Justin's Political Corner
I really like this guy.
p.s. Britain, please abandon David Cameron.
A bit of explanation on the Cyprus situation.
Why are Cypriot banks so big? Because the country is a tax haven where corporations and wealthy foreigners stash their money. Officially, 37 percent of the deposits in Cypriot banks come from nonresidents; the true number, once you take into account wealthy expatriates and people who are only nominally resident in Cyprus, is surely much higher. Basically, Cyprus is a place where people, especially but not only Russians, hide their wealth from both the taxmen and the regulators. Whatever gloss you put on it, it’s basically about money-laundering.
And the truth is that much of the wealth never moved at all; it just became invisible. On paper, for example, Cyprus became a huge investor in Russia — much bigger than Germany, whose economy is hundreds of times larger. In reality, of course, this was just “roundtripping” by Russians using the island as a tax shelter.
It’s similar, Krugman says, to what happened in Iceland during the financial crisis, and how Iceland handled the situation then may be a good model for Cyprus to follow too.
Great piece from the always excellent Dr. Krugman.
(A great book on the precipitation of the financial crisis in nations such as Iceland, Greece and Ireland is Boomerang, by Michael Lewis. Go read it if you’re interested in this topic, highly recommended.)
The Bulgarian winter or protests against corruption, poor living conditions & high energy costs
March 16, 2013From the beginning of February, Bulgarians in most big cities have been out in the streets, protesting against the increased electricity and heating bills. While the increase has happened gradually throughout 2012, in January 2013 the bills were considerably bigger than they would normally get. The price formation was transparently written down on the bill, but what angered many is that a significant amount of money was charged not for energy per se but for various taxes and tariffs.
Bills and bonds
A wave of contention spread throughout the country, resulting in blockades of roads, barricades, increasing popular rage and police violence. Three men died having set fire to themselves in protest at the bills and the subservience of the state to economic interests. One old man cut his veins out of sheer desperation over his electricity bill. The protesters were mostly rank-and-file Bulgarians: middle-aged men and women, young couples with children and students all went out on the streets to voice their concerns over high energy costs, mediocre living standards and perceived corruption. The protests were also joined and partly hijacked by a number of extreme-right groups, who were ready to exploit the situation for harassment and looting.
The solution offered by many intellectuals, politicians from throughout the political spectrum and the media, was – surprise, surprise – the end of monopolies and further privatization and liberalization of the energy market.
This posture disappointed many, as the whole process is actually a showcase example of how privatized entities function poorly outside state control. The national power distribution companies were privatized in 2005 and then sold out to foreign companies under very favourable conditions. This move made the state – i.e. taxpayers – indebted to the private companies, which held prices high with a cartel agreement.
Yet, it was not the monopoly in general that was a problem: the issue was eclipsed by the amnesia of 23 years of transition to a market economy. It was the monopoly in the hands of uncontrollable private companies within a free market economy with no state regulation or protection that has left the population totally vulnerable to price hikes. The clamour around the energy bills also eclipsed some contradictory actions of the Borisov government. To calm down grain producers who also threatened nation-wide protests, populist Borisov promised new subsidies. Consequently, days before his resignation, Borisov pressed Finance Minister Dyankov to issue government bonds for 800 mio lev (€409 mio). Thanks to the unexpected shock for the national economy, and to the surprise of the international markets, the country’s bond yields started to rise and the value of the Bulgarian debt went down. But it was mostly Bulgarian banks who bought most (over 80%) of the bonds, raising suspicions of a deal to help Borisov’s reelection.
The crisis becomes political
Bills and bonds aside, the crisis of political representation had started. After a few nights of running battles between police and protesters, the government made an attempt to offer some blatantly unsustainable concessions: they offered a significant decrease of energy prices and transparency of the energy sector.
A few “protesters” coming from circles close to the government called for the protests to stop, to little effect. The people demanded Borisov’s resignation. After a night of violent clashes with the police, Borisov filed his resignation, saying he could not tolerate blood on his hands. The resignation was almost unanimously approved by parliament.
President Rossen Plevneliev launched “public consultations” to find a way out of the political crisis and form a new government. In his office, along with representatives of the protesters, he invited neoliberal think-tank experts and members of oligarchic and commercial organizations. The protesters soon walked out. Plevneliev offered the mandate only to the three parties which had previously proposed to form a government: Borisov’s centre-right Citizens for European Development of Bulgaria (GERB), social-democratic Bulgarian Socialist Party (BSP), and the Turkish ethnic Movement for Rights and Freedoms party (DPS) – all refused. This meant the dissolution of the Parliament, the calling of new elections in May and the appointment by the President of an interim “expert” government.
This outcome didn’t satisfy the protesters, who saw it as a convenient way for the current government to gain time to erase their record of corruption and avoid investigation or persecution. And this government shows no intention of reforming electoral laws ahead of the elections, when the current electoral code makes it exceptionally difficult for small parties to run for office.
People did not leave the streets. Demands for the electricity bills to be lowered were soon followed by more radical claims: a new Constitutive Assembly, elections by majority vote with no parties, only individual candidates, and the revision of all privatization deals and concessions of the last 20 years.
(via zalatix)
Angela Merkel is poised to allow the eurozone’s €750bn bailout fund to buy up the bonds of crisis-hit governments in a desperate effort to drive down borrowing costs for Spain and Italy and prevent the single currency from imploding.
Germany has long opposed allowing the eurozone’s rescue fund, the European Financial Stability Facility, to lend directly to troubled eurozone countries, fearing that Berlin would end up paying the bill, and the beneficiaries would escape the strict conditions imposed on Greece, Portugal and Ireland.
But Merkel has come under intense pressure as financial markets have pushed up borrowing costs for Spain to levels that many analysts see as unsustainable.
Analysts are likely to see the decision as the first step towards sharing the burden of troubled countries’ debts across the single currency’s 17 members, though it falls short of the “eurobonds” proposed by the European commission president José Manuel Barroso.
The proposal was discussed on the margins of the two-day G20 summit in Los Cabos, Mexico, which has been dominated by the depressing impact of the eurozone crisis on the world economy.
G20 officials believe an announcement could be made by the leaders of the eurozone in the next few days, but stressed they remained unclear as to timing and precise content.
It would be the first time the EU bailout funds have been used directly to purchase Spanish debt. It is understood the money would come from both the €500m European Stability Mechanism and its predecessor, the €250m European Financial Stability Facility.
Britain does not contribute to either fund.
Last week EU leaders had agreed a line of credit to Spanish banks through the Spanish government, a move that failed to reduce Spanish bond yields.
Madrid was granted a €100bn bailout from its European partners earlier this month to shore up its financial sector. But news that the full extent of the shortfall of the banks will not be known until the autumn underlined the sense of chaos.
There was speculation that the full total required could end up being far more than €100bn. Madrid was forced to pay a record 5.7% at a debt auction on Tuesday morning to borrow €2.4bn for just 12 months, prompting analysts to say Spain is edging perilously close to needing a full-blown rescue.
The political and economic dynamics threatening the European monetary union are complicated enough on their own. But there’s tremendous uncertainty about which choices European voters and leaders will make, and each hypothetical outcome there prefigures even more difficult-to-forecast consequences in the United States.
Still, economists and analysts have examined a range of scenarios — from ongoing recession in Europe, to a disorderly dissolution of the Euro and ensuing depression. And even the least bad of likely outcomes across the Atlantic will continue to put downward pressure on already-sluggish U.S. economic growth.
Late last year, Reuters looked at the consequences for the U.S. of a mild European recession, a protracted Euro recession, and a full-on meltdown. The upshot is that the American recovery can weather the Euro crisis even if leaders there insist on muddling through instead of taking the sorts of politically difficult actions experts say would be required to fix the problems there.
That was November 2011. Since then the U.S. economy has cooled down. But the same basic threat assessment holds up today, according to Dean Baker, co-founder of the Center for Economic and Policy Research.
“Such turbulence in Europe, with the massive wealth destruction, bankruptcies and a collapse in confidence in European integration and cooperation, would most likely result in a deep depression in both the exiting and remaining euro area countries, as well as in the world economy,” the Organisation for Economic Co-operation and Development said last year.
Big U.S. financial institutions have taken steps to protect themselves from direct exposure to a European financial collapse. But the falloff in demand, and a worldwide financial flight-to-safety, would likely lead to a significant decline in U.S. GDP, which would be exacerbated if European countries and the United States didn’t quickly abandon the austerity programs baked into their current budgets.
“The spillover effects, the chain of consequences are very difficult to assess,” said International Monetary Fund President Christine Lagarde last month. “We can certainly assume that it would be quite messy.”
h/t: Brian Beutler at TPM
BERLIN — Eurozone countries extended Sunday a hand of compromise to Greece after the victory of parties supporting the country’s international bailout, signalling some flexibility on the painful reforms.
“There can’t be substantial changes in the engagements” undertaken by Greece in the bailout deal. “But I can imagine we discuss again a delay” in achieving the targets, he said on Germany’s ARD public television.
The job, spending and wage cuts required under the 130 billion euro ($165 billion) bailout were a key issue among voters in Sunday’s Greek parliamentary election, with all parties calling for a relaxation of the terms if not outright cancellation of the deal.
Germany has been one of the most hardline eurozone nations and insisted that Greeks have to implement the agreed deal if they want the bailout funds needed to keep the country from going bankrupt and possibly exiting the euro.
French Finance Minister Pierre Moscovici said eurozone finance ministers would soon release a statement on how they will approach the situation in Greece.
German Finance Minister Wolfgang Schäuble called the results a “decision by Greek voters to forge ahead with the implementation of far-reaching economic and fiscal reforms in the country.”
But Belgium’s Foreign Minister Didier Reynders said that there is “room for maneouvre” on the time Greece needs to deliver on bailout commitments.
New Democracy party won the election and will be able to form a pro-bailout majority with the socialist PASOK party.
But even New Democracy chief Antonis Samaras has called for the terms of the bailout deal to be revised.
Revising the deal doesn’t come without risks to the eurozone however. Too much flexibility risks calling the Eurozone’s credibility on seeing painful but necessary reforms being carried through.
Too much flexibility also risks provoking calls for leniency from Ireland and Portugal, which are struggling to implement austerity policies.
The anti-austerity leftist Syriza party, which placed second, had vowed to tear up he European Union and the International Monetary Fund bailout deal that has given Greece a credit lifeline in exchange for harsh spending cuts.
“There is no other road but reforms,” said Westerwelle.
However there appears to be greater appreciation of the austerity fatigue among Greeks, who are now suffering through a fifth year of recession.
H/T: The Raw Story
Update: Spain will request EU financing for its banks, finance minister says; aid conditions will apply only to banks - @WSJbreakingnews
ATHENS, Greece — Greek lawmakers on Monday approved harsh new austerity measures demanded by bailout creditors to save the debt-crippled nation from bankruptcy, after rioters in central Athens torched buildings, looted shops and clashed with riot police.
The historic vote paves the way for Greece’s European partners and the International Monetary Fund to release $170 billion (euro130 billion) in new rescue loans, without which Greece would default on its mountain of debt next month and likely leave the eurozone – a scenario that would further roil global markets.
Lawmakers voted 199-74 in favor of the cutbacks, despite strong dissent among the two main coalition members. A total 37 lawmakers from the majority Socialists and conservative New Democracy party either voted against the party line, abstained or voted present.
Sunday’s clashes erupted after more than 100,000 protesters marched to the parliament to rally against the drastic cuts, which will ax one in five civil service jobs and slash the minimum wage by more than a fifth.
At least 45 businesses were damaged by fire, including several historic buildings, movie theaters, banks and a cafeteria, in the worst riot damage in Athens in years. Fifty police officers were injured and at least 55 protesters were hospitalized. Forty-five suspected rioters were arrested and a further 40 detained.
Since May 2010, Greece has survived on a $145 billion (euro110 billion) bailout from its European partners and the International Monetary Fund. When that proved insufficient, the new rescue package was approved. The deal, which has not yet been finalized, will be combined with a massive bond swap deal to write off half the country’s privately held debt.
As protests raged Sunday, demonstrators set bonfires in front of parliament and dozens of riot police formed lines to keep them from making a run on the building. Security forces fired dozens of tear gas volleys at rioters, who attacked them with firebombs and chunks of marble broken off the fronts of luxury hotels, banks and department stores.
Clouds of tear gas drifted across the square, and many in the crowd wore gas masks or had their faces covered, while others carried Greek flags and banners. Masked rioters also attacked a police station with petrol bombs and stones.
A three-story building was completely consumed by flames as firefighters struggled to douse the blaze. Streets were strewn with stones, smashed glass and burnt wreckage, while terrified passers-by sought refuge in hotel lounges and cafeterias.
“I’ve had it! I can’t take it any more. There’s no point in living in this country any more,” said a distraught shop owner walking through his smashed and looted optician store.
Athens Mayor Giorgos Kaminis said rioters tried to storm the City Hall building, but were repelled. “Once again, the city is being used as a lever to try to destabilize the country,” he said.
Conservative New Democracy leader Antonis Samaras said the rioting “hurts the entire country.”
“We are seeing scenes from a future that we must do our utmost to avert,” he said.
Papademos’ government – an unlikely coalition of the majority Socialists and their main foes, New Democracy – had been expected to carry the austerity vote. Combined, they control 236 of Parliament’s 300 seats.
Still, they faced strong dissent: Besides the 37 lawmakers who voted against the bill or abstained, a further six voted against sections of the proposed measures. After the vote, the coalition government announced those 43 lawmakers had been expelled.
Finance Minister Evangelos Venizelos said the measures were vital to the country’s very economic survival.
“The question is not whether some salaries and pensions will be curtailed, but whether we will be able to pay even these reduced wages and pensions,” he told lawmakers before the vote. “When you have to choose between bad and worse, you will pick what is bad to avoid what is worse.”
The new cutbacks, which follow two years of harsh income losses and tax hikes amid a deep recession and record high unemployment have been demanded by Greece’s bailout creditors in return for a new batch of vital rescue loans.
Greece’s eurozone partners, meanwhile, kept up the pressure for real reform.
German Finance Minister Wolfgang Schaeuble was quoted as telling the Welt am Sonntag newspaper on Sunday that Greece “cannot be a bottomless pit.”
Highlighting previous pledges he said weren’t kept, Schaeuble said “that is why Greece’s promises aren’t enough for us any more.”
Asked whether Greece has a long-term future in the eurozone, Germany’s Vice Chancellor Philip Roesler said “that is now in the hands of the Greeks alone.”
h/t: Huffington Post
