Why Greece's spillover across euro area will probably be contained this time

[grubb]

O$P$... irresponsible borrowers always have excuses to borrow more $ and more time... is there anything new?

Greece is indeed an irresponsible borrower, but how about Germany as an irresponsible lender? It is widely agreed that Germany has too low wages, and therefore generates trade surpluses that it exports to southern european countries like Greece. Viewed from another angle, this is also unfair because the shared Euro exchange rate benefits Germany and penalizes the rest. So why should Greece be demonized while Germany glorified?

Everybody knows that debt relief is the only way out, but with Germany being such a powerful creditor, and with no proper procedures written into the EU constitution for exit, Greece's situation will likely limbo for a long long time. Another lost generation..

[Porkbelly]

Think the Stockholm syndrome is getting a foothold.

Where during a hostage event, the victim over time begin to sympathise with the criminal, and believe in his cause... and begin to attack the rescuer.

[grubb]

Think the Stockholm syndrome is getting a foothold.

Where during a hostage event, the victim over time begin to sympathise with the criminal, and believe in his cause... and begin to attack the rescuer.

I'm afraid that there is no moral high ground here. If you simply google "Germany imbalances" you will find so many articles that criticize Germany's trade policy. This is just plain macroeconomics. For more reading if forumners are interested ->

http://carnegieendowment.org/2013/05/21/...ean-crisis

[swakoo]

There's no future for the eurozone without fiscal union

The eurozone has yet to address the fundamental structural problem with the euro: it is half-baked. We have a monetary union that to function well requires fiscal union, but we have no such fiscal union and little prospect of one. Key malfunctions are that some countries suffer an artificially high exchange rate and others an artificially low one. Similar mismatches occur with interest rates. Without national currencies there is no mechanism to make sure that eurozone nations' imports and exports between themselves ever come back into balance.

These dynamics have given an economic boost to some countries, such as Germany, and have acted as a growth depressant in other countries, such as Greece. While this lack of a fiscal union is far from being the only culprit behind the Greek deficit, it is an important factor, and one that must be resolved if the euro is to have a future.

[Caelitus]

A plea from Guy Verhofstadt who served as the Belgian PM from 1999-2008 to do the right thing.

[grubb]

http://blogs.wsj.com/moneybeat/2015/07/0...-eurozone/

Like one of the supercharged monster buses in the latest Mad Max movie, Germany’s export sector barrels along, barely deflected by global developments during the past few years. Take the latest set of data. Notwithstanding the Greek crisis and evidence of a slowing Chinese economy, Germany posted a record trade surplus in May, extending a rising trend that’s lasted for two decades now.

That matters. Although Germans see their country’s export success as a vindication of far-sighted policy and a national temperament of prudence and probity, the fact of the matter is that Germany’s strength comes at a cost for its neighbors. For each trade surplus there needs to be a matching deficit. Countries that run deficits need capital from the surplus countries to cover the costs of those imports.

Germany’s hyper-competitiveness makes it hard for the eurozone’s other economies to export their way to growth. Instead, they’re pushed into credit-driven domestic demand. The same mechanism that got them into trouble when the financial crisis hit

[CityFarmer]

Greece sends reform plan to EU promising new tax hikes

ATHENS/FRANKFURT - The Greek government sent a package of reform proposals to its euro zone creditors on Thursday in a race to win new funds to avert bankruptcy and will seek a parliamentary vote on Friday to endorse immediate actions.

In the latest proposals, Greece has asked for 53.5 billion euros ($59 billion) to help cover its debts until 2018, a review of primary surplus targets and "reprofiling" the country's long-term debt.

In turn, Athens bowed to demands to phase out tax breaks for its islands -- cash cows for the tourism industry -- and to hike taxes on shipping companies.
...
http://www.todayonline.com/business/debt...r-deadline

[BlueKelah]

Greece sends reform plan to EU promising new tax hikes

ATHENS/FRANKFURT - The Greek government sent a package of reform proposals to its euro zone creditors on Thursday in a race to win new funds to avert bankruptcy and will seek a parliamentary vote on Friday to endorse immediate actions.

In the latest proposals, Greece has asked for 53.5 billion euros ($59 billion) to help cover its debts until 2018, a review of primary surplus targets and "reprofiling" the country's long-term debt.

In turn, Athens bowed to demands to phase out tax breaks for its islands -- cash cows for the tourism industry -- and to hike taxes on shipping companies.
...
http://www.todayonline.com/business/debt...r-deadline

Hehe they sTill not budging on the pension cuts..

sent from my Galaxy Tab S

[corydorus]

Their main problem is Pension is so good people retired and collect like 30 years of pensions ... basically a state that feeds on Euro Currency and Debts.

[greengiraffe]

Jul 12 2015 at 5:29 PM Updated Jul 12 2015 at 6:11 PM

With or without Greece, Europe faces a difficult future

A vision of a three-speed Europe, with less bureaucracy and more answerable to voters, is aimed at moving away from an inward-looking, neurotic state of permanent crisis, writes Andrew Clark.


The future of Europe looks dark, but there are plenty of positives. One possibility is to use a more flexible "three tier" membership structure. Bloomberg
by Andrew Clark

'Buy straw hats in winter' is an adage given new meaning after years of crisis in Europe.

Translated, it means that even though the historic European integration project seems terminal, it may be about to enter a radical phase, one where voters are brought in to support Europe and Eurocrats are forced to take a back seat.

First Europe must move on from a seven-year blur of summits, finance ministers' meetings, emergency injections of money, new plans followed by collapsed new plans, and images of grim-faced Euro-politicians entering various ornate great halls and looking even more grim-faced as they leave.

Over the last week end the latest stanza in this seemingly never-ending Euro-epic involved an emergency trifecta – an emergency meeting of the Greek parliament, an emergency meeting of European finance ministers and an emergency summit of European Union heads of state.

Longer-term, the crisis is about the European Union, a loosely confederal group of 28 states, being unable to manage its 19-member eurozone and its single currency, amid roiling markets, mounting debt, growing unemployment, a lack of leadership, and an inward–looking obsession bordering on neurosis.

It's as if the Europe of Christopher Columbus and Sir Francis Drake has turned in on itself, unable to deal with a world that is passing it by.

The immediate issue has been whether a financially crippled Greece should be granted its third bailout since 2010 and try to limp on inside the eurozone. The 19 states that share the euro currency are trying to balance the bad form of successive Greek governments in sticking to commitments against the costs of a potential rupture on a continent that gave the world Aristotle, Bach, Shakespeare and Michelangelo, and imbued the world with values such as those founded in the Enlightenment.

For the observer trying to find meaning in this Euro-mess, there are few clues to analyse from throw away lines at the end of various summits like "difficult negotiations", "unresolved matters", "It's very tough", "We need more transparency", "Confidence is a crucial issue", etc.

TREATY OF ROME

But it was always the aim of the six original signatories to move on and form, as the original 1956 Rome Treaty put it, "an ever closer union". The '70s and '80s marked its expansion, with the inclusion of countries like the UK, Spain, Portugal, Ireland, Denmark and Greece. The six became the 12 and then the 15.

The larger bloc was suffering from a certain inertia, or "Euro-sclerosis". Then along came Jacques Delors, a former French finance minister, who was appointed president of the European Commission, the EU's chief bureaucrat. Through guile, cajoling and bullying, he undid the logjam by introducing majority voting at meetings of the European Council, and pushed through a more streamlined single-market program.

By the late '80s Delors was sponsoring special studies for the introduction of economic and monetary union among EU members. French officials in Paris and Brussels began conjuring up images – originating from the "gloire" days of the Napoleonic Empire – of a French-led European superstate taking a seat at the superpower table.

But a political earthquake in Europe took over this Euro-agenda and it became rushed, and, critically, half-baked. The epicentre of this earthquake was the EU, as unrest in the Soviet-dominated bloc of central and eastern European states was partly fanned by their attraction for "Europe" which was, for them, epitomised by the EU.

Just as the Delors plan for Economic and Monetary Union, or EMU, was reaching its climax, the Berlin Wall collapsed. Communism in eastern Europe, and the Eastern Bloc itself, soon went the same way.

But for Western European states, and power relations within the until-then French-dominated EU, the big disrupter was Germany. Up to that point Germany was two states, with the bigger, richer, democratic Bundesrepublik in the west, and the smaller, poorer, bizarrely named communist German Democratic Republic in the east.

The Bundesrepublik under the leadership of Helmut Kohl moved swiftly to reunify with East Germany, and this was completed within seven months of the collapse of the Berlin Wall. Responding to such a dramatically fast-moving scene, Delors and then French President François Mitterrand decided to head off any irredentist tendencies inside Germany by absorbing it into a rapidly integrating Europe.

Eighteen months after German reunification the Maastricht summit was held. It agreed to economic and monetary union in Europe, although the Maastricht Treaty included an opt-out clause for countries like the UK. Under hastily developed plans, the new eurozone within the EU would introduce a common currency, the euro, administered by a Frankfurt–based European Central Bank. Under the new EMU rules member states would be obliged to keep their budget deficits within strict limits.

At the same time, a stream of former Eastern Bloc states joined the EU, plus Baltic states from the former Soviet Union, and Slovenia, a small northern state from the former non-Eastern Bloc communist Yugoslav Federation.

Monetary union in the EU seemed to work for many years, but it came unstuck with the advent of the global financial crisis in September, 2008. Eurozone members like Spain, Portugal, Italy and Greece ran up massive budget deficits, growth collapsed, and unemployment queues lengthened. Spain and Greece suffered 50 per cent youth unemployment.

In Greece, an increasingly desperate public opted for the promises of an idealistic left-wing party, Syriza, and its untested Prime Minister, Alexis Tsipras. As the country slipped towards insolvency, European Union leaders hit the emergency button as it struggled to halt the slide to bankruptcy and hold the union together.

VISION OF THREE-SPEED EUROPE

Paradoxically, last week an observer could glean more meaning about the future of Europe from an event on the other side of the world – an address at the University of Technology in Sydney by former Italian prime minister Enrico Letta. Visiting Australia on a UTS fellowship, Mr Letta outlined a vision of a three-speed Europe aimed at moving away from an inward-looking, neurotic state of permanent crisis.

At the inner core would be the 19-state eurozone, although it may be reduced to 18 if Greece is forced out, or opts out, of the euro. This core would secure political and economic coherence, and a place at the global table alongside countries like the US and China, by moving from a hodge-podge system of states with their own economies, to a sort of United States of Europe. That 19-member eurozone configuration has about the same population as the US.

The second speed would include countries like the UK, which would be part of a single market and customs union. The third speed would include Balkan states, and, possibly, Turkey, to shore up the EU's relations with the violent, volatile Middle East, and formulate more effective programs for dealing with refugees.

More important, under the Letta plan, real political power would migrate from member states and Eurocrats to a nascent EU government. This would be electorally underwritten by a Strasbourg-based European Parliament having an increasing percentage of seats elected on a Europe-wide basis, probably employing a proportional representation voting system already popular in Europe. Parties and how-to-vote cards would no longer conform to national boundaries, but embrace a Europe-wide constituency.

This means a citizen in, say, Finland could vote for a candidate from Ireland, encouraging a more Europe-wide patriotism, and not just the formulation of Europe-wide policies, but their political legitimisation.

It is the "legitimacy" issue that has dogged Europe for the last 30 years. For the first 30 years of its existence the European Union, or the European Common Market and the European Council, as it was previously called, acted as a powerful customs union and antagonised countries like the US and Australia by maintaining a highly protectionist Common Agricultural Policy.

Mr Letta, mentioned as a future president of the European Council, believes a solution will be found to the problem of Greece. After all, he points out, Greece accounts for just 2 per cent of the European GDP. "If there is a piece of land in Australia that is 2 per cent of the GDP of Australia, and it is failing, Australia has the ability to solve the problem." So it is with Europe.