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.)
(Reuters) - Arm raised in a Nazi-style salute, the leader of Greece’s fastest-rising political party surveyed hundreds of young men in black T-shirts as they exploded into cheers. Their battle cry reverberated through the night: Blood! Honour! Golden Dawn!
"We may sometimes raise our hand this way, but these hands are clean, not dirty. They haven’t stolen," shouted Nikolaos Mihaloliakos as he stood, floodlit, in front of about 2,000 diehard party followers filling an open-air amphitheatre at Goudi park, a former military camp near Athens.
"We were dozens, then a few hundred. Now we’re thousands and it’s only the beginning," cried the leader of Golden Dawn, a far-right party that is seeing its support soar amid Greece’s economic collapse. Last month’s rally revealed the party, which describes itself as nationalist and pledges to expel all illegal foreigners, has a new-found sense of triumph, even a swagger, that some find menacing.
Riding a wave of public anger at corrupt politicians, austerity and illegal immigration, Golden Dawn has seen its popularity double in a few months. A survey by VPRC, an independent polling company, put the party’s support at 14 percent in October, compared with the seven percent it won in June’s election.
Political analysts see no immediate halt to its meteoric ascent. They warn that Golden Dawn, which denies being neo-Nazi despite openly adopting similar ideology and symbols, may lure as many as one in three Greek voters.
"As long as the political system doesn’t change and doesn’t put an end to corruption, this phenomenon will not be stemmed," said Costas Panagopoulos, chief of ALCO, another independent polling company. "Golden Dawn can potentially tap up to 30 percent of voters."
The party now lies third in the polls, behind conservative New Democracy and the main opposition, the radical leftist Syriza. Violent behavior by Golden Dawn members, who often stroll through run-down Athens neighborhoods harassing immigrants, seems to boost rather than hurt the party’s standing.
As the government imposes yet more austerity on an enraged public, the collapse of the ruling conservative-leftist coalition remains on the political horizon. The possibility that Golden Dawn could capture second place in a snap election is slim but real, say pollsters.
Analysts believe that, ultimately, the party lacks the broad appeal and structure needed to gain mass traction. In World War Two Greece suffered massacres and famine in its fight against the Nazis, and the spectre of the 1967-1974 military junta still hangs heavy over its modern politics. So why are many Greeks now turning to a party whose emblems and rhetoric, critics say, resemble Hitler’s?
Golden Dawn denies any such resemblance. In an interview with Reuters at an open-air cafe in the Athens district of Papagou, a traditional neighbourhood for military personnel, Ilias Panagiotaros, a Golden Dawn lawmaker and spokesman, explained the party’s appeal. “Golden Dawn is the only institution in this country that works. Everything else has stopped working or is partially working,” he said.
"We operate like a well-organized army unit, because the military is the best institution in any country." Greece’s far-right party goes on the offensive (PDF) link.reuters.com/rut83t > Greece’s other debt problem (PDF) link.reuters.com/ryq82t
Short, squat and combative, Mihaloliakos once praised Hitler and denied the Nazi gas chambers existed. A former special forces commando in the Greek army, he met the leaders of the Greek military junta while in prison for carrying illegal weapons and explosives as a member of a far-right group in 1979.
When pressed on such issues, Golden Dawn says they are all in the past and it is looking to the future.
For years after Mihaloliakos founded the party in 1985 it remained marginal: in the 2009 elections Golden Dawn won just 0.29 percent of the vote, or fewer than 20,000 votes. Yet in June, the party amassed votes from across the political spectrum, wiping out the more moderate nationalist LAOS party and winning support from as far left as the communist KKE party, pollsters said.
Now it is stealing votes from New Democracy, which flip-flopped on the international bailout keeping Greece afloat and, after coming to power, imposed harsh cuts instead of relief measures. Though Golden Dawn attracts mainly urban male voters up to 35 years old, the party is also gaining its share of women and the elderly, primarily those suffering unemployment or falling living standards, say pollsters.
Part of its appeal is down to the sort of welfare work that Hamas, the Palestinian party, does in Gaza. Golden Dawn distributes food in poor neighborhoods, helps old ladies get money safely from ATMs - and has also set up a Greeks-only blood bank.
A short film showed highlights of the year, which included attacks on immigrant street vendors, clashes with police outside parliament and food distribution to the poor. When the film showed Golden Dawn lawmaker Ilias Kasidiaris slapping a female communist lawmaker, Liana Kanelli, across the face on live TV, youths bellowed profanities against the victim.
"Golden Dawn’s target is simple. We want the absolute majority in parliament so we can replace the constitution with our own," Kasidiaris told the crowd. “It will then be easy to immediately arrest and deport all illegal immigrants.”
Pollsters were ready to write off the party when Kasidiaris slapped Kanelli after she swatted him with some papers during a dispute he was having with a Syriza lawmaker. Kasidiaris says he was defending himself; Kanelli says she was coming to the aid of the Syriza lawmaker after Kasidiaris had thrown water at her.
Painting Golden Dawn as an aberration stemming from the financial crisis, pollsters said the party’s support would dwindle. The opposite happened - the party gained 3 to 4 percentage points in polls as a direct result of the Kasidiaris incident.
In parliament Golden Dawn’s 18 lawmakers cluster in a rear corner of the marble-covered hall, but make no attempt to hide their ideology. Recently, Panagiotaros asked the welfare ministry to find out which babies admitted to state day-care centers were actually Greek. Eleni Zaroulia, wife of party leader Mihaloliakos and also a lawmaker, described immigrants as “every sort of sub-human who invades our country carrying all sorts of diseases.”
Artemis Matthaiopoulos, another Golden Dawn lawmaker, was formerly the bassist for a heavy metal band called Pogrom, which produced songs such as “Speak Greek or Die” and “Auschwitz”.
Rights groups say racist attacks in Greece have been surging, but that many immigrants are reluctant to report them because of their illegal status or mistrust of the police.
Like other victims, he accuses Greek police of supporting Golden Dawn and hindering immigrants in reporting attacks. In a July report, advocacy group Human Rights Watch said gangs of Greeks were regularly attacking immigrants with impunity and authorities were ignoring victims or discouraging them from filing complaints.
Greek police deny accusations they are soft on, or even sometimes work with, Golden Dawn. Public Order Minister Nikos Dendias has vehemently denied reports that police were beating up illegal immigrants and has threatened to sue British newspaper The Guardian over the issue. He is at such odds with Golden Dawn that the party ridiculed him during the youth festival at Goudi park.
But a member of the police officers’ union, speaking to Reuters on condition of anonymity, admitted there was some sympathy for the party among the ranks. “There are some among the police who ideologically support Golden Dawn and a handful that have been violent against illegal immigrants,” the unionist said. “But these cases are being probed by justice.”
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.
After Fox News grudgingly called the election for President Obama early Wednesday morning, Fox Business quickly started hawking the idea that a stock market drop on Wednesday morning was in response to Obama’s victory. Stuart Varney and Ed Butowsky claimed the decline was because “the takers have taken over” and investors are afraid of tax hikes:
VARNEY: Dow Industrial is down 177. That is a sell-off. Is it an Obama sell-off? We’ll discuss. With Obama’s victory, the takers have taken over. The makers are clearly in the minority. Am I right? It’s a sell-off the day after the election, with an Obama second term we’re down 183 points.
VARNEY: And it’s a reaction to the Obama victory?
BUTOWSKY: I don’t see anything else except what’s going on in Europe as well.
VARNEY: Okay, so stocks down, bonds up and this is largely a reaction to the Obama victory.
BUTOWSKY: Without any question in my mind.
In fact, as the Washington Post explained, the market responded positively to Obama’s reelection early in the day, but soon plunged over concerns of the Republican-divided Congress playing chicken with the upcoming fiscal cliff and a slew of bad economic news out of Europe. (And, of course, stock moves are rarely attributable to any one event.)
(Reuters) - The European Union won the Nobel Peace Prize on Friday for promoting peace, democracy and human rights over six decades in an award seen as a morale boost as the bloc struggles to resolve its economic crisis.
The award served as a reminder that the EU had largely brought peace to a continent which tore itself apart in two world wars in which tens of millions died.
The EU has transformed most of Europe “from a continent of wars to a continent of peace,” Nobel Committee Chairman Thorbjoern Jagland said in announcing the award in Oslo.
"The EU is currently undergoing grave economic difficulties and considerable social unrest," Jagland said. "The Norwegian Nobel Committee wishes to focus on what it sees as the EU’s most important result: the successful struggle for peace and reconciliation and for democracy and human rights."
Jagland praised the EU for rebuilding Europe from the devastation of World War Two and for its role in spreading stability after the fall of the Berlin Wall in 1989.
While welcomed by European leaders, the award will have little practical effect on the debt crisis afflicting the single currency zone, which has brought economic instability and social unrest to several states with rioting in Athens and Madrid.
Greece’s far-right Golden Dawn party is increasingly assuming the role of law enforcement officers on the streets of the bankrupt country, with mounting evidence that Athenians are being openly directed by police to seek help from the neo-Nazi group, analysts, activists and lawyers say.
In return, a growing number of Greek crime victims have come to see the party, whose symbol bears an uncanny resemblance to the swastika, as a “protector”.
One victim of crime, an eloquent US-trained civil servant, told the Guardian of her family’s shock at being referred to the party when her mother recently called the police following an incident involving Albanian immigrants in their downtown apartment block.
“They immediately said if it’s an issue with immigrants go to Golden Dawn,” said the 38-year-old, who fearing for her job and safety, spoke only on condition of anonymity. “We don’t condone Golden Dawn but there is an acute social problem that has come with the breakdown of feeling of security among lower and middle class people in the urban centre,” she told the Guardian. “If the police and official mechanism can’t deliver and there is no recourse to justice, then you have to turn to other maverick solutions.”
Other Greeks with similar experiences said the far-rightists, catapulted into parliament on a ticket of tackling “immigrant scum” were simply doing the job of a defunct state that had left a growing number feeling overwhelmed by a “sense of powerlessness”. “Nature hates vacuums and Golden Dawn is just filling a vacuum that no other party is addressing,” one woman lamented. “It gives ‘little people’ a sense that they can survive, that they are safe in their own homes.”
Far from being tamed, parliamentary legitimacy appears only to have emboldened the extremists. In recent weeks racially-motivated attacks have proliferated. Immigrants have spoken of their fear of roaming the streets at night following a spate of attacks by black-clad men on motorbikes. Street vendors from Africa and Asia have also been targeted.
Paschos Mandravelis, a prominent political analyst, attributed the rise in part to the symbiotic relationship between the police and Golden Dawn. “Greeks haven’t turned extremist overnight. A lot of the party’s backing comes from the police, young recruits who are a-political and know nothing about the Nazis or Hitler,” he said. “For them, Golden Dawn supporters are their only allies on the frontline when there are clashes between riot police and leftists.”
Riding the wave, the party has taken steps to set up branches among diaspora Greek communities abroad, opening an office in New York last week. Others are expected to open in Australia and Canada. Cadres say they are seeing particular momentum in support from women.
With Greeks becoming ever more radicalised, the conservative-led government has also clamped down on illegal immigration, detaining thousands in camps and increasing patrols along the country’s land and sea frontier with Turkey.
But in an environment of ever increasing hate speech and mounting tensions, the party’s heavy-handedness is also causing divisions. A threat by Golden Dawn to conduct raids against vendors attending an annual fair in the town of Arta this weekend has caused uproar.
h/t: The Raw Story
ATHENS/MADRID, Sept 26 (Reuters) - Demonstrators clashed with police on the streets of Athens and Madrid on Wednesday in an upsurge of popular anger at new austerity measures being imposed on two of the euro zone’s most vulnerable economies.
In some of the most violent confrontations, Greek police fired tear gas at hooded rioters hurling petrol bombs as thousands joined the country’s biggest protest in more than a year.
The unrest erupted after nearly 70,000 people marched to the Greek parliament chanting “EU, IMF Out!” on the day of a general strike against further cuts demanded by foreign lenders.
"We can’t take it anymore - we are bleeding. We can’t raise our children like this," said Dina Kokou, a 54-year-old teacher and mother of four who lives on 1,000 euros ($1,250) a month.
In Madrid, Prime Minister Mariano Rajoy faced violence on the streets of the capital and growing talk of secession in Catalonia as he moves cautiously closer to asking Europe for a bailout, aware that such an action has cost other European leaders their jobs.
In public, Rajoy has been resisting calls to move quickly to request assistance, but behind the scenes he is putting together the pieces to meet the stringent conditions that will accompany rescue funds.
Rajoy is gradually shedding his reluctance to seek a sovereign bailout for the euro zone’s fourth biggest economy - a condition for European Central Bank intervention to cut his country’s borrowing costs.
He suggested on Wednesday that he would make the move if debt financing costs remained too high for too long.
"I can assure you 100 percent that I would ask for this bailout," he told the Wall Street Journal.
He also said he had not made his mind up on whether to allow pensions to rise in step with inflation, which could cost the government an extra 6 billion euros this year.
"We need to be sufficiently flexible in order not to create any further problems," he said when asked about pensions.
His remarks, coupled with the central bank’s warning on the economy helped drive up Spain’s borrowing costs, with the yield on the benchmark 10-year bond jumping to 6 percent, a level seen as unsustainable in the medium term. The index of leading stocks fell 3.46 percent to a two-week low.
SAMARAS FACES TEST
With Rajoy under new pressure from the Catalans, his fellow euro zone struggler, Greek Prime Minister Antonis Samaras, also faced a major test, in the shape of a 24-hour strike called by the country’s two biggest unions.
Ships stayed in port, museums and monuments were shut and air traffic controllers walked off the job. Trains and flights were suspended, public offices and shops were shut, and hospitals provided a reduced service.
Union anger is directed at spending cuts worth nearly 12 billion euros ($16 billion) over the next two years that Greece has promised the European Union and International Monetary Fund in an effort to secure its next tranche of aid.
The bulk of those cuts is expected to come from cutting wages, pensions and welfare benefits, heaping a new wave of misery on Greeks who say repeated rounds of austerity have pushed them to the brink and failed to transform the country for the better.
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