bail-out comes despite worries that it will lead to the breakdown of fiscal discipline across the Club Med region. It also raises troubling questions of fairness. Ireland has tackled its own crisis by slashing wages and going far beyond any measure so far offered by Greece, yet Dublin has not received help.

Germany's dramatic shift in policy changes the character of the euro project. It follows weeks of soul-searching in Berlin, and after increasingly loud pleas from Brussels, Paris and southern capitals. The deciding factor was concern that letting Greece fail risked a "Lehman-style" run on Club Med debt, with systemic spill-over across Europe.

German exposure to the region amounts to €43bn in Greece, €47bn in Portugal, €193bn in Ireland, and €240bn in Spain, according to the Bank for International Settlements. German lenders are already vulnerable, with the world's lowest risk-adjusted capital ratios bar Japan.

The breakthrough comes as this week's summit of EU leaders in Brussels rapidly evolves from a policy workshop into an historic gathering that may catapult the EU across the Rubicon towards fiscal federalism and a de facto debt union. The EU's top brass are seizing on the crisis to push for a radical extension of EU powers, saying Greece has exposed the deep flaws in the structure of monetary union.

Herman Van Rompuy, the EU's new president, has submitted a text calling for the creation of an "economic government" that shifts responsibility for economic planning from national authorities to the "EU level".

In a parallel move, Commission chief Jose Barroso said Brussels has treaty powers allowing it to take the reins of economic management. "

This is a time for boldness. I believe that our economic and social situation demands a radical shift from the status quo. And the new Lisbon Treaty allows this," he said.

"Economic policy isn't a national, but a European matter. No modern economy is an island. When a member state doesn't make reforms, others suffer because of that."

Rumours swept the markets all day on news that Jean-Claude Trichet, the head of the European Central Bank, had cut short a trip to Australia to attend the summit.

It is unclear how long Tuesday's reprieve will last, or whether any bail-out involving loans – as opposed to subsidy – can solve the deeper crisis of Club Med competitiveness. Wealthy Greek citizens have shifted €7bn from banks in Greece to foreign accounts, fearing that capital controls in Athens. The withdrawals have echoes of the Mexico's Tequila Crisis in 1994 when Mexicans set off a spiral by shifting funds to the US.

The risk is that capital flight will erode the deposit base of Greek banks, forcing them to shrink loan books. Greek banks do not rely on the fickle funding of wholesale markets – the undoing of Northern Rock – but this does not shield them from a deposit run.

Goldman Sachs has downgraded the National Bank of Greece and GPSB. "Greece faces both a liquidity and, potentially, a solvency problem. While we believe that, individually, Greek banks tend to be well-run, the problems they face are outside their operational control," it said.

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I don't think the true catalyst for the final leg down, is going to be something the world is watching.

Yes. These are rumblings or warnings that the worst is ahead but not IT.

The most significant event IMO in the 20th century was unforeseen and enacted by a Serbian nobody in 1914*

The outcomes were far reaching from the destruction of Germany and the resultant 3rd Reich; The decimation of millions of Russians under Nicholas II allowing Lenin to seize power faicilitating the Cold War and Comintern activities in Africa, Asia etc; The loss of empire wealth by Britain with independance to Palestine/Israel, South Africa, India (and its sub division into Pakistan and Bangladesh), Egypt and Mesapotamia (Iraq); Loss of French Indo-China; The rise of the USA from isolation following WW2 etc etc etc.

* http://en.wikipedia.org/wiki/Gavrilo_Princip

My gut says it will involve China in some way.

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I don't think he is making a good analyisis and after all he is the same guy that made a crappy analysis few days ago, first of all those bonds that are to be renewed are already part of the system, where would they go if not back into the system? probably EU wish they'll not going to go back into bond and be spent boosting gdp, taxes, employment etc. In any case I'll doubt those money will head out of europe, more likely those US, Australia or other nation bonds due to expire will head back to the owner in Europe, foreign debt is kind of no existent in EU. About the fiscal deficit, if the 529 bil euro is correct (and I doubt it is an update number) is considering the interest payment on the debt and is around 15 times bigger then the fiscal deficit this year for australia, How much bigger is EU population and GDP comparing to Australia?

boz

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Was flicking channels last night and the 7pm project had the barefoot investor on it, talking about this and the housing bubble. Its almost mainstream news!

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read an article about how ECB sees this as an opportunity to get more c**trol over local economies. lay down the law and runn the whole of europe from brussels. well guess with a deal like that i would bail out greece et al. so take backmy erlier post about letting em hang, its all about central control.

i wonder if it will all end up like roman times with citizens begging the barbarians to invade them and free them from too many taxes?

i think we crossed over when all west countries brought in patriot act type laws and decided spying on their own was a good idea.

even if anyone over threw the new powers in the world, they would unlikely want to disassemble the surveillance.

but i digress big time.

basically cost for being bailed out will be loss of control over own econ and becoming vassal state of brussels.

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Germany backs Greek bail-out as EU creates 'economic government'

Germany is preparing to drop its vehement opposition to a rescue package for Greece, fearing that a rapid escalation of the debt crisis in Southern Europe could endanger German banks and damage the euro.

By Ambrose Evans-Pritchard, International Business Editor

Published: 8:36PM GMT 09 Feb 2010

greece_1575241c.jpg Protesting farmers shout slogans while marching in central Athens Photo: AFP/Getty Images Wolfgang Schäuble, Germany's finance minister, has asked officials to prepare a plan in time for a summit of EU leaders on Thursday, according to reports in the German media. The options include either a loan from EU states or some sort of institutional EU response.

See http://www.telegraph...government.html

Edited by Silver Surfer

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My 2c worth is that I support the supposition.

If I was a German, I'd be asking the Chancellor and Bundestag why we (The FDR) are carrying these basket cases when WE are the economic powerhouse (and to a lesser extent France) of the EU.

I see widespread protests etc in Germany in 2010.

Deutsche Mark Longs anyone?

Well the mumblings in Germany are beginning...

http://www.nytimes.com/2010/02/11/world/europe/11germany.html

BERLIN — As Europe edges toward emergency guarantees to stem market panic over one of the most profligate members of the euro bloc, the country that the region turns to for leadership, Germany, is suffering from growing doubts about the European experiment it long championed.
But a bailout will be politically awkward for Chancellor Angela Merkel’s government. It is precisely the financial millstone that opponents warned about when Germany gave up its treasured mark, a move that a majority of people here, in contrast to their political leaders, opposed at the time.

“If the German government would just transfer money to Greece, people in Germany would feel their worst fears had come true,” said Thomas Mayer, chief economist at Deutsche Bank.

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Still no details about this 'rescue'.

http://business.timesonline.co.uk/tol/business/economics/article7026245.ece

GREECE was given fresh hope of a financial lifeline yesterday when Jean-Claude Juncker, chairman of Europe’s finance ministers, said action would be taken to support its beleaguered economy.

Juncker, speaking ahead of a crucial meeting of eurozone finance ministers tomorrow, said he could not be specific about the form of aid.

In an interview with a German newspaper, he said: “We have many instruments ready and will use them if necessary.”

Mario Draghi, a member of the European Central Bank’s governing council, told a conference that the euro was “sound” and that investors would buy Greek government securities but reform of the eurozone was needed.

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Still no details about this 'rescue'.

http://business.time...icle7026245.ece

I hope they won't do and agree on any rescue.

Even with my trading account in euro I think in the long term is better not rescue them, would be like Hugh hendry is saying that the euro is like gold and greece can't afford it, so more valuable...

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I think its funny that it goes stimulate, stimulate, stimulate then reign in, pull up whoa!!!!

Bag the Meds, whilst the USA is a basketcase.

California is the one of the biggest economies in the world with a GSP of just under $2Trillion and they are in woe (Califs economy is 6x Greece's) yet Greece with a $350B GDP is going to bring down the world?

However, Bernanke can just print and save California.

PS California has a GDP about twice Australia's and is 13% of the USA's.

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An unusual interesting view from a UK website (UK press usually just love to put Sh.t on other countries...)

My link

Greece's economic problems and euro threats are exaggerated

Joseph Stiglitz's article (A principled Europe would not leave Greece to bleed, 25 January) and your leader (Under a Byzantine shroud, 30 January) offer quite a sensible analysis of Greece's recent economic troubles. Some other international press coverage vastly ­exaggerates the problem.

The European Central Bank's dogmatic hardline euro policy, at a time of severe recession, is responsible not only for Greece's loss of competitiveness, which led to the twin deficits, but also for a really bad European export performance. This has been reduced by $109.1bn (€78.3bn) in the past 12 months. The recession is seriously testing the euro.

Greece is a small part of the euro area, 2.7%, with roughly 3.9% of euro-area public debt. It is indeed in serious trouble, and various domestic factors, such as its rigid product markets, its tremendous public waste and, above all, its incompetent political elite, have offered plenty of room for extended international discontent. How­ever, Greek GDP declined by 1.1% in 2009, from 2.9% in 2008, less than the average fall in the euro area, and much less than that of some countries. Also, the rise in the debt-GDP ratio for Greece from 2007 to 2011 will be 39.8% points – bad, you may say. But compare it with the UK's 44% points, Ireland's 71.1% points, Spain's 37.9% points, and the US's 35.7% points. Not quite the tragedy some people allude to!

As for the risk of bankruptcy, which many believe may lead to an exit from the euro area, the current level of Greek indebtedness in both the private and public sectors is already comparable to those of the euro area countries. According to IMF data, Greece's average total indebtedness, private and public, is about 179% of GDP. The EU's average is 175%; Belgium's 219%; Ireland's 222%; Italy's 194%; the Netherlands' 234%; Portugal's 197%; and Spain's 207% – all well above Greece's figure. Greece has more public than private debt. But this is only due to the inability of the state mechanism to collect taxes from the privileged – in particular, money that goes to luxurious imports and overconsumption. Direct taxes amount to about 20% of GDP, compared with the EU's 26% average. A simple increase could bring in ¤16bn annually, and restrict significantly the spreads on Greek bonds and the public borrowing needs.

Philip Arestis, University of Cambridge

Theodore Pelagidis, London School of Economics and University of Piraeus

Interesting the data about the public+private debt, usually press just focus on public debt, but the last financial chrisis proved that private debt is very important and effecting the retail consuming spending more then public debt. I think Australia total indebtness is similar to europe average at around 170%. But the commodity and resource boom really helped Australia in the last few years with our GDP increasing and contain the indebtness number while a drop in gdp like europe suffered contributed to the debt/gdp ratio.

In any case, the real problem for Greece is their people, I am not happy to say that but I watched closely Argentina Chrisis 10 years ago and the problem was the same: the people, so, even if I agree the Greek problem is not out of control I don't trust Greece in having a permanent solution and solving it

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A good opinion from Issing on the FT

Europe cannot afford to rescue Greece

By Otmar Issing

Published: February 15 2010 14:18 | Last updated: February 15 2010 14:18

To bail out Greece or not? The question is grabbing headlines daily. Supporters of a bail-out argue that if Greece collapses, others would follow. Financial markets have already identified the next candidates. As such, European economic and monetary union is at risk. Only financial aid and “solidarity” with highly indebted members can rescue the euro.

It is certainly true that this is a decisive moment for Emu – but for the opposite reason. Greece will continue to receive support from several European Union funds. But financial aid from other EU countries or institutions that amounted, directly or indirectly, to a bail-out would violate EU treaties and undermine the foundations of Emu. Such principles do not allow for compromise. Once Greece was helped, the dam would be broken. A bail-out for the country that broke the rules would make it impossible to deny aid to others.

It seems that quite a number of observers have forgotten what Emu is, and what it is not. The monetary union is based on two pillars. One is the stability of the euro, guaranteed by an independent central bank with a clear mandate to maintain price stability. The other is fiscal solidity, which has to be delivered by individual member states. Member countries are still sovereign. Emu does not represent a state; it is an institutional arrangement unique in history.

In the 1990s, many economists – I was among them – warned that starting monetary union without having established a political union was putting the cart before the horse. Now the question is whether monetary union can survive without such a political union. The current crisis must be handled in such a way as to produce a positive answer. The viability of the whole framework – nothing less – is at stake.

By joining Emu, a country accepts its rules. Greece, moreover, also knew that adopting a stable currency that was not controlled by its own central bank implied a total break with the past. Devaluation of the national currency and an inflationary monetary policy were no longer options. A single monetary policy is implemented by the European Central Bank and it is the responsibility of each country to adjust its economic policies so that this one size fits all.

Participation in Emu brings huge advantages. The benefits of joining a stable economic area are greatest for countries that were unable to deliver such conditions before. Thanks to the euro, Greece has enjoyed long-term interest rates at a record low. But instead of delivering on its commitment at the time of entry to reduce public debt levels, the country has wasted potential savings in a spending frenzy. The crisis with which it is now confronted is not the result of an “external shock” such as an earthquake, but the result of bad policies pursued over many years. Bailing out Greece would reward such behaviour and create moral hazard of a dimension hardly seen before.

In this context, one conclusion becomes obvious: financial assistance for countries that violated the terms of their participation in Emu would be a major blow for the credibility of the whole framework. By its construction, Emu is a “no transfers” community of sovereign states. Transferring taxpayers’ money from countries that obeyed the rules to those that violated them would create hostility towards Brussels and between euro area countries. Among ordinary people, it would undermine a badly needed sense of identification with the great project of European integration.

This moment is a turning point for Emu, and for the future of Europe. Most observers point to the high risks – which cannot be denied. However, any crisis also presents an opportunity. This is a big chance – probably the last for Greece, and others – to adapt fully to a regime of stable money and solid public finances.

For Emu, the crisis represents a final test of whether such an institutional arrangement – a monetary union without a political union – is viable for an extended period of time. Lax monitoring and compromises when it comes to observing implementation of rules have to stop. Emu is a club of states with firm rules accepted by entrants. These rules must not be changed ex-post. Governments should not forget what they promised their citizens when they gave up their national currencies.

The writer is president of the Centre for Financial Studies and a former member of the European Central Bank’s executive board

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The Yanks are staining their dacks brown. The sight of Europe maintaining fiscal discipline makes the world realize for whom the bell tolls.

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The German folk are getting twitchy...

http://www.marketwatch.com/story/pressure-rises-on-greece-european-union-2010-02-15

But the toughest message may have come from a German opinion poll, which found a majority of citizens in the euro-zone's largest country say Greece should be tossed out of the euro zone if necessary to preserve the single currency's stability.

The poll for the Bild am Sonntag newspaper published Sunday found 53% said Greece should be expelled if necessary, while two-thirds opposed providing Greece with billions of euros in credit, according to Reuters. "Clearly, as things stand, there can be no improved deal for the country unless (German Chancellor) Angela Merkel can confidently proclaim to the German people that its plans for financial resuscitation are credible," said Neil Mellor, currency strategist at Bank of New York Mellon.

"Yet this is clearly not believed to be the case -- and particularly after last week's GDP data showed a larger contraction than preliminary figures had suggested."

Greece last week revised down its gross domestic product data for the first three quarters of 2009.

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theres gonna be a lot of pain in the euro shorts world if germany sticks to its guns,. i recall porsche burning the hell out of a bunch of shorters, good on em.

deutschland deutschland uber ales

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theres gonna be a lot of pain in the euro shorts world if germany sticks to its guns,. i recall porsche burning the hell out of a bunch of shorters, good on em.

deutschland deutschland uber ales

Them giving up the mark was just stupid IMO. Germany is the model of good governance and innovation (and I loved working with their Luftwaffe as opposed to any other Air Force - bloody professional).

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i think they saw a big picture, and that was europe will always squabble and it needs to be unified to be of any consequence in the modern world.

wars cant unify so monetary union was a way to stop the big war powers getting at ea others throat.

it dont really matter if spain or greece fall out, as long as germany france, UK, turkey, italy, all stick together theres a chance at the 100 years peace. something of a milestone for europe.

yeah i saw yes minister, i suspect when uk needs the bailout things will really get interesting, whos gonna baile em, im guessing USA. but isnt that why IMF was founded to keep places going under? all those SRN's the major players buy is their tip into thew kitty to keep things from going arse up.

i dont think greece counts " as too big to fail " as someone said keep the powder dry for the real fight.

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i recall porsche burning the hell out of a bunch of shorters, good on em.

That was the good part. A year later Porsche was insolvent because it didn't find the funding for its option takeover target (Volkswagen) and Porsche was bought out by Volkswagen.

Edited by sydney3000

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