Euro crisis: “gaining time is the least bad outcome, both for Greece and Europe as a whole”

In the midst of a 48 hour general strike, and with police clashing with protestors on the streets, the Greek Prime Minister, George Papandreou, won the first of two crucial votes on the latest package of tax hikes, spending cuts, and privatisations.  By 155 votes to 138.

But as the BBC Europe editor, Gavin Hewitt, wrote before today’s vote

But here’s the thing. No one in Greece believes the tax increases, lay-offs, privatisations will ever be fully implemented. This morning I bumped into Elias Iliopoulos, the General Secretary of the Civil Service Union. He thought the measures would be approved, but he predicts that Greece is heading for elections in the autumn. Depending on the result, the whole deal may have to be renegotiated with the EU and IMF.

If the budget cuts are approved Greece will receive the next tranche of money from the original bail-out. The 12bn euros (£10.7bn) will stave off a default in mid-july. Then the EU and IMF will work on a second bail-out thought to be around 120bn euros.

The EU will breathe a huge sigh of relief if parliament votes “yes”, but there will not be a Greek national consensus behind the plan.

The opposition in Greece is adamant: the austerity medicine did not work the first time around. It won’t work this time either, they say. All that will happen is that Greece’s debt mountain will continue to grow. Even people in government believe default is inescapable eventually.

It’s a point echoed in the FT blog by Ian Bremmer [free reg req]

This is where the real problems begin. Mr Papandreou might have survived a parliamentary vote, but the chances on him surviving a public vote are slim. Any fresh elections will probably yield a new coalition government with New Democracy, the main opposition party, as leading partner and PASOK as the junior partner.

Superficially, that looks like it will create the new national political consensus and conciliatory approach that European Union negotiators wisely demand. It will, for instance, be much easier to demand future sacrifices from Greece if virtually its entire political class has publicly accepted the need for it.

But for a preview of the way any new coalition government will consider further austerity measures, consider the fact that New Democracy leader Antonis Samaras warned before today’s vote that any ND deputy voting in favour of the plan would be expelled from the party. There is little room for a conciliatory approach in his attitude, nor is one likely to emerge in the coming months. In short, there is simply no reason to believe that the opposition will throw away its chance to vilify PASOK for every imposition of pain when it doesn’t have to.

And, still everyone’s hero, Robert Peston is looking ahead

Right now Greece needs to borrow money from the rest of the eurozone and from the IMF not just to service the interest and principal payments on its debt.

It also needs the emergency credit to pay the wages of its civil servants and to keep the lights on in schools and hospitals.

Greece has what economists call a primary fiscal deficit, in that what it raises from taxes does not cover the basic running costs of the state, let alone its borrowing costs too.

So Greece can’t afford to stick two fingers up to Germany, France and the eurozone and announce a unilateral decision to default. If it were to do that, the vital apparatus of the Greek state and the Greek economy would grind to a halt.

That’s true now. If however Greece’s austerity measures were to turn out to be successful in reducing Greece’s primary deficit – such that it was able to pay all the costs of the police force, schools, hospitals and so on from tax revenues – then at that point Greece would be less dependent on the putative generosity and charity of its eurozone neighbours.

You will know that there are economists who believe that there’s no chance the austerity package will reduce the primary deficit to nil, because of how it may be putting the Greek private sector into a death spiral.

But let’s assume those economist are wrong and the Greek premier is right.

If that were the case, it could still be misguided to see a vote today for the austerity package as the moment when Greece avoids default.

If Greece’s parliament goes for the package of cuts, tax rises and privatisation, that may be the start of a process to make a Greek default affordable and bearable for Greece.

Or to be more explicit, the moment that Greece reduces its primary deficit to zero – the moment that the government can fund itself from revenues levied on its own people – is the moment when Greece is most likely to decide to default on what it owes overseas investors and banks.

And that’s likely to be the best case scenario, for Greece.

As for the wider picture?

The existential crisis will remain…And, for supporters of the “European Project”, the longer-term options are stark.

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  • Drumlins Rock

    I have listened to the BBC reporting all day, and have yet to hear Ireland mentioned, surely the same process will have to take place in Dublin in the coming months? ie. another round of belt tightening will be required or the ECB will turn of the life support.

    A Greek default in itself won’t have much impact on the UK, but if it lead to an Irish one, (how could it not?) the knock-on effect would put a strain on the UK banks/economy, prob not enough to wreck things but it all depends on what else will result and how many other dominoes fall. The time bought today is probably of most benefit to the UK, France, Italy, Belgium, etc. and might even give Spain and Portugal a fighting chance, but with Greece & Ireland it just buys a little bit more time.

  • thethoughtfulone

    Don’t know that the two situations are the same, except from a debt point of view obviously!

    Ireland has an inherently more dynamic economy than Greece, it has a lot of large companies paying good wages, it’s balance of trade is still pretty good and given time it COULD recover.

    Greece is a basket case, dare I suggest a bit like Northern Ireland would be if we weren’t supported by the diligent and un-appreciated English tax payer.

    Irelands woes were totally avoidable, Greeces were not.

  • Drumlins Rock

    thats a bit low! bad as we are we are not Greece, I have been to Athens about 5 yrs ago, I found the general attitude depressing.

    Ireland can recover easily enough, once it gets rid of that debt, but it has to do it in such a way that prevents it becoming a pariah, and it will not be pain free, public sector pay cuts, privatisation and benefits cuts to start.

  • I have yet to hear anyone explain exactly why a Greek default implies eurozone breakup. Given that Greece exports very little as a percentage of its GDP, a floating currency will not have the same revitalising effect on the economy that it would in, say, Ireland or the UK. Furthermore, if Greece were to take the middle ground and restructure (a partial default), leaving the euro would result in a currency depreciation that would increase the burden of any remaining (euro-denominated) debt, undoing the good work. Under what circumstances is a eurozone breakup in the short-term interests of either side? Who would pull the plug?

  • DC

    I didn’t notice any Greek politicians re-adjusting their salaries downward in sync with the plans to increase taxes on the public and lay off hundreds of thousands of public sector workers.

    If the politicians plan to deflate the economy – they should deflate their own salaries up front. The Greek politicians as like the Irish ones are just not serious – there is a running disconnect between the governors and the governed – why should people lose their jobs, take a hit on their salaries through increased taxation etc, yet the clowns in government applying all of these lifestyle ruining measures simply carry on with their own quality of life seemingly untouched.

    Any wonder why there is a crisis of democracy.

    Same disgrace is still being played out in Ireland – what with the taoiseach still the highest paid politician in Europe.

    Come off it – your country’s technically bankrupt!

    Same with EU membership – isn’t it about time that the EU slashed its own membership fees by around 10-15% – these are the fees paid by member states which go towards EU programmes, CAP and EU staffing and administration costs?

    Why reduce membership fees – you might ask?

    Simply because a lot of its member states-if not most – are indebted, some like Greece and Ireland are technically bankrupt.

    The game is up – the EU should bring down the fecking membership fees and stop building stupid fecking buildings in Brussels -everyone – even eurobureaucrats and member state politicians need to get real themselves.

    They need to do this first to give a lead on what it feels like to experience relative decline upfront themselves, this is important because they should feel the pain and take a hit themselves, before demanding millions of the public to shoulder an even bigger burden of the pain.

    Deal with this and at the v least democracy will mean something to the ordinary person once again.

  • Zig70

    Agree DC Taoiseach salary is a disgrace. The ecb is acting like a loan shark. There is little chance of Greece paying back the debt and in a few years the Greeks will realise that all the utilities they pay for make profits only for French and German business. This looks like a slow death and will give the markets the jitters for years. Ireland is different, but still think a Greek default would help Ireland’s negotiating stance. Ireland can’t really threaten default while the Greeks martyr themselves for the eu.

  • DC

    Imagine all the same being in Greece – just working to exist for bread and butter and as you say to pay off the banks.

    There will be seething resentment – and the EU project will soon turn sour because people such as the Greeks and Irish will view it so – collectively as nations, unless there is austerity applied to its bureaucracy – such as the wider EU Civil Service. The EU needs to streamline itself and cut back on its foreign policy aspirations and lay off staff or cut down on salaries.

    And I say this as someone who is pro-EU – used to be a member of the EU movement, but seriously enough is enough – time to scale back on things.

    Do you know, whenever they opened the EU Commission Office in belfast – as part of the hospitality ordered for the day they used a firm called ‘Posh Nosh’ – nice posh food.

    Is this the best way to spend taxpayers money, couldn’t they have used somewhere else, more traditional and plain, than ‘Posh nosh’.

    http://www.poshnoshireland.com/

  • Pete Baker

    “The EU needs to streamline itself and cut back on its foreign policy aspirations and lay off staff or cut down on salaries.”

    DC

    Focus?

    Do you know, whenever they opened the EU Commission Office in belfast – as part of the hospitality ordered for the day they used a firm called ‘Posh Nosh’ – nice posh food.

    Is this the best way to spend taxpayers money, couldn’t they have used somewhere else, more traditional and plain, than ‘Posh nosh’.

    That’ll cover Greece’s debt…

    The longer term issues are not about current, or past, EU expenditure.

  • DC

    Focus?

    I am indeed focusing – Gestalt style.

  • Pete Baker

    “I am indeed focusing – Gestalt style”

    Yeah, DC, but the problem is structural.

    You’re just distracting from those issues.

  • wee buns

    Pete
    What DC says is perfectly valid. Greece is the last place in Europe with a living militant, solidarity tradition. The public service workers make up 40% (or suchlike). What is ‘unfocused’ about drawing attention to excesses of elite Europe? France has got the most BY FAR invested in Greece so why not focus on that?

  • DC

    Maybe I am, maybe I’m not – but it hardly helps sell the EU project if austerity is demanded of the public while the governors carry on regardless on turbo salaries and posh food? Does it?

    Better to focus on the whole as in terms of the EU – unity is what it is all about, is it not?

    Time for a bit of austerity to be visited on those salaried and working in Brussels and throughout the member states – and by that I mean probably have 3-6% knocked off the EU budget, rather than making silly and quite unrealistic demands for a 6% increase – as was the case quite recently.

  • Pete Baker

    “Maybe I am, maybe I’m not”

    You are.

  • Harry Flashman

    “The public service workers make up 40%”

    A nation where almost half the population earn their bloated salaries (don’t you just love the concept of thirteen months salary per annum?) off the taxes levied on the other half is hardly in a position to lecture others about austerity living within their means.

  • DC

    Well that is your view after all Pete – only your view.

    Carries as much authoritative weight as a fart in the wind.

  • Neville Bagnall

    @DC

    A 6% increase in a 5 year budget. As the opening position. When the Eurozone is trending above its inflation target and when the bloc is emerging from recession. Budget negotiations won’t be completed before late 2013 at the earliest and who knows what the economic situation will be by then. Cameron’s hissy fit was populist, pointless and a distraction from the real problems with the EU institutions, politics and economy.

    Pete is right – it is the structural problems that need addressing.
    The EU and more specifically the Eurozone has to resolve some incredibly difficult and countervailing issues:

    1) The ongoing democratic deficit versus the growing nationalist sentiment that militates against a pan-european polity.

    2) The proven failure of voluntary fiscal discipline versus the inflexibility of treaty sanctions.

    3) The invisible competitive advantages of the european core versus the visible competitive measures of the periphery.

    4) Unsustainable debt versus the Lehmanns effect.

    The nations are attempting to fix these problems using democratically elected politicians in a non-stop electoral cycle and with a committee size that exceeds the known effective size of 20. Its hardly surprising that the approach so far has been delay, delay, delay.

    I just wish I had a better in-depth understanding of opinion (political, chattering classes and general) in other member states. Sadly my language skills are non-existant and my time nearly so, so I’m finding it difficult to get beyond the b-roll footage and soundbites.

  • DC

    Neville

    1) The ongoing democratic deficit versus the growing nationalist sentiment that militates against a pan-european polity.

    And what doing nothing on EU salaries while requesting that member states lay off their own public sector workers addresses this deficit in any meaningful way?

    Just face it Neville head on – while your argument is laid out in a calm and collected way – it still doesn’t address the likes of the taoiseach and EU civil servants remaining on high pay – grossly inflated salaries – they are grossly inflated because the respective nation states are heavily indebted if not bankrupt.

    Now can you give me an answer – do you think this is acceptable?

    How can it be right to be paid so much given various nations are bankrupt and being asked to deflate their economies to pay back debts belonging to banks that miscalculated?

    As things stand austerity is for the many, not the few – the few being national and supra-national EU politicians and its civil service.

    A 6% increase over 5 years is still probably above the rate of say Britain’s economic growth, which will probably come in at around 1% this year – so who makes up the shortfall?

    Once again – more is charged of the taxpayers!

    Enough is enough. Seriously.

    Here in NI we already owe 7.8 billion to English taxpayers now the EU is coming along with increased demands. It’s all going to collapse in on itself.

  • DC

    Here’s a nice map should you be any doubt about just how indebted the EU is collectively – yet still membership fees and EU budgets must go up:

    http://en.wikipedia.org/wiki/File:Public_debt_percent_gdp_world_map.PNG

  • Greenflag

    ‘I wish I had a better in-depth understanding of opinion (political, chattering classes and general) in other member states. ‘

    Alas from my perusal of German and French and other ‘understandings’ the vox populi is that the problem source of this existential crisis lies with the spendthrift Greeks, property maniacal and FDI dependent Irish, corrupt Italians and dodgy Spaniards and Portuguese and of course the financial berserkers the Icelanders . There is much reference to the USA original source of the world’s present monetary and confidence crisis but it’s far easier to lash out at the Euroclub minnows . The UK while not in the Eurozone is seen still as a lap dog of Wall St and with the latest world banking ratings in terms of capital strength relegating RBS to 10th and British banks generally weakening there is some concern that the UK is vulnerable to another decade of strikes and recession.

    The French press is of course lauding the appointment of Madame La Garde as the new IMF CEO (she’s known as the American a reference to her American education , perfect English and her espousal of neo conservative financial and monetary doctrines . Her appointment could’nt have come at a better time for the French banks who are the most exposed to a Greek default .

    None of the major players in the EU neither France nor Germany are pointing any fingers at Brussels bloated bureucracy or Frankfurt’s ECB for their ‘neglect’ nor are questions being asked as to how exactly was Greece permitted to join the Eurozone given the state of it’s then economy .

    ‘As things stand austerity is for the many, not the few – the few being national and supra-national EU politicians and its civil service.’

    Not forgetting the top layers of the financial sectors in all the countries concerned and ditto for the USA . There was really no reason why the latest American con banker a Vice President of Citigroup had to remove 19.5 million dollars from his corporations funds to eh ‘rest ‘in his various other accounts . He may yet achieve fame as being the only USA banker to face decades in jail for financial crimes as the statute of limitations runs out after 5 years . There is neither the political will in the USA nor in the EU to tackle the root source of this financial crisis .

    The Greeks and the rest of the vulnerable including Ireland are being used as ‘guinea pigs’ for supranational institutions such as the IMF and ECB as an experiment to see just how much they can squeeze taxpayers everywhere without rousing bloody revolution and financial anarchy worldwide .

    Which bringing us back to the ‘wider picture’ is why the IMF has now threatened the USA and it’s Congress that they had better raise the USA ‘debt’ ceiling or a USA default will make the Greek ‘tragedy’ look like just one pimple on a pox ridden face of world wide depression worse than the 1930’s .

    In response to the IMF’s criticism of the US Congress for it’s failure to agree on it’s national budget President Obama has stated that Congress will have to work through the July 4th holiday to try to find agreement .

    Perhaps the USA the world’s last remaining ‘beacon’ of democracy might want to change July 4th to ‘Dependence Day’ to reflect the new financial reality as the USA becomes increasingly dependent on Chinese and other foreign ‘finance ‘ to prop up it’s dodgy dollar and it’s now outmoded role as the world’s reserve currency of last resort .

  • Greenflag

    @DC .

    Your map link was for the 2007 /2006 period which preceded the Lehman and Wall St collapse . I believe the Japanese are at 200% of their GDP for national debt but as it’s almost all held by Japanese it’s eh ‘not a problem ‘.

    Back to the above ‘Greece’ Everybody knows that Greece’s economy needs ‘restructuring ‘ . But they knew that in 2001 and before but both Greek Governments and the Masters of Disaster (the Eurozone collective) chose to ignore that eh ‘problem’ while Goldman Sach’s advisors rearrranged Greek Government financial statements to reflect ‘wishful thinking’ instead of the harsh reality of an economy that has been in denial for the better part of 50 years .

    It’s a matter of time only before the Greeks ‘default ‘. The hope has to be that the world’s leading financial authorities will begin to move from their near present paralysis to something that looks like a coherent plan for restoring world monetary and financial order such as it can or perhaps could at one time . It is of course possible that that may not be possible given present constraints -political and economic and resource wise.

    In that case I suggest Ecuador as a refuge from the coming meltdown 😉

  • Neville Bagnall

    I really don’t want to get into an argument about the EU budget on this thread, like I said its a side issue to the Eurozone crisis. But at this stage of the budgetary process the Commission proposal represents almost a 8% cut in GDP terms on their proposal for the 2007-2013 budget. If anyone cares enough to start a separate thread on the EU Budget we can discuss it there.

    “Just face it Neville head on – while your argument is laid out in a calm and collected way – it still doesn’t address the likes of the taoiseach and EU civil servants remaining on high pay – grossly inflated salaries – they are grossly inflated because the respective nation states are heavily indebted if not bankrupt.

    Now can you give me an answer – do you think this is acceptable?”

    Simple answer – No. Nor, in an ideal world, do I find it acceptable that any salary or remuneration – public or private – should exceed a given ratio of the minimum wage. 20-25 times ratio would seem reasonable. Entrepreneur income excepted in the interests of social mobility and the economy. Political salaries in Ireland are inflated, as in many cases are higher civil service salaries. However so are senior private sector salaries in this country. Meanwhile, political salaries in other EU states are seriously and negatively out of kilter with their private sectors.

    Unfortunately however, its not an ideal world and if we are going to have a permanent government (i.e. a non-political civil service) I want it to be more comparable to private sector administration, not less. In my view that requires changes in both the public and the private sector.

    Harry Flashman points out the size of the Greek public sector. Like in NI that is most likely a significant structural problem. Its even more of a problem if the sector is either uncompetitive or unproductive. I don’t know if it is.

    If the sector was made up of efficient commercial state owned or semi-state owned companies, operating in a competitive market, that’s one thing. Then it becomes an issue of whether the state is achieving a return through dividends or public goods for its investment.

    If on the other hand the public sector is top heavy with administration, uncompetitive or operating in sheltered markets while being funded by taxation, then there is a serious need for reform.

    However, that is a very big and very disruptive, if not destructive, process. Doing it in the midst of a debt crisis means doing without the cash reserves that can grease the skids of restructuring.

    At least in Ireland we have had the experience of two decades of social partnership, which (whatever its faults) has preconditioned the parties involved to negotiations rather than confrontation. Time will tell if that is sufficient for the restructuring we need to do. Of course the largest restructuring we need to do to re-acquire competitiveness is in sheltered areas of the private sector. That and addressing how we do regional and local government and services.

    If the European crisis is resolved successfully it will almost certainly involve greater fiscal integration. In that context I think point 1 & 3 in my post above will require urgent, insightful and long-term solutions. Right now I cannot see anyone (or more critically, any partnership) on the European stage who have the respect and momentum to bring those issues to the negotiating table.

  • Neville Bagnall

    @Greenflag
    “Alas from my perusal of German and French and other ‘understandings’ the vox populi is…

    A sad if unsurprising situation. Simple explanations and solutions – very familiar.

    Do you know are there any sections (economists, chattering, political) with a more nuanced or informed view?

    Any equivalent of the most recent Morgan Kelly cold turkey solution hitting a mainstream putdown? (I mean in terms of going against the flow rather than the specifics)

    Any sign of attempts by the “sinner states” to respond/explain/inform/correct/contrast their behaviour?

    I wonder of Mick could organise a series of guest essays and threads from leading bloggers in each country that would give an overview of the attitudes and the depth of understanding among the chattering classes.

    It is a pan-european problem, it would be nice to hear from more than the usual suspects.

  • DC

    Neville

    I don’t agree that public sector should be aping the private sector – I think New Public Nanagement has been harmful to the public sector in terms of style and indeed salaries.

    See this link for background:

    http://en.wikipedia.org/wiki/New_public_management

    I just can’t quite square it off why a CEO of an non-profit public body should be paid 100k or civil servants in departments likewise – whereas I can see how the private sector can itself get away with it due to the way it makes money and interacts with the markets – it sure as hell doesn’t make it right all the same, but neither should it make it right for the public sector to try and copy all of that nonsense.

    @Greenflag

    Here is where I got the info from:

    http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt

    The map according to the above page is from 2009, I think it is an error re 2007.

    It has Japan down as ‘Red’ on the map and at 100+%

    The list on that above Wiki page has Japan’s debt as of 2010 as 225.80% – lol

  • Greenflag

    @ Neville Bagnall,

    ‘Do you know are there any sections (economists, chattering, political) with a more nuanced or informed view?’

    There may well be -but their silence at least as it’s heard in the Anglophone world is deafening . If they have any Paul Krugman’s or Joe Stiglitz’s or even Dave McWilliams they are kept or are keeping their heads down.

    The UFFEB ( the United Front For Eurozone Banks)are probably powerful enough to destroy any up and coming economists or politicians or msm journalists who have tendencies to ask uncomfortable questions . The French legacy of ‘etatism’ and the German preference for ‘Jahwohl Herr Professor/Doktor etc doesnt help would be iconoclasts bent on radical change to the existing status quo re the Brussels bureaucracy or Euro economics .

    Which’status quo’ suits both German, French and some other financial sectors even non EU -even if it puts the rest of the EU or the developing world under threat . We forget that German economic expansion has been facilitated /given a new lease of life with the euro with industrial exports up and new expanding markets being carved out in the eastern lands and with new commercial agreements being made with Russia & China . With about 5 million plus ‘gastarbeiters’ and new eastern european immigrants Germany’s economy would be an engine for world economic recovery except for those awful ‘bloody Greeks and the other profligate wretches who are trying to bite the hand etc etc’ The French of course still retain their hold on the CAF (Central African Zone ) as a cheap source for resources etc .

    ‘Any sign of attempts by the “sinner states” to respond/explain/inform/correct/contrast their behaviour?’

    The silence here is also somewhat deafening being muted somewhat by upcoming elections (Greece (upcoming) , and Portugal and Ireland having had changes of Government . And then there is Spain which followed all the Eurozone ‘rules’ and still ended belly up with 20% unemployment and a calcified construction sector ?

    ‘It is a pan-european problem, ‘

    It is but it’s more than just that . It’s a global problem in which you cannot ignore events or policies that are effected in the USA or China or even in 200% of GDP indebted Japan.

    BTW that’s a good suggestion for Mick re guest essays from the non anglophone world assuming he can find them or if there are any out there ?

    BTW thats a

  • john

    Harry Flashman

    A nation where almost half the population earn their bloated salaries (don’t you just love the concept of thirteen months salary per annum?)

    They actually got 14 months – bonus at Christmas and Easter which really annoyed all the non civil servants. In fairness though the average wage sucks and considering the cost of living is as high as the UK any cuts is going to be painfull. I dont know how many civil servants in the UK would be happy with less than a 1000 euros a month (before tax)

  • Zig70

    Is the reason for the eurozone a tool to compete with the US economically? The answer to the Greek problem may also lie with a mirror to the federal budget of 400m to help states in deficeit. Can a US state go brankrupt? The question of top end public salaries is dificult as no-one will cut their own throat. The first thing is to stop the nonsense that you need to pay gross salaries to get top managers. Plenty of very good middle managers who earn a lot less and would jump at the chance. At the end of the day, the team below you is what you suceed on.

  • Greenflag

    @ Zig70,

    ‘At the end of the day, the team below you is what you succeed on.’

    In my experience businesses and organisations and governments /countries fail because of the failure of leadership , poor management and daft policies .

    If the people above don’t know what they are doing it’s usually because they are not listening or have so far disconnected from the people who put them where they are that their ears are not hearing what their eyes see and vice versa . The followers of Hayek and Friedman believe that ‘starvation ‘ is the best cure for an economic famine in that it reduces the labour supply and depresses wages while simultaneously increasing ‘demand ‘ . Whereas the followers
    of Keynes believe that when markets are not working then it’s the job of Government to stimulate the economy by increasing public sector spending . This is the the nub behind the current stand off in the USA over their budget . What both sides fail to explain or take account of is that with ‘interest rates ‘ at an all time low banks should be falling over themselves lending money to businesses to help grow the economy and create jobs . But it’s not happening. And the reason it’s not happening is that what is called the ‘free market’ does not exist or behave in what was considered the conventional way. Meanwhile America’s new Mr Thatcher (Mitt Romney ) is following in Thatcher’s footsteps by promising to create ‘jobs’ . Odd that especially given that during her first few years in office Thatcher doubled unemployment and delivered a near death blow to British engineering and manufacturing industry .

    The problem for Romney in ‘doubling ‘ USA unemployment from some 25 million to 50 million a la Thatcher is that some 50 million Americans are armed and may not submit to the neo con medecine as Britons did in the 1970’s and 1980’s.

    Everybody who can understand basic addition and subtraction knows that the Greeks have as much chance of paying back their debt as the Germans had in the early 1920’s of paying ‘Reparations ‘ for WWI . In the end the Germans did’nt pay the reparations and the ludicrous insistence of the then other world powers to make them pay helped to result in Germany turning away from ‘democracy’ in favour of a one party state . It’s not so long since the Greeks were ruled by Colonels .

  • DC

    Greenflag

    Trouble is Keynesianism has been tried and tested to the limits and it wasn’t tried and tested on relevant things like proper supply and demand in terms of goods that could be produce, sold / exported.

    The Keynesianism that was done went on banking shares and recapitalising the banks.

    I do believe – according to Peston – that even after a one £trillion taxpayer bailout – the banks in Britain only have 300 billion equity – that is money they could spend on highly rewarding things right now this minute – such as new business start ups etc – but are reluctant to spend this at all given they are still exposed to property loans worth over a trillion.

    It all depends on just how much of this trillion is toxic. The banks are running on fumes – but still the big boys – the CEOs – take take take bonuses into the millions.

    What a joke.

  • Greenflag

    @DC,

    That’s right . This entire monetary and financial crisis goes back to the ‘financialisation ‘ of the USA economy over the period from the late 1970’s when corporate profits from the financial sector in the USA were 12% of all profits earned, to over 40% by 2008 . In other words from the ‘real ‘ economy to the economy of make believe , derivatives and gambling casinos everywhere fronting as banks .

    Peston is usually on the ball . But there is one element which never gets much of a mention in any discussion with British banks and that is their ‘holdings ‘ in all of this 100 plus overseas tax havens and crown colonies from Gibraltar to Sark and from the Cayman Islands to the Turks & Caicos and even the nearby Isle of Man.

    BTW it’s no joke . If the world trips into another 1930’s style global depression because of the stupidity of the GOP in the US Congress or because of the failure of the ECB and IMF in relation to international monetary reform then the stage will be set for a return to totalitarianism , military coups and repressive regimes not just in the third world .

    http://www.zdf.de/ZDFmediathek/beitrag/video/1375204/ZDF-heute-journal-vom-30.-Juni-2011

  • Greenflag

    oops DC that bottom link was supposed to be in my next post:(

  • Greenflag

    @Neville Bagnall and others 😉

    Heres a link to a ZDF German TV news program with some views from the streets of Dublin and some comments by Brendan Keenan and the Director of the IDA who manages to get the population of the country wrong 🙁 only out by 10% ) . And President Obama gets a quick mention – no Irish politician gets a mention much less a comment.

    The commentary on Ireland starts at 11.40 into the clip or click onto the “Wie geht es den Iren’ just above the time line at the bottom . It lasts about 5 minutes . The gist of it is a comparison between the Irish and the Greeks in their responses to the current crisis . The TV newsreader at the end refers to the Irish as being as ‘stiff upper lipped ‘ as the Brits . Unfortunately the interview /commentary is mostly in German but there’s enough English to get the gist.

    Having disposed of the Irish and Greeks in about 10 minutes the German newsreader then moves sharply to be ‘astounded ‘ at the performance of the German Economy with unemployment down by 250,000 since a year ago and now at 6.9% with exports booming . A little later ‘praise ‘ is lauded on Poland for it’s assumption of the EU presidency and it’s ‘luck ‘ at holding on to it’s ‘zloty ‘ instead of joining the euro . Warsaw has apparently almost full employment ?

  • Greenflag
  • DC

    @Greenflag

    As Maurice Glasman says:

    Capitalism is built around maximum return on investment. Financial investment always offers higher rates of return than real economies, which are slower, more embedded things, because the value added is nominal and unconnected to real improvements in productivity. The demand for ‘best value’ only made things worse as our pensions, assets and inheritance were sucked into the City of London where the returns were indeed best.

    It turned out the offer was fantastical, that there is no endless high-returns economy that involves neither productivity improvements nor real work. The money managers were building castles in the air, which they were then selling on. Sand would have been an improvement.

    I agree with those that say that the banking industry offers no real social use – it is socially useless, all it does is distort markets and create volatility – winners and losers – where the wealthy at the peak of the cycle reap the rewards but when the boom happens – they move out so fast – capital flight – turbo neoliberal style – that the mess left behind demands taxpayers step in to pick up the bill in order to avert a depression.

    The only way to solve this debt problem is to go back to where the problem came from.

    Here’s how it could work.

    The government or a government – a half decent government – simply legislates new enforcement powers over to SOCA – Serious Organised Crime Agency – these new powers enable the police to arrest bankers and financiers like SOCA currently does to terrorists.

    Their accounts and assets are then frozen and a proportionate amount from each of them is paid back either to the government or the banks that are now technically bankrupt.

    These people – bankers and financiers – should be turned upside down and their wealth returned to the nation – well to be fair – all the false wealth and fools gold collected by them over the years 2002-07: this will avert a decade of austerity.

    Trust me.

    All we need is some smart political party to crack the code and get into Westminster with this type of agenda.

    If they can take money off terrorists legally, bankers who have profitted inappropriately using unsound calculations of risk resulting in national bankruptcies should – in my view – suffer the same fate.

    Why should others have collectivist actions forced upon them either through tax or losing their jobs to pay for the mess that the bankers created.

    Legislation is a blunt instrument but so is punishing people not directly involved with the workings and motions of international finance. Privatising profits and socialising the loss is not on.

    At least this way some of these bankers will be forced to pay back some of the money – much of which should never have been paid out to them in the first place because the manner in which they were able to accumulate such wealth was flawed. The credit structuring process etc all collapsed. So, the Goodwins and Paulsons of this world should be made to return some money – it will of course still be a substantial amount.

    Imagine if such a freezing of assets were introduced across the western world on these particular people – using the national tax office to identify and track them down – austerity wouldn’t have to happen. Normality would return.

  • Greenflag

    @DC ,

    This thread seems to have exhausted itself -but thanks for that contribution .

    ‘The only way to solve this debt problem is to go back to where the problem came from.’

    SOCA sounds like a good idea . But going back would require digging out financial legislation some of it going back over 25 years at least in the USA . And then there is the fact that it was ‘government ‘ yes even half decent ones in other respects who bent the knee to the lobbying power of the mega rich hedge funds and banking corporations and who got elected on the bribes sorry donations of said financial institutions which institution’s vast resources were used to pay for the best legal advice to ensure that the financial acts passed were not injurious indeed quite the opposite to the interests of said mega banking corporations .

    So theres the triangle Government -FInance -Law . When all the above are directed at preserving and enhancing their own power and wealth at the expense of the rest of the society then you eventually end up not with ‘reform ‘ but ‘revolution ‘ and ‘chaos ‘

    Indeed it’s not impossible that in the ‘High Noon ‘ nonsense now taking place in the US Congress over the budget -it’s possible that with a presidential election in the offing and thus the need to make an impact with voters that both the GOP and Dems may in their mutual desire not to lose political face make the same mistake that the American interpreters of the Japanese made in those crucial few days before the world’s first atom bomb was dropped .

    Pride cometh before a fall . An American default would of course put the entire world into a global recession the only winners of which would eventually be the Chinese , Indians , Brazilians , Russians and Europeans .

    Are American politicians really capable of shooting themselves and their country in the foot/head .

    Based on what the world has seen for at least the past decade – sadly yes 🙁

  • DC

    Greenflag

    The only complaint that is to be had from deploying the SOCA approach is that it is neo-statist and a tad authoritarian. (I’ve been flogging this one over on certain sections of Cif on the Guardian site.)

    But of course what is reducing public spending and public services and also raising taxes if not a neo-statist response as well – except this is to be meted out on the less well off – those who are not wealthy enough so as to be free from working the public sector and forced to rely on public services etc.

    To those that say you can’t freeze such assets – remember whenever the Nazis invaded Denmark and the Netherlands etc – the USA froze the respective countries’ assets in the USA.

    So it’s not like it can’t be done – but I think you have hit the nail on the head – government, finance and law – all working as one big vested interest hand-in-glove: to the government – you don’t pish down my back, and we – the financiers – won’t pish down yours.

  • Greenflag

    The rich and I mean the very rich those in the top 5% among whom are the major banking and financial sector CEO’s and hedge fund tyros DON’T NEED PUBLIC SERVICES . They can do very well without them until such time as the mobs have taken over the streets and the guillotines are being taken out of retirement at which point the ‘rich’ call on the forces of ‘law and order’ to protect them against the risen people .

    Former strongman and US puppet Mubarak of Egypt has had his assets ( family loot a.k.a Egyptian taxpayers monies) frozen and will face trial . But then Egypt is an eh ‘trainee democracy’ unlike the mature western countries who have had decades of exposure to self serving corrupt politicians , avaricious amoral bankers and their legal abetters.

    It would be nice to believe it was as simple as your ‘hand in glove ‘ explanation – If it were just that then maybe a little authoritarian firmness could work wonders -but it’s the blind stupidity of major sections of the ‘triangular triumvirate ‘ as well and then there’s no cure for ‘stupidity ‘ especially elected stupidity except blood on the streets and then of course what happens in the aftermath may be a good deal worse .

    And then it’s not just a ‘national ‘ problem or even a regional EU or USA or BRIC problem it’s global . George Orwell’s timeline might have been a bit off but when one looks at the USA ‘democracy’ being best trading buddies with the Communist party led one party authoritarian state capitalist China then the problem facing today’s Winston Smith is not just confined to Oceania .

    Ideology is a ruse whether of the left or right -it’s just the money Guv- thats what it’s all about Alfie -and the golden rule is him that has the gold makes the rules .

    Until the rules no longer work or can be made to work or were never intended to work which is what the world monetary situation is in and daily making worse at this time 🙁

    Keep your ammo dry and the pike ready 🙂

  • DC

    Oh it is all hand in glove stuff – the triumvirate all work together for themselves.

    If democracy was functioning properly it would be working for the people.

    Who was it said:

    They all hate us because we do not say to the Rich, ‘give to the Poor people’!

    But instead, We say, ‘German people, help yourselves!

    SOCA is the only way that the people can help themselves – it goes back to the source of the problem.

  • Greenflag

    DC ,

    ‘If democracy was functioning properly it would be working for the people.’

    Thats a big IF . The USA was the first country to implement qualified democracy just ahead of the French in the late 18th century . Since then the word ‘democracy ‘ has been debased so much as to lose almost all of it’s meaning being used even in the titles of various pariah states like the former GDR and even the present North Korea .

    Having had an uphill struggle over a couple of centuries to become the leading political philosophy – one recalls Chinese leader Chou En Lai’s comment re the French Revolution’s success – it now seems that democracy is giving way to oligarchy and plutocracy im much of the west where huge sections of the electorate can’t even be bothered to vote as they see no connection between the elected politicians and the conditions under which the economy and their lives are run.

    It will I think take probably a world wide collapse along the lines of the Great Depression of the 1930’s before the ‘people ‘ are awakened to the fact that they have given up ‘democracy’ for oligarchy and plutocracy . Whether humanity gets to enjoy a decade or so of in between ‘totalitarianism ‘ of the right or left is another question ?

  • Greenflag

    ‘the triumvirate all work together for themselves.’

    I’m sure they did , do and will continue to do -but I doubt if even they were stupid enough to bring about the current mess deliberately . That they brought it about inadvertently I can well believe . There are none so blind etc etc

  • DC

    Re the triumvirate – that’s why a decent government must intervene and save them from themselves.

    There’s no need to ask the rich to help us or for these CEOs advice, the government must help itself.

  • Greenflag

    Decent government ?

    But where will you find one these days ? Sweden ? Denmark ? Norway ? Perhaps those countries should go into the ‘outsourcing ‘ of governmental services business but alas the Americans and Brits and sundry others consider all of the former to be a shower of left wing commie socialist atheistic liberals with the morals of a pack of alsatian bitches in heat 😉

    But hark in the midst of a crazy world there are a few American voices who are coming around to the idea that maybe just maybe the USA might learn a bit from other countries even those non Anglophones . I read some editorials in the USA Today which points an accusing finger at Germany for having maintained successful manufacturing policies and at Finland for having the audacity to have a very successful educational system .

    Whatever next -just lets pray that the yanks don’t turn to Ireland -North or South for outsourcing advice in the matter of the provision of religious services .

  • wee buns

    Thanks guys; great to have been lurking on this exchange.

    Intriguing would be @ Neville’s idea of ‘’guest essays& threads from leading bloggers in each country that would give an overview of the attitudes and the depth of understanding among the chattering classes.’’

    @GF
    ”The French of course still retain their hold on the CAF (Central African Zone ) as a cheap source for resources etc ”
    Still raping…er…reaping the gains of a colonialist past… yet yet yet…pah. Encore emotional blackmail over Germany over WW11 secures their speshal bond?

    @John
    ”I don’t know how many civil servants in the UK would be happy with less than a 1000 Euros a month (before tax) ”
    Excellent point

    @DC
    ”you don’t pish down my back, and we – the financiers – won’t pish down yours.”
    Hear hear. SOCA is the way to make this happen NOW. No matter how disparaging the pundits are about it, nothing is in vain; people are more informed than ever. It cannot fail but come to a head.

  • Pete Baker

    Guys

    You’re so far away from discussing the actual problem it’s no wonder the situation is as bad as it is.

    Structural problems.

    Within the EU.

    Wittering on about The Great Satan capitalism might give you a warm fuzzy glow, but it doesn’t advance the discussion.

    DC

    “(I’ve been flogging this one over on certain sections of Cif on the Guardian site.)”

    And if you continue to derail discussions here with the same lines you can expect to be yellow and red carded in short order.

  • wee buns

    @Pete
    Ordinary people have as much say about the structuring within the EU as they have about any multinational corporation. Nada.
    Manners were put on us via Lisbon mark 2.
    Of course if more attention had been paid to the akshal people’s needs and expressions maybe we wouldn’t be here today. Which is why to blame the situation on the commentator is bizarre:
    ‘’it’s no wonder the situation is as bad as it is.’’
    Please explain that remark.

  • DC

    I believe the problems have arisen as a result of a debt crisis across various market economies – USA, Britain and indeed the EU.

    I do believe I have set out a way to get money off those that brought the debt crisis about – now how have I derailed the debate.

    You need to have faith PB –

    don’t stop believing

  • Pete Baker

    Wee buns

    “Ordinary people have as much say about the structuring within the EU as they have about any multinational corporation.”

    That’s where any discussion of the current situation needs to be focused.

    Rather than where DC believes he has “set out a way to get money off those that brought the debt crisis about”.

  • wee buns

    Yes, but in the proverbial ‘fairness’ impotence in the face of lumbering catastrophe is rather…impotent.
    As for SOCA
    ‘’If loving you is wrong…..’’
    You know the rest.