Thank You, Minister Leo, For Your Two Big Feet
A couple of cheers for Minister Leo, putting both his feet in the mouth of the Government. In a refreshing dose of realism he stated what everyone knows - we’re not going back to the markets anytime soon.
Unfortunately, this realism landed the Minister in a bit of warmish water. Not because of what he said, but because the Government is in denial. Are we going back to the markets in 2012? No. 2013? Ditto. We’re heading straight into the European Stability Mechanism which will, up to that point, mean that markets will continually price-in a default. That, alone, will keep us out of the markets. We are the verge of becoming a semi-permanent ward of the EU.
The Government may feel that denying the obvious gives it room for manoeuvre. This was the same logic the last Government relied on when denying the IMF was in town; denying it was seeking a bail-out; insisting the plan was working. Look how that turned out.
Now we’re getting this ‘we’re-not-Greece’ argument. We’ve had this type of arguments in the past. Remember all during 2009 - when Ministers and media were assuring us the markets were ‘happy’ with our irrational deflationary policies? At the beginning of 2009, Ireland had the highest borrowing costs in the EU-15 after Greece. At the end of 2009 - after an orgy of public spending cuts in three budgets - Ireland had the highest borrowing costs in the EU-15 after Greece.
Ministers and media commentators may have been ‘happy’; the markets were unimpressed (what investor puts their money into a county, a company or a household which is actually deflating its income?).
During the first Euro-crisis in April 2010 we were told not to worry - the markets knew we were not Spain or Portugal or Italy. They kept saying this even though the markets were pricing Irish debt higher - the highest in the EU-15 after Greece.
Greece was first into the bail-out; shortly afterwards, Ireland. Always after Greece.
So if Greece defaults, who is next in line? History is a wise teacher.
By 2015, the average debt of Eurozone members, excluding the three bail-out countries, is projected to be 69 percent of GDP; Irish debt is projected to be 111 percent. Irish debt as percentage of GNP is projected to be nearly 140 percent.
But here’s another way to measure the burden of debt: per every man, woman and child.
By 2015, Ireland will have the highest debt per capital in the Eurozone - even higher than Greece. Of course, such stats do not tell the full story. For instance, Belgium is second in the debt per capita stakes (and they’ve been without a government for nearly half-a-year). Yet such is the strength of their economy that they have no come under pressure in the markets. Portugal, on the other hand, has a relatively low-level of debt per capita but is in the bail-out fund - such is the weakness of their economy.
What is clear, however, is that - unlike Belgium and other strong economies, or Italy and its reliance on domestic savings to fund its debt - Ireland has a weak economy with high unemployment, low-growth prospects and reliance on foreign markets for debt financing. In this situation, what chances of Ireland escaping EU ward status?
But what did we expect? We pursued irrational deflationary policies during the middle of a recession; we threw billions after billions at insolvent banks; it remains Government policy to proceed with borrowing €40 billion over the next 14 years to fund non-existent banks, Anglo-Irish and Irish Nationwide. You couldn’t come up with a better strategy to bring about a default if you tried.
So if Minister Leo’s comments have shined a little light on this darkness of denial and delusion, then that’s all for the good.
May the Minister’s feet continue to remain planted firmly in the Government’s mouth.
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EU Should Admit Greece is Bankrupt | Christian Rickens
The unvarnished truth - the second Greek Bailout should not have happened.
The mistake isn’t the size, but the construction of the bailout package. It isn’t geared to the requirements of the people of Greece but to the needs of the international financial markets, meaning the banks.
How else can one explain the fact that around a quarter of the package won’t even arrive in Athens but will flow directly to the country’s international creditors? The holders of Greek government bonds are to get some €30 billion as an incentive to convert their old paper into new bonds. The aim is to keep alive the illusion that Greece isn’t bankrupt — after all, the creditors are voluntarily forgiving part of the debt. The financial sector is cleverly manipulating the fear that a Greek bankruptcy would trigger a fatal chain reaction.
That leaves €100 billion. But that too isn’t geared to what Greece needs in order to get back on its feet. It’s linked to an estimate of how much debt the Greek economy can bear without collapsing. International technocrats agree that with debts amounting to 120 percent of gross domestic product, the country can just about go on servicing its debt. That’s the level at which the cow can go on supplying milk without dying of exhaustion. So 120 percent became the goal.
Collaboration, with our European partners | Cunning Hired Knaves
The European project was supposed to be a bulwark against the dangers of fascist ambition, but now it is the instrument used to dismantle European democracy in the interest of the risk adverse looking for a steady income stream from the provision of the social net by those who cite the words and actions of old fascists while doing so.
The post Collaboration, with our European partners by Richard of Cunning Hired Knaves summed up in one sentence. For much better sentences and many more urgent points read the post.
On Sunday there were massive demonstrations throughout the Spanish state, with half a million people on the streets of Madrid and 450,000 in Barcelona, protesting against the labour ‘reform’ planned by the Partido Popular, the right-wing party that most closely represents the interests of the power elites that conserved their position when the transition from dictatorship to democracy was undertaken.
S.P.A.R.K. protest at cuts to lone parents, Dublin 18th February 2012
Many families were cut in the last budget but lone parent families were particularly hit by the Fine Gael/Labour Party government.
The key elements are that single parents can’t take advantage of training such as Community Employment (CE) Schemes and when the youngest child turns 7 years old, the parent is declassed as a lone parent but treated as an ordinary worker even though there are few affordable creche places. There is a bill coming up in March which will copper fasten some of the worst elements of government plans.
There is particular anger directed at the Labour Party because they are associated with women’s rights and a more progressive society.
Please share the link to this video
Exiting the euro | Michael Roberts
Michael Roberts argues that those in Greece who cite the example of Argentina when suggesting that Greece should leave the Euro are not necessarily looking at the whole picture. The situations are not the same, Roberts points out, citing Argentina’s former central bank governor at the time, Mario Blejer and his recent piece in the Financial Times. He also points to research based on the the experience of five recent devaluations of economies in crisis (including that of Argentina) which “shows that they lead to a 10-20% fall in real GDP and take five to ten years to recover to previous real GDP levels. But that is not to say that there is no alternative to “lowering wages, privatising the state sector, reducing taxes for the corporate sector (especially big business) and ‘deregulating’ labour markets i.e. the super-exploitation of the Greek people to raise profitability.”
But the left could also find an alternative policy to exiting the euro where Greece negotiates a full default on its debt to private and foreign bondholders; takes over the banks; and uses the savings from bond and interest repayments (€17-20bn a year) to start state directed investment in jobs, technology and funding small businesses, while staying in the euro to protect the savings of the people from destruction, keeping down inflation and avoiding a rise in foreign debt. The question of exiting the euro then becomes an issue for the Euro leaders to impose (and to be resisted by a campaign within Europe), not as the main policy plank of the left.
Corporate tax avoidance: where are the worst offenders?
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Solidarity campaign to support the people of Greece
Mikis Theodorakis, famous Greek composer of Zorba’s Dance, and Manolis Glezos, veteran resistance fighter against the Nazi occupation, have issued a call for a European Front to defend the people of Greece and all those facing austerity. We have decided to support this call and work with trade unions, campaigns and parties across Europe to establish a European Solidarity Campaign to defend the people of Greece. We will organise solidarity and raise practical support for the people of Greece; they cannot be made to pay for a crisis for which they are not responsible.
Chris Dillow | Capitalism against freedom
[...]
During the Cold War, opponents of communism routinely, and not entirely wrongly, claimed to be champions of liberty. Freedom for capitalists and freedom of speech and thought go together, it was claimed. “Freedom is indivisible” wrote Bruce Winton Knight in 1952. “Economic freedom is…an indispensable means toward the achievement of political freedom“ wrote Milton Friedman in Capitalism and Freedom. And back in 1944 Friedrich Hayek complained that “We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past.”
Today, though, this seems wrong. Many threats to freedom come from capitalists. The story is no longer capitalism and freedom, but capitalism against freedom.
Ian Stewart | The mathematical equation that caused the banks to crash
In The Observer, Sunday 12 February 2012
Anyone who has followed the crisis will understand that the real economy of businesses and commodities is being upstaged by complicated financial instruments known as derivatives. These are not money or goods. They are investments in investments, bets about bets. Derivatives created a booming global economy, but they also led to turbulent markets, the credit crunch, the near collapse of the banking system and the economic slump. And it was the Black-Scholes equation that opened up the world of derivatives.
The equation itself wasn’t the real problem. It was useful, it was precise, and its limitations were clearly stated. It provided an industry-standard method to assess the likely value of a financial derivative. So derivatives could be traded before they matured. The formula was fine if you used it sensibly and abandoned it when market conditions weren’t appropriate. The trouble was its potential for abuse. It allowed derivatives to become commodities that could be traded in their own right. The financial sector called it the Midas Formula and saw it as a recipe for making everything turn to gold. But the markets forgot how the story of King Midas ended.
Greece: a Sisyphean task | Michael Roberts
In a Eurozone that is unwilling to share its surplus with weaker, hardest hit economies there is no other option for those economies but default. Despite the agreement of Greek politicians to shorten their political life and accept the deal all that they have done is simply postpone this eventuality once again. However, even that postponement might be shortened by the Greek elections in April where the smaller leftist parties outside the coalition currently have 40% of the vote. Or so says Michael Roberts:
Whatever the Greek coalition leaders agree to and try to implement, such is the weakness of Greek capitalism, it will not be able to meet its fiscal targets or get its debt down to reasonable levels. Before the end of the year, the Troika will have to report that Greece is not delivering. Then the EU leaders will have to decide whether they ‘let Greece go’ or not. The EU leaders have agreed to more money for Greece (or more accurately its bondholders and banks) in return for draconian cuts in living standards in order to provide more time to try and ‘ring-fence’ other vulnerable Eurozone states like Portugal and Ireland (where they are preparing extra funding). So when Greece goes down, it will not affect the rest (or so the EU leaders hope). Of course, the Greek people may force the issue earlier if they vote in an anti-Troika government in April.
As Greece stares into the abyss, Europe must choose | Maria Margaronis
Do we really want to live in an economic union that must destroy the future of millions in order to just tick along? Maria Margaronis points out that the situation in Greece today says little about Greece and everything about the EU.
The trouble with historical metaphors is that they can obscure the present: what’s really at stake here is not Greece’s identity but Europe’s. All eyes are fixed on Athens, but the way out of the crisis requires a choice about what kind of Europe we want. The one we have now, with its deep structural inequalities and its rigid adherence to a failed economic ideology, protects neither democracy nor human rights. Stiff-necked and punitive, it prefers to eat its children.
Comment by: William Wall
Jun 1st 2011 at 06:06
Michael, I’ve been trying to work out what they (government) are up to. This seems to be their thinking:
We reduce wages across all the sectors, starting with the Public Service and then allowing the bosses to use that as a way of driving everything else down. We just suffer the consequences (the government doesn’t have to suffer at all, of course). At the end of a (hopefully) specified period of time Ireland is a low-wage economy. At that point we are more attractive to inward investment so we introduce a stimulus package and begin building up the economy again (don’t ask me where ‘we’ will get the money). So their policy seems to be deflate first then start again.
Do you think this is their strategy? And if it is, how would you respond to it?