History's first sovereign default came in the 4th century BC, committed by 10 Greek municipalities. There was one creditor: the temple of Delos, Apollo's mythical birthplace. What PIGS are experiencing at... the moment is a shock and awe. But it was also overdue. PIGS are not innocent when it comes to their decline. But providing PIGS with extended maturities and lower interest rates is in no way a true solution. PIGS need restructured debt in order to have a little breathing room. http://venitism.blogspot.com
October-18 Mafia considers two options, a 50% haircut and a disorderly default. Merkel hoodwinks that a 50% haircut is not an option for her as the damage is impossible to predict. The European project has lost significance among Germany's policy elite as the central driver of foreign economic policy. No clear grand strategy has replaced this Einbindungspolitik, German foreign policy tenet of engagement.
Kleptocracy, Kangaroo Justice, marilizardism, Marilizard Libel, Marilizard Spaghetti, and Marilizard Towers are very common in PIGS. PIGS prefer to detach themselves from reality. One can do that for a while, but now the capital markets are suggesting those days are over. Either you face up to reality or you will be punished.
Given the heavily-fragmented nature of checks and balances in German politics, the political elite seems to be buffeted by a cycling of priorities from regional elections to Chancellory infighting. The end result has been a series of policy reversals and costly delay. http://venitism.blogspot.com
PIGS first need to implement credible savings measures. PIGS already have considerable problems in that respect. PIGS also need a strict revenue policy. Tax evasion needs to be fought more effectively. And some things have also gone wrong with PIGS' industrial policy.
Portugal has massive structural problems in its economy. As late as the '90s it had a flourishing textile industry, mainly due to low-wage policies. From 2004 on, things went downhill: Portugal lost more and more investors to new EU members in eastern Europe, which also had low wages to offer. Since then the Portuguese economy has hardly grown. The industrial sector is shrinking, and unemployement has risen. The government is highly in debt.
In the spring, Portugal slipped under the protection of the EU's rescue mechanism, narrowly skirting bankruptcy. In return for loan guarantees to the tune of €78 billion, Portugal has to quickly make good on what the EU and IMF consider to be missed payments from the last 30 years. The government has imposed austerity on pensions and official salaries; it's reforming the public sector and selling its last state assets, including the public water works and the energy group EDP. By 2013 the state budget deficit will have to be reduced from 9 to 3 percent.
The government has predicted two horrible years for the almost 11 million citizens of Portugal. Government reforms are extremely ambitious and will demand a lot from the population. According to forecasts so far, the country will languish in recession through 2012, and unemployment figures may top 13 percent (setting new records). There's considerable fear that new growth will stall. But no one in Portugal wants to consider that.
Northern Fourthreichians have the strong suspicion that some of their hard work is going down the drain with the hundreds of billions that are currently disappearing into aid packages and bailout funds for PIGS, lived well at the expense of others, and that those who were more careful with their money are now expected to swallow the poison that is making its way northward. With heavily-indebted Italy also giving increasing cause for concern, Schaeuble declares Italy is a strong country with good economic data.
Il Duce Berlusconi's reckless chatter catalyzed a market reaction. Berlusconi publicly questions the austerity drive of his finance minister, Giulio Tremonti, the very man who stands most credibly for a solid Italian finance policy. Neither a real estate nor banking crisis sparked the financial emergency in Italy. Instead, poor budgetary management racked up enormous debts. Just as it did in the mid-'90s, the euro zone's third-largest economy carries a mountain of debt that equals more than 120 percent of its GDP. That's twice as much debt as Brussels will allow. Only in Greece is the situation worse.
New debts must remain under the European average and fall below the Maastricht Treaty's criteria of three percent of GDP by 2012. To reach this goal the Italian government plans to save some €45 billion over the next two years. There is much to suggest that Rome can overcome this crisis more effectively than other southern European governments. The economy is still quite productive, the savings rate is comparatively high and its bond market is the third-largest in the world.
Doubts have risen over whether the planned austerity measures will be implemented. There are also rumors that their main steward, Tremonti, may leave his post. Risk premiums for Italian government bonds have therefore reached record levels, which could endanger the country's banks, a number of which have invested in domestic bonds. Rome would be forced to prop up some of these institutions - but government coffers are empty. Speculators have started to bet the country will become insolvent.
Schaeuble says Italy's debts are manageable and could be brought back into the guidelines relatively quickly, and the downgrading by rating agency Standard & Poor's could prove beneficial by encouraging Italy to implement the already decided measures more quickly and urgently.
But Tremonti suggests the ball is in Germany's court, and Germany has to overcome its own uncertainties about whether to save the currency union from a threatened revolt among some members of parliament in Merkel's coalition on a crucial vote on the European Financial Stability Facility in Berlin on September 29. In a deja vu of the Confederate States of America, PIGS oppose the North!
In 2008, Spain was rudely awakened from its dream of an economic boom. The rapid economic growth in the middle of the last decade was based on an overheated construction sector that was fueled by extremely low interest rates. When the housing bubble burst in the wake of the financial crisis, hundreds of thousands of Spaniards lost their homes and over a million lost their jobs. Tourism also slumped as a result of the global economic crisis. The country slid into a severe recession.
The Socialist government tried to steer Spain out of the crisis with the help of unprecedented reforms, partly passed under pressure from IMF. The retirement age was raised and the rigid labor market reformed. There are some initial signs of recovery. Exports and tourism are getting back on track. The government is also making progress in the key economic indicators. In 2010 the budget deficit shrank more than expected. The biggest problem remains a record unemployment rate of over 20 percent. Among young people the rate even tops 40 percent. IMF recently warned that Spain needs to make greater efforts to reform the labor market. http://venitism.blogspot.com
Christine Lagarde has already pointed up the three principles any approach to PIGS' financial problems must respect. First, Europe must work backwards from a vision of where its monetary system will be several years hence. The reality is that politicians have for the last decade dismissed the widespread view among experienced monetary economists that multiple sovereigns budgeting and bank regulating independently will over time place unsustainable strains on a common currency. The European Monetary Union has been a classic case of the Rudiger Dornbusch's dictum that in economics, things take longer to happen than you think they will, and then they happen faster than you thought they could. So it has been with the buildup of pressures on eurozone.
Lawrence Summers asserts there can be no return to the pre-crisis status quo. It is now clear that market discipline within monetary union is insufficiently potent and credible to assure sound finance, and equally apparent that when banks and sovereigns do not have access to lender of last resort financing the risk of self fulfilling confidence crises becomes substantial. The respective responsibilities of the ECB, financial regulatory authorities and EU officials can be defined in different ways. But there must simultaneously be an increase in the central financial commitment to the financial stability of member states and reduction in their financial autonomy if the common currency is to survive.
Second, Summers declare Lagarde is right to point up serious issues of inadequate capital in European banks. Taking even relatively optimistic views about sovereign debt and growth prospects, European banks in at least as problematic a condition as American banks were in the summer of 2008. Unfortunately in many cases they are far larger relative to their national economies. Now is the time for realistic stress testing and then resorting to private capital markets if possible and to public capital infusions if necessary. With delay, private capital markets will close completely and nervous managements will rein in the provision of credit just when credit contraction is most likely to damage real economic prospects.
Third, Lagarde has broken with IMF orthodoxy in recognizing that expansionary policies are necessary in the face of substantial economic slack. The oxymoronic doctrine of expansionary fiscal contraction is being discredited every month. Europe needs a growth strategy. Yes, almost everywhere and certainly in the most indebted countries, binding commitments to eventual deficit reductions are a necessity. And in some places credibility has been lost to the point where immediate actions are necessary. But Europe only has a chance of handling its debts and contributing to a stronger global economy if it grows. This will require both aggregate fiscal and monetary expansion.
FUEHRER MERKOZY'S WORDS OF WISDOM TO PIGS
With our compliments to Beatles:
When PIGS are in trouble
Fuehrer Merkozy comes to PIGS
Speaking words of wisdom, let it be.
And in their hour of darkness
Merkozy is standing right in front of PIGS
Speaking words of wisdom, let it be.
Let it be, let it be.
Let it be, let it be.
Whisper words of wisdom, let it be.
And when the broken hearted people
Living in the world agree,
There will be an answer, let it be.
For though there is no money
Still a chance that they will see
There will be an answer, let it be.
Let it be, let it be.
Let it be, let it be.
Yeah, There will be an answer, let it be.
Let it be, let it be.
Let it be, let it be.
Whisper words of wisdom, let it be.
Let it be, let it be.
Let it be, let it be.
There will be an answer, let it be.
Let it be, let it be.
Let it be, let it be.
There will be an answer, let it be.
And when the night is cloudy,
There is still a light that shines on PIGS.
Shine until tomorrow, let it be.
PIGS wake up to the sound of music
Fuehrer Merkozy comes to PIGS
Speaking words of wisdom, let it be.
Let it be, let it be.
Let it be, let it be.
There will be no sorrow, let it be.
Let it be, let it be.
Let it be, let it be.
Whisper words of wisdom, let it be.
thereliables thereliables@yahoo.com
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