The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[muppet]

No comment:

[muppet]

http://www.guardian.co.uk/commentisfree/2011/may/20/eurozone-crisis

Five ways to solve the eurozone crisis
Myths and misinformation feed in to a general lack of ideas about how to save the eurozone

Henning Meyer

The crisis of the eurozone seems to be going from bad to worse. Not only have the key players not yet found convincing solutions for the fiscal problems in Greece, Ireland and Portugal but we are already witnessing the beginning of a political backlash that could undermine the achievements of decades of European integration. There is generally a lack of ideas about what needs to be done to turn things around so here are my suggestions:

1. Say it as it is: it's about politics, not economics

As Wolfgang Muenchau observed, the debt to GDP ratio of the eurozone as a whole is less than that of the UK or the US and does not pose an overall economic problem. The problem is that there is a lack of political mechanisms to deal with fiscal crises in some areas of the eurozone. So this crisis is not about economics, it is about politics and economically illiterate politicians.

2. There are no payments – be honest with Europe's citizens

It is frankly shameful that most European leaders, especially in Germany, keep their population believing that there are direct payments to countries such as Greece. This nurtures the wrong assumption that the German taxpayer pays for early retirement and other luxuries they themselves do not enjoy.

This is just wrong. The bailout is not a direct payment – it provides IMF and EU lending facilities that lend at lower than market interest rates but at higher rates than the countries that underwrite it can get money for. So the bailout (actually a misnomer) is not a handout but a loan at a profitable rate if there is no default.

What this dishonesty does, however, is to undermine solidarity and to create a widespread mood against Europe in debtor as well as creditor countries.

The fact that anti-European parties are on the rise all over the place is therefore unsurprising and to a significant extent due to the mainstream parties not being honest about what is going on.

3. Stop the banking socialism

But why are Europe's leaders not straight? Almost certainly there has to be a debt restructuring at some point and it should naturally be the investors that take the first hit, not the taxpayers.

A significant part of the bailout is used to service sovereign debt so the money goes straight into the pockets of the bondholders and not to the people in the crisis countries who are actually exposed to crippling austerity measures. In essence, the bailouts help banks holding sovereign debt of crisis countries to socialise their investment risk. And the more debt is bought up by the ECB – or maybe by the lending facilities themselves – the more the taxpayers are liable.

Of course, if a haircut or some other form of immediate restructuring brought certain banks into trouble they would have to be supported if they are systemically relevant. But in such a situation it would at least be clear that normal capitalist rules still apply and the primary investment risk lies with the investor who was already compensated for this risk via the interest rate. At the moment we have privatised profits and socialised risks while keeping people in the dark about it. This cannot continue.

4. Breaking up the eurozone is the most expensive option – admit it

It also requires some political honesty to admit that there are no cheap options left to resolve this crisis. But breaking up the eurozone would be the most expensive one. Why?

Imagine Greece leaving the euro and reintroducing the drachma. Apart from the practical problems and costs a currency switch would create an immediate run on the Greek banks by savers wanting to take their assets abroad because the drachma would radically depreciate against the euro.

The debt to GDP ratio would also increase drastically as the debt would still be in euro, making a default much more likely. Given the low proportion of exports as a share of Greek GDP, the resulting increase in competitiveness would not outweigh the costs. So this surely looks like the worst option.

5. Forget the stability and growth pact – we need proper economic governance

It is simply wrong for some commentators to say that diluting the stability and growth pact was the reason for the euro crisis. First of all the pact is based on random figures. The 60% overall debt to GDP and the 3% annual deficit limits were just based on the average debt and growth rates of 1990. There is no economic rationale for these figures and they do not allow for specific circumstances either.

Germany was one of the first countries to break these rules as they do not allow for country-specific circumstances to be considered. Therefore the huge costs produced by German reunification could not be taken into account when judging German fiscal policy.

It is true that Greece's real fiscal position has been obscured by wrong figures, but Ireland for instance was in a very strong fiscal position – well within the pact criteria – when the crisis broke out. The pact did not, however, prevent Irish banks from creating balance sheets of a multiple of GDP, and it did not prevent the building up of a housing bubble and aggressive beggar-thy-neighbour tax policies either.

[muppet]

http://www.imf.org/external/pubs/ft/survey/so/2011/CAR052011A.htm

[thejuice]

Want to try living without money?

http://www.rte.ie/radio1/doconone/links.html

[Declan]

Gene Kerrigan: My heart bleeds for our poor judges
Stop wasting money on children and the elderly -- it's time to look after the judiciary, writes Gene Kerrigan

Sunday May 22 2011

THERE'S a positive side to an economic crisis -- albeit, a bitter one. When an economy falls through the floor, the various interests in society scramble to protect their asses. In normal times, the powerful look after one another. In times of severe stress, the solidarity cracks and we get a hint of friction behind the scenes.

In a private meeting with the Taoiseach, the Chief Justice discussed the effect of the pension levy on judges' pensions.

Then the judges authorised one of their number to put their case to an Irish Times journalist, off the record. And last week, unbidden by his Lordships, former PD leader Michael McDowell leapt into the debate, in an article in this newspaper.

Michael, a wealthy barrister and occasional politician, unsheathed his trusty sword and demanded justice for judges. And why not? Despite the pomp and the pretence, judges are as entitled as anyone else to be treated fairly.

Now, mind you, whatever Michael writes about, at heart he's usually writing about Michael. The first three sentences of his article began with "I" and the first-person pronoun was used nine times in the opening paragraph.

Nevertheless, there's a germ of truth in Michael's claim that the pension levy places a heavy burden on some judges.

To which Soapbox says, tough luck, M'Lud.

At the beginning of this crisis, Soapbox identified a couple of basic truths. One: there would be an attempt to solve the crisis by forcing people on low and medium incomes to pay for it, along with those who depend most on State services -- kids, the old, the sick and the handicapped. It's how the establishment handled the Eighties recession.

Two: we said the crisis was much more serious than the establishment realised. The banks didn't have a liquidity problem, they had a solvency problem and gambling the solvency of the State on the performance of the banks was a stupid, reckless and unforgivable thing to do.

We predicted that even the wealthy would have to make sacrifices and in December 2008 we laid down the general rule of The Quality Of The Wine. Schoolkids and the sick would be shafted first, to minimise the impact on those who benefited most from the boom.

"It's about maintaining the quality of the wine at the Dublin 4 dinner party," we suggested. "It's a highly class-conscious effort to ensure the recession has minimal effect on those who matter."

Seven months later, we particularised this rule.

"People who routinely uncork a €48 bottle of wine will, indeed, make sacrifices in our hour of peril. They'll settle for a €36 bottle of plonk. But they're damned if they'll slum it with a crappy €22 bottle."

And so it has proved.

At the highest levels of the private and public sectors, the establishment has for years been paying itself outrageous amounts of money. It's not unreasonable that someone should get a premium for enhanced qualifications or responsibilities -- but these people award each other monstrous salaries and fees, extravagant expenses and obscene pensions. This is akin to looting.

The crisis forced many of them to try to show that "we're all in this together" by taking token cuts, while preserving the structural greed. RTE's Sean O'Rourke was spot on, some time back, in suggesting to a member of the establishment that such cuts were "superficial and patronising".

Amid all the chatter about "tough decisions", the penny hasn't yet dropped (a penny's a small coin, M'Lud, with which you couldn't be expected to be familiar).

When you cut back on the meagre home help allocated to an elderly pensioner, you crush that life. He or she loses the slim protection that holds humiliation at bay. And the final days of a productive, useful life are spent in fear and isolation, meals not taken, soiled sheets reused, dying in silence with a tear-stained face.

We're doing that now. And a lot of other wrenching things -- to the old, the young, the unemployed, the low-paid, those struggling on a middling income.

We did it in the Eighties, with policies that are now lauded. And we did it then while the establishment turned a blind eye to the massive tax frauds it knew were taking place (it knew because so many of the establishment were in on the frauds).

Michael McDowell was not at his most coherent in that article, but I gather that having put together large pension pots while working as lawyers, some judges now find themselves over the limit for the pension levy and facing large bills.

Yes, the judges make a case for an apparent inequity. But that inequity arises from a greater inequity.

Michael makes reference to that inequity in passing, utterly blind to what it says about how this society is structured.

"In most cases", he says, "appointees (to the bench) take a steep drop in earnings." And what does that tell us, M'Lud?

The lowest judges on the judicial totem pole are paid €148,000. The ones most affected are on upwards of €250,000. And for years before they reached that level of pay their income was steeply higher, according to Michael. And it doesn't occur to him that there might be anything wrong with this.

Lawyers do a useful job. They facilitate what is essentially an important form of arbitration, whether criminal or civil. Many lawyers are on much lower levels of pay. But many are vastly overpaid. These are not fees, they are lottery winnings. And they win every year.

This kind of structural greed ranges through the professions, the top of the civil service and the top of the private sector. And there always seems to be a loophole through which the wealthiest escape -- for example, the highest earners, with the grossest pensions, will escape the pension levy.

Unfortunately for some judges, the Finance Act 2011 was rushed through the Dail and no one noticed that some judges would face a real penalty, not the superficial and patronising cuts the establishment usually gets away with.

Enda Kenny daren't be seen to help them out, so the class solidarity cracks.

The irony is that the pension levy is peanuts. It won't solve any problem. Screwing the judges won't solve the problem. But, neither will screwing the pensioners, the kids, the sick and the low and medium earners.

Another basic truth -- at the heart of the crisis there's a vast pile of debt that cannot and will not be paid back. It wasn't caused by the State over-spending, it was caused by the reckless gambling by private sector banks across Europe, including Ireland. All else pales before this monster.

The whole thing can only be unravelled at a European level, by politicians making a giant leap of the imagination, taking decisions that restructure much more than the private debt now being shouldered by the Irish State.

But that would undermine the structural inequalities on which their view of life, and their national and personal interests, are grounded.

And that is something they cannot conceive of doing.

So, we grind on, patching leaks in the sinking ship. And, yes, some judges may hurt. But, below decks, M'Lud, people are dying in their own shit.

[thejuice]

http://www.bbc.co.uk/iplayer/episode/b011k45f/All_Watched_Over_by_Machines_of_Loving_Grace_Love_and_Power/

Very interesting documentary. sounds very familiar.

[seafoid]

I was talking to a friend who works in an investment bank in Geneva and he was saying that the decision to pay the bank bondholders back in full was madness. He wouldn't be an adherent of Jim Larkin either. I think what will end up happening is that Ireland will default on a sum of money not too far from the amount that was paid out to the bondholders. 

[Declan]

http://www.bbc.co.uk/iplayer/episode/b011k45f/All_Watched_Over_by_Machines_of_Loving_Grace_Love_and_Power/

Very interesting documentary. sounds very familiar.

Watched that last night - Talk about Deja Vu

[Declan]

http://www.todayfm.com/Shows/Weekdays/Matt-Cooper/Matt-Cooper-Blog/11-05-11/The_Best_Way_To_Rob_A_Bank_Is_To_Own_One.aspx?ReturnURL=%2fShows%2fWeekdays%2fMatt-Cooper%2fMatt-Cooper-Blog.aspx

Listen to this interview and wonder why the governing classes are still riding us

[armaghniac]

Actually the best way to rob a bank is to manage one. The owners, the shareholders, got screwed, but the managers ran off with big pension pots.

[whiskeysteve]

"Ireland can reduce its debt from almost 130% of GDP to under 20% of GDP"

Obviously sounds too good to be true but are these people on to a least a part-solution for European sovereign debt?

http://www.eudebtwriteoff.com/

Don't have time to read it though, just caught the jist of it

[muppet]

http://www.businessinsider.com/greek-bailout-will-require-loss-of-sovereignty-2011-5?utm_source=twbutton&utm_medium=social&utm_term=&utm_content=&utm_campaign=moneygame

GREECE: Shocking New Bailout Conditions Mean The End Of National Sovereignty
Joe Weisenthal    | May 29, 2011, 9:28 PM | 7,202 |      69
 
Big news on the Greece front: In order for the country to get future bailout money, the country will have to give up some sovereignty.
Specifically, according to a bombshell FT report, outside authorities will take over various functions related to tax collection (a big time problem in Athens) and privatizations.
None of this is certain yet. It's just what's on the table, and no doubt politicians in the country will flip out.
But every attempt to cut the deficit has failed so far, and the powers that be in Europe (EU, ECB, IMF) are adamantly opposed to any kind of debt restructuring that would trigger a credit event, and imperil European banks.
Meanwhile, there were already huge protests in Athens today. Things are moving fast.


Read more: http://www.businessinsider.com/greek-bailout-will-require-loss-of-sovereignty-2011-5?utm_source=twbutton&utm_medium=social&utm_term=&utm_content=&utm_campaign=moneygame#ixzz1NpHnGdZI

[seafoid]

The bust gets bustier

http://www.ft.com/cms/s/0/eb91ba84-8a27-11e0-beff-00144feab49a.html#ixzz1NpAauvVp

"European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens. People involved in the talks said the package would also include incentives for private holders of Greek debt voluntarily to extend Athens' repayment schedule, as well as another round of austerity measures."

"Despite the hurdles, pressure is building to have a deal done within three weeks because of an IMF threat to withhold its portion of June's €12bn bail-out payment unless Athens can show it can meet all its financing requirements for the next 12 months."

Wolfgang Munchau is having a great crisis

http://www.ft.com/cms/s/0/cf7b10b8-8a25-11e0-beff-00144feab49a.html#ixzz1Np34PLrp

"The policy alternatives are becoming increasingly clear. Either the EU/IMF continues to bankroll Greece for as long as it takes, or Greece will be forced into a hard default. There is no middle way"

" My hunch is that the European Council would prevent a break-up of the eurozone at this stage, and accept a follow-up programme. Once that programme ended, the same situation would present itself again. Northern European politicians will hyperventilate. They will talk about debt restructuring but in the end, they will roll over again for as long as Greece meets the conditions.
If Greek politics interferes, all bets are off. Material noncompliance with the EU/IMF programme will always trigger a default. The price for continued support from the EU and the IMF is a quasi loss of economic sovereignty on the part of Greece. "

J. K. Galbraith:"The conventional wisdom" gives way not so much to new ideas as to "the massive onslaught of circumstances with which it cannot contend".

[seafoid]

"For every problem, there is a solution that is neat, plausible and wrong." Mencken 

"A society one-dimensional in its driving force produces one-dimensional people, and struggles to be supported by them" Marcuse

As the Russians like to say, the situation is hopeless but not serious.

[muppet]

"For every problem, there is a solution that is neat, plausible and wrong." Mencken 

"A society one-dimensional in its driving force produces one-dimensional people, and struggles to be supported by them" Marcuse

As the Russians like to say, the situation is hopeless but not serious.

That quote should go on the Mayo Football thread!