Justin's Political Corner

Greek lawmakers approved the country’s 2013 austerity budget early Monday, an essential step in Greece’s efforts to persuade its international creditors to unblock a vital rescue loan installment without which the country will go bankrupt.

The budget passed by a 167-128 vote in the 300-member Parliament. It came days after a separate bill of deep spending cuts and tax hikes for the next two years squeaked through with a narrow majority following severe disagreements among the three parties in the governing coalition.

Prime Minister Antonis Samaras pledged that the spending cuts will be the last Greeks have to endure.

“Just four days ago, we voted the most sweeping reforms ever in Greece,” he said. “The sacrifices (in the earlier bill and the budget) will be the last. Provided, of course, we implement all we have legislated. “

Finance ministers from the 17-nation Eurozone are meeting in Brussels later Monday, with Greece high on the agenda. However, German Finance Minister Wolfgang Schaeuble has indicated it is unlikely that the ministers will decide on the disbursement at that meeting.

“We all … want to help Greece, but we won’t be put under pressure,” Schaeuble told the weekly newspaper Welt am Sonntag.

Schaeuble said the so-called troika of debt inspectors likely won’t deliver their report on Greece’s reform program by Monday. The creditors also want to see what the debt inspectors have to say about Greece’s debt sustainability.

But speaking minutes before the vote, Samaras pledged the bailout funds would be disbursed “on time.”

Disbursement of the next installment is essential “because the state’s available funds are marginal, although better than expected because the 2012 budget is being executed better than expected,” he said, adding that the funds are needed to pay salaries and pensions, as well as for the import of medicines, fuel and food.

Hours before the vote, 15,000 people converged outside Parliament in a peaceful demonstration. The crowd was far smaller than the 80,000-strong crowd which protested last Wednesday’s austerity bill vote. That demonstration degenerated into violent clashes between riot police and hundreds of protesters.

Greece is mired in a deep recession heading into its sixth year, with more than a quarter of Greeks unemployed. Battered by a mountain of debt and a gaping budget deficit, Greece has been relying on international bailout loans from other Eurozone countries and the International Monetary Fund since May 2010.

Alexis Tsipras, the head of the main opposition Radical Left Coalition party, or Syriza, insisted the new austerity cuts are unfair and would leave Greeks unable to buy essentials such as food, fuel and medicine this winter.

“This is why we say you are dangerous for this country,” Tspiras said, addressing the government. “You are incapable of negotiating.”

Tspiras promised to repeal the austerity laws and negotiate “on an equal footing” with the country’s creditors if he were to come to power.

The poll showed Syriza, which placed second in the June elections, ahead of the coalition leader, the center-right New Democracy party, by nearly 3 percentage points. The extreme right-wing nationalist Golden Dawn party continued its strong showing with more than 10 per cent of respondents preferring it.

h/t: CBC.ca

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.

h/t: Patrick Wintour at TPM, via The Guardian

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

Italian Prime Minister Silvio Berlusconi is coming under increasing pressure to resign as Italy struggles to deal with its worsening economic crisis. Earlier today, one of Berlusconi’s main coalition partners, Umberto Bossi of the Northern League, urged him to step aside ahead of a crucial budget vote. With the third biggest economy in the eurozone, the economic crisis facing Italy is considered to be far more dangerous than Greece. Many economists believe that Italy’s borrowing costs are approaching levels that may force the nation to ask for a massive bailout — far bigger than the bailouts for Greece, Ireland or Portugal.