2015 And EU Future Economic Predictions

[Joseph C.]

The Greek elections are just two days away. Left wing party Syriza are clear favourites to win, though they will probably have to form a coalition - hopeful a centrist party to keep the far left loons in check.

If they are clever the new Greek government will reduce taxes on the lower and middle classes. If they don't go overboard that should stimulate the Greek economy by increasing demand. The Swiss national bank's recent un-pegging of the Franc from the Euro should stop the Greeks buying foreign currency and hurting their economy further.

But if the new government go too radical they will destroy the fragile economy.

Quantitative Easing probable will make very little difference. ECB rates are already at low rates so they isn't much to be gained and their probably will be another stock market bubble burst. The lower ECB interest rates the more banks will have to charge people for loans to make up for the potential losses on tracker morgages.

Constantin Gurdgiev has an excellent piece on ECB's Quantitative Easing.

http://trueeconomics.blogspot.ie/2015/01/2212015-dont-put-too-much-dosh-on-ecbs.html

22/1/2015: Don't Put Too Much Dosh on ECB's QE Dark Horse...
Posted by Constantin Gurdgiev

Today's ECB announcement of EUR60 billion per month from march 2015 through September 2016 QE aiming to take the ECB balance sheet up to EUR1.14-1.26 trillion (estimated, based on starting timing and treatment of 12% share of European institutions securities) has been dubbed a massive boost to the euro area, a watershed, a drastic measure and so on.

Official details are here: http://www.ecb.europa.eu/press/pressconf/2015/html/is150122.en.html

In truth, it is neither.

Quantum of Asset Purchases and Types of Assets

Monthly EUR60 billion. This is lower (at current EUR valuations) than 'tapering' levels of Fed purchases (USD75 billion) and is lower than BofE interventions in 2009 which run at STG25 billion / month because EUR60bn ECB intervention is ca 7% of Euro area GDP, while BofE intervention was ca 20% of GDP.
Monthly purchases will combine public and private sector securities. Which means the QE is really an add-on to ABS. Purchases will start in the secondary markets and will cover investment grade securities issued by the euro area governments and agencies and European institutions in the secondary market. The key objective is to 'inject new liquidity' to improve liquidity supply. Problem is: with majority of Government bonds in negative yields territory already, where is the targeted shortage of liquidity in the system? I can't find one.
Limitation to investment grade cuts out Cyprus and Greece, but the ECB promised to include them into the programme under extended rules.
Government and euro area agencies securities will be purchased on the basis of risk-sharing. Quantum of purchases will be proportional to Eurosystem shares of each National Central Bank (NCB).
For European institutions-issued securities,amounting to 12% of total purchases, 80% of purchased quantum to be held on NCB balance sheet, 20% on ECB balance sheet. The latter measure prompted some analysts to conclude that risks can be amplified for the already indebted sovereigns. But this is nonsensical for two reasons: 1) NCBs are part of the Eurosystem, and 2) NCBs will purchase liabilities of the state, so only risk attached to these liabilities is carried through. In simple terms, there cannot be any double liability, just in the same way as one cannot eat the same slice of cake twice. More fundamentally, liabilities of the NCBs do not have to match the NCBs assets, nor do they constitute a claim on NCBs assets. Here is an informative primer on the topic: http://www.bruegel.org/nc/blog/detail/article/1546-qe-and-central-bank-solvency/?utm_content=buffer25d2c&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer+(bruegel
For National securities, there will be no risk sharing. So risk sharing only applies to Agencies-issued debt.
As a part of QE announcement, the ECB has also altered the set up of the TLTROs (there are six more tranches of these forthcoming). TLTROs will now be priced at MRO set at the time of each TLTRO tranche. This will lower the cost of future TLTRO tranches by some 10 bps. Net result - TLTROs are now marginally more attractive.
The ECB can cut short the asset purchasing programme if there is a signal of 'sustained improvement in inflation'.


Impact Assessment:

The measures are sign of desperation and frustration on ECB behalf. And not with the persistence of deflationary risks.

Instead, QE announcement was accompanied by another round of 'fighting' rhetoric from Draghi, who clearly continues to push member states and the European Commission to aggressively pursue structural markets reforms.

Draghi downplayed expectations for QE by stressing that QE only provides conditions to support growth. In his own words: "Monetary policy can create basis for growth but it's up to governments and Commission to make sure growth actually takes place". In so far as absent growth there won't be inflation, we, therefore, have a perfect excuse ex ante for any QE failure.

The key, however, is that we are now into the unchartered territory of watching the emergence of the second round effects of QE announcement.

The reason for this is that the direct impact - lowering Government borrowing costs - is effectively useless - the euro area as a whole is already enjoying record low yields. Meanwhile, market expectations of inflationary pressure over the longer horizon (e.g. 5yr/5yr spreads) are starting to price higher inflation, albeit modestly so.

Mr Draghi's claim that the measure is aimed at supplying liquidity is a red herring - a token nod to the German hawks. In reality, most likely, the QE will not unleash a wave of new credit creation.

More likely, we shall see some easing of deflationary risks, with inflation picking up in the medium term on foot of both QE and oil prices reversion back toward fundamentals-justified levels. Euro devaluation will also help to cover up underlying structural drivers for deflationary risks.

The real causes of deflationary risks in the euro area is weak demand. The latter is driven by collapse in after-tax household incomes and savings, and by the ongoing deleveraging of the households and firms. None of these can be helped by the QE.

Meanwhile, the QE is likely to provide some easier conditions for issuance of new Government debt. Currently, just under 50% of the euro area economy is accounted for by the Government spending. Pumping more spending into this economy is unlikely to do much for future growth and is hardly going to trickle down to the ordinary households. Which means that the entire QE exercise is dubious in nature. It will, however, significantly pads the pockets of bonds dealers and stock markets, and banks that hold these securities.

One caveat few noticed is that the ABS segment of the QE programme now falls under the remit of the NCBs. Which means that national authorities can select assets for purchases from the private sector. How this mechanism can prevent selection biases to, say, potentially favour so-called National Champions (larger state-owned entities and private monopolies) or corrupt selection of politically-connected enterprises and other similar behaviour is anyone's guess.

The circus surrounding the ECB announcement was (and remains) quite bizarre. The ECB announced effectively new (as in unknown to us before) measures to the quantum of roughly EUR114-260 billion, since it already previously set a target of ca EUR1 trillion balance sheet expansion.

Even more bizarrely, we know many details of the QE mechanism, but we have no idea as to the split between the sovereign bonds purchases and private asset purchases. We have no defined limit to the balancesheet expansion and we do not have a defined process for ending the programme (sudden stop or tapering).


Alternatives:

As I tweeted today, a viable alternative to the largely dubious QE would have been supporting household incomes and companies investment. This can be done more effectively via targeted and structured tax policies that are medium-term revenue neutral. One example, coincidentally, provided today in FT by Martin Feldstein: http://blogs.ft.com/the-exchange/2015/01/16/martin-feldstein-beyond-quantitative-easing-in-the-eurozone/

In the medium term, the key should be using monetary policy and fiscal policy to deleverage the economies: households, companies and governments. This is not being helped by the QE. Here is an interesting recent paper on the subject: http://www.bis.org/publ/work482.pdf.

In the long run, the key is finding real new catalysts for growth in the euro area that can compensate for the structural and demographic declines the EMU economies are suffering from. This too is not being helped by the QE.


Update 1: Here is the proportion by which ECB will allocate purchasing allowances for each NCB:


Update 2: And here is yet another reason why ECB's QE might not be the 'big bazooka' that will end markets fragmentation (aka increase credit supply to the real economy) - read bottom tweet first:


Courtesy of @Lee_Adler

If the Greeks succeed then it will pave the way for other EU or more specifically Eurozone countries to end the failed austerity. We shall see there is always the danger of going too far and doing a 1970's France or UK.

The US is already on the right track with Obama about to increase the absurdly low taxes on the rich.

With talk of the euro going as low as one to one with the U.S. dollar there is a great likelihood of increased exports to the U.S. I just hope the morons in charge don't sell EU citizens down the toilet in U.S./EU trade talks. No sane EU citizen wants to turn Europe into the Corporate U.S where companies can sue governments and odious scum like Monsanto can do what they please.

Interesting times ahead.

 

[Joseph C.]

The Germans great at business - completely clueless when it comes to economics.

http://www.forexlive.com/blog/2015/01/23/eight-reasons-german-complaints-about-qe-and-the-eurozone-are-laughable/

Eight reasons German complaints about QE and the eurozone are laughable
January 23rd, 2015 17:31:10 GMT by Adam Button View Comments
By almost any measure, Germans should be dancing in the streets regarding QE, membership in the eurozone and weakness of its neighbours

Here are eight reasons why Germans should be celebrating the euro and quantitative easing measures announced by the ECB like they won the World Cup.
Germany celebrating the World Cup
QE and the euro are the real wins for Germany
1. Germany is an export-oriented country and without the euro its currency might be doubled, making much of German industry uncompetitive and leaving millions jobless.
2. Instead, German unemployment is at record lows.
German unemployment is at record lows
German unemployment is at record lows
3. The German government is a heavily indebted but able to borrow for 10-years at 0.36% because of QE.
4. Germany has never lost a cent due to bailouts of its neighbours.
5. The Eurozone allows Germany to expand its political reach. Merkel is arguably the most-powerful politician in the world and has essentially dictated policy to periphery European nations.
6. The good news keeps coming. Del Speigel reported on Friday that Germany is likely to have a record current account surplus due to the weak euro and low oil.
7. The crisis in the periphery has driven the euro down further and forced Switzerland to abandon its currency peg, giving German exporters a massive advantage over Swiss rivals and sparking talk of Swiss firms moving to Germany.
8. Germans have a national psychosis relating to fears about inflation because of an episode nearly 100 years ago. They need to get over it. Since the creation of the euro, German inflation has averaged 1.7% year-over-year and is currently at 0.1% y/y.
Here is a sampling of some of the reaction of the German economic elite after the ECB announcement:
IFO calls ECB move ‘illegal’
German banking association says QE will have ‘marginal’ effects, increase asset price bubble risks
Bundesbank’s Weidmann criticizes ECB QE
Former Bundesbank leader Axel Weber said the EU has squandered last chance to make euro workable
German economist
Typical German economist
Meanwhile, executives at Seimens, BMW, Mercedes and BASF will watch their sales soar.

 

[Joseph C.]

Russian outlook is grim.

http://trueeconomics.blogspot.ie/2015/01/2412015-cb-of-russia-recent.html

24/1/2015: CB of Russia Recent Interventions
Posted by Constantin Gurdgiev

In 2014, Central Bank of Russia spent USD83 billion on currency interventions, against total draw down of USD124 billion in foreign reserves held. At the end of 2014, CBR’s foreign currency reserves, including gold, were USD386 billion, down from USD510 billion at the beginning of 2014. As of December figures, Russian foreign exchange reserves rank 6th largest in the world, providing a cover for more than 15 months of imports at current running rate.

In first half of January, CBR spend some USD2.2 billion on currency markets interventions, issued foreign exchange repos for the amount of USD8.3 billion, with most of this (USD5.4 billion) in 28- and 365-day maturities.

Edit: Forgot to mention that EU exports will be hurting for a good while yet.

 

[Punx0r]

I can't see the situation in Greece going well. Too many people will follow the Pied Piper promising lower taxes and increased public spending. Then it will back to an enormous deficit and possibly a default. How else can it go in a culture of tax evasion and politicians buying votes by creating very cushy public sector non-jobs?

The similarities between economic policies of many countries and an irresponsible teenager with their first credit card are bemusing...

 

[arkmundi]

The US is already on the right track with Obama about to increase the absurdly low taxes on the rich.

Ha, we could only wish. No, Obama has not authority to do so by executive order and must rely on a GOP controlled Congress. So why all the hoopla in the State of the Union? He's doing his best on behalf of the Democratic Party to set the stage for the 2016 presidential election, both primary and general. The point is to get political base to the polls, which these elections do. Elections tend to favour the Democrats more the higher the voter turn-out. And the Dems can't loose as a GOP controlled House, Senate and Executive would be disastrous, for the party and country both.

On another economic note: http://www.theguardian.com/business...oncern-for-ceos-that-should-keep-us-all-awake: Yet according to PwC’s 18th annual survey of global chief executives, climate change is not among the top 19 risks that keep them awake at night. “Overregulation” is their top worry – government policies that interfere in business and undermine growth prospects. For me, that's the key issue, but understandably for most, its the economy. May be mutually exclusive.

 

[Joseph C.]

I can't see the situation in Greece going well. Too many people will follow the Pied Piper promising lower taxes and increased public spending. Then it will back to an enormous deficit and possibly a default. How else can it go in a culture of tax evasion and politicians buying votes by creating very cushy public sector non-jobs?

The similarities between economic policies of many countries and an irresponsible teenager with their first credit card are bemusing...

T'will be interesting alright. The odds look bleak but the fact of the matter is the Greeks have a lot of leverage. There is of course the moral issue that lenders have responsibilities when issuing loans.

If I gave someone a loan of money and got burned I have to bear responsibility for making that mistake. The situation is the same for banks.

Syriza certainly aren't the loons they are made out to be though and I think they are pro Europe. They have plenty of academics in their ranks but the mountain they face is colossal. The levels of corruption is staggering.

However, even if they solve all those issues and completely reform the entire country their level of debt cannot be serviced. So either they get a write-down so they can recover or they default and their lenders get nothing. That's how it will eventually pan out.

As an aside, have you been watching some of the Davos coverage? A few years ago that was a mickey mouse affair now it's a vanity project for rich group think masterbators to talk shit and slap each others backs. I read that even the anti globalisation protesters are giving it a wide berth add they recognise its pointlessness.

 

[Joseph C.]

The US is already on the right track with Obama about to increase the absurdly low taxes on the rich.

Ha, we could only wish. No, Obama has not authority to do so by executive order and must rely on a GOP controlled Congress. So why all the hoopla in the State of the Union? He's doing his best on behalf of the Democratic Party to set the stage for the 2016 presidential election, both primary and general. The point is to get political base to the polls, which these elections do. Elections tend to favour the Democrats more the higher the voter turn-out. And the Dems can't loose as a GOP controlled House, Senate and Executive would be disastrous, for the party and country both.

On another economic note: http://www.theguardian.com/business...oncern-for-ceos-that-should-keep-us-all-awake: Yet according to PwC’s 18th annual survey of global chief executives, climate change is not among the top 19 risks that keep them awake at night. “Overregulation” is their top worry – government policies that interfere in business and undermine growth prospects. For me, that's the key issue, but understandably for most, its the economy. May be mutually exclusive.

Your probably right about the legality.

 

[Punx0r]

I agree about responsible lending as a partial check to irresponsible borrowing.

I really do wondering whether the banks should have been allowed to go to the wall rather than be bailed out. Supposedly, in the UK at least, the cost of bailing them out was greater than insuring all deposits they held. Sure, that doesn't allow for any potential future return-on-investment to the taxpayer, like with the bailout, but we seem to be still be stuck with the same broken system run by the same unscrupulous people. I was surprised a little while ago to read a list of the fines Lloyds have accrued in the last few years alone. If something can be rigged or traded dishonestly, it seems they've been caught doing it. And you know all the other banks were up to the same thing, just didn't get caught.

Anyway, we're now hearing talk of how the recession is "over", yet I fear it isn't. Wages are lower than 10 years ago, prices are rising and the house market still looks suspicious like a big, frock-off bubble.

Davos - I had been wondering what that was, as everyone seems to be there, talking about something or other

 

[Joseph C.]

Punx0r, I think there should have been a massive debt write-down and the worst banks should have been made bankrupt. The jobs thing is interesting but in growing economies (if we assume there is growth) jobs are the last thing to be added as generally extra people are only employed when there is both certainty and need. In recessions, they are the first to go.

I also think that a lot of these jobs are being lost by increasing automation which cannot be underestimated. In fact, I can see only a few future scenarios for people with two obvious ones.

Either very few have jobs and we create mass unemployment the likes of which the world has never seen - which will eventually destroy the rich too as no one will buy their products. Or we go the whole Star Trek way and make jobs redundant. I think eventually it will either be a crisis of employment or a crisis of existentialism. Pick your poison to overcome.

Here is a great piece on the folly of Quantitative Easing In The EU and what it has really done.

Just like the '80s, only different
Posted in Sunday Business Post · 69 comments · SHARE d e h
Leg warmers, Hall & Oates, mullets, Spandau Ballet, big hair, Bonnie Tyler, trickle down economics, overalls, shoulder pads and Charlie – my God! – Charlie Haughey. The 1980s are everywhere at the moment.

More than anything, this was the week of the Ford Granada, Austin Princess, Timotei shampoo and the Boss. Charlie Haughey dominated the Irish airwaves again. Last Sunday, we were catapulted backwards to a 1980s Ireland, which is both instantly recognisable and profoundly different.

However, it was not just the Haughey-fest in Ireland that made me feel like wearing matching denim. In Europe the ghost of the 1980s is at large. Russia in the east is a threat again, while in the west, urban terrorists are on the loose. As separatist movements are emerging in many countries, the ECB has hinted heavily that it will print money and buy up all sorts of assets in an effort to get the moribund economy going again.

Let’s take the last point first – because this is an economics column, after all – and then see the link running through all these recent developments.

The new economic policy supported by all eurozone governments is an extreme example of trickle-down economics, the type of economics favoured by 1980s right-wingers like Margaret Thatcher and Ronald Reagan. Yet, today, this right-wing policy – making rich people richer – is being demanded by left-wing governments in France and Italy.

Think about it. If the ECB buys assets, who gains? Rich people, obviously, because they are the ones who own the assets. Poor people don’t own assets.

Therefore, if the EU’s key macroeconomic policy is to buy assets via the ECB’s quantitative easing (QE) effort, its key policy is designed to make rich people richer. The hope is that these rich people will spend and this spending will trickle down to poor people! Making rich people richer isn’t the unintended consequence of policy – it is the policy!

But there aren’t enough rich people to buy all the stuff, so it won’t trickle down. The rich don’t make the economy go round; the average person does, spending the average amount, on average things, all the time.

By voting for the fiscal compact three years ago, Europe has tied all governments’ hands behind their backs because it limits state expenditure. We know that state spending on health and education is the single best way of making societies more equal.

The EU has replaced these laudable initiatives with QE. Therefore, the EU has embarked on a policy of making countries more unequal.

As wages – the income of poor people – stagnate, a policy of driving up asset prices makes the ordinary guy feel more left out. And consider the consequences of implementing such a policy at a time when your economy is, unlike in the 1980s, exposed to competition from China.

European industry has taken the brunt of the competitive pain associated with the emergence of China. It is the average blue-collar worker who has suffered because he is in the direct line of fire. His job is on the line.

In contrast, the protected professional middle classes have benefited from China, because they get cheaper smartphones without their jobs or wages being threatened by workers in Shenzhen.

Now consider what happens when all this undermining of the average local worker happens at the same time as mass immigration.

Immigration affects different parts of society differently. For wealthy people, immigration means cheaper workers. Immigration is a win-win option for the rich. In contrast, for poorer people, immigration means direct competition for jobs, for houses, for welfare, for schools, for hospitals, for transport and ultimately for a stake in their society.

So it is not surprising that, all over Europe, we hear representatives of big business argue for more immigration. It makes sense for them to do so: they get cheaper workers.

When the local white population try to argue that they are getting squeezed by immigrants or their kids can’t get work because the immigrants are getting the jobs because immigrants are prepared to work longer hours, they are slapped down and labelled racist.

But what if the local white people are just trying to protect their own interest? Isn’t that what everyone does?

Sometimes, the people who attack the poorer white indigenous population for being racists are protected behind some university department or other (paid for by the taxes of the working poor) and have access to radio producers or editorial pages in the media.

My point is that opinion-makers are not threatened by immigrants, so they would prefer the United Colours of Benetton approach to society rather than the more gritty and realistic notion that if some people gain, sometimes, other people lose out.

Now consider when economic growth stops – as it has done in Europe. The cake stops getting bigger and starts to get smaller. The local population, which was worried about its place when there were opportunities, suddenly finds itself in an existential struggle. But who exactly are poorer people struggling with? Not the guys at the top, but the guys with them closer to the bottom.

The protected political class (wedded to 1980s’ thinking) don’t see that on the ground, immigration, competition and inequality have made people nervous and rudderless.

The average guy goes looking for someone who speaks his language and echoes his concerns. And who turns up? Someone like Marine Le Pen of the National Front in France arrives who answers his questions about immigration, ethnicity and the fact that his son is kicking around at home in a hoodie watching daytime telly. She seems to have the answers, not because she knows the score but because, at least, she listens.

Then some Muslim extremist, invoking Allah, murders people in a magazine that the average guy has never heard of, but this confirms to him that, even though Mustapha in the football club is the nicest guy you’d ever meet, there’s something’s not quite right with these Muslims. There are too many of them.

Maybe, they think, now is the time to vote for the new party. Having voted the same way all his life, the average guy considers giving the National Front a chance. The other shower aren’t listening anyway.

No, it’s not the 1980s, despite the cosmetic similarity and the lure of nostalgia. In Europe, we are somewhere very different, profoundly less stable and much more volatile.

Here is a great piece on QE and the narrative of confusion by Adam Curtis on Charlie Brooker's 2014 Wipe.

[youtube]Ohi5mQJPLOM&t=28m20s[/youtube]

[youtube]Ohi5mQJPLOM[/youtube] 28 minutes and 20 seconds in.

 

[Joseph C.]

I might as well post this too while I'm at it.

http://trueeconomics.blogspot.ie/2015/01/2612015-if-not-liquidity-then-debt-ecbs.html

The EU debt mountain.

26/1/2015: If not Liquidity, then Debt: ECB's QE competitive limping
Posted by Constantin Gurdgiev

I have written before, in the context of QE announcement by the ECB last week (see here: http://trueeconomics.blogspot.ie/2015/01/2312015-liquidity-fix-for-euro-what-for.html) that the real problem with the euro area monetary and economic aggregates has nothing to do with liquidity supply (the favourite excuse for doing all sorts of things that the ECB keeps throwing around), but rather with the debt overhang.

In plain, simple terms, there is too much debt on the books. Too much Government debt, too much private debt. The ECB cannot even begin directly addressing the unspoken crisis of the private debt. But it is certainly trying to 'extend-and-pretend' public and private debt away. This is what the fabled EUR1.14 trillion (or so) QE announcement is about: take debt surplus off the markets so more debt can be issued. More debt to add to already too much debt, therefore, is the only solution the ECB can devise.

While EUR1.14 trillion might sound impressive, in reality, once we abstract away from the fake problem of liquidity, is nothing to brag about. Take a look at the following chart:



Forget the question in red, for the moment, and take in the numbers. Remember that 60% debt/GDP ratio is the long-term 'sustainability' target set by the Fiscal Compact - in other words, the long-term debt overhang, in EU-own terminology, is the bit of debt above that bound. By latest IMF stats, there is, roughly EUR3.5 trillion of debt overhang across the euro area 18, just for Government debt alone. You can safely raise that figure by a factor of 3 to take into the account private sector debts.

Which puts the ECB QE into perspective: at the very best, when fully deployed, it will cover just 1/3rd of the public debt overhang alone (actually it won't do anything of the sorts, as it includes private and public debt purchases). Across the entire euro area economy (public and private debt combined) we are talking about the 'big bazooka' that aims to repackage and extend-and-pretend about 10-11% of the total debt overhang. Not write this off, not cancel, not burn... but shove into different holding cell and pretend it's gone, eased, resolved.

This realisation should thus bring us around to that red triangle and the existential question: What for? Between end of 2007 and start of 2015, the euro area has managed to hike its debt pile by some EUR3 trillion, after we control for GDP effects. Given that this debt expansion did not produce any real growth anywhere, one might ask a simple question: why would ECB QE produce the effect that is any different?

The answer, on a post card, to the EU Commission, please.

 

[arkmundi]

I think eventually it will either be a crisis of employment or a crisis of existentialism. Pick your poison to overcome.

By existentialism, I hope you mean the Naomi Klein posed puzzle

 

[Joseph C.]

I think eventually it will either be a crisis of employment or a crisis of existentialism. Pick your poison to overcome.

By existentialism, I hope you mean the Naomi Klein posed puzzle

No by existential crisis I mean a crisis of meaning. If no one works for employment where do they get meaning from? A large part of your purpose comes from what you do. If that's taken away what meaning does your life have? Those are the questions that people will face if the Star Trek scenario comes true.

 

[friendly1uk]

The green party in the UK look set to close the boarders. They don't want Europe. They want to see us make all the things that we need ourselves. Not have us reliant on imports for survival.

That means clothing farming and other support industries all on your doorstep. Like 100 years ago.

I'm not sure what that means for ireland, whatever ireland is.

 

[Joseph C.]

The green party in the UK look set to close the boarders. They don't want Europe. They want to see us make all the things that we need ourselves. Not have us reliant on imports for survival.

That means clothing farming and other support industries all on your doorstep. Like 100 years ago.

I'm not sure what that means for ireland, whatever ireland is.

I don't know much about The Green Party at all. It's the first time I have heard of them to be honest. Do they have any Westminster seats?

That policy would be economic suicide for the UK. If the UK left the EU they would probably lose London as a financial centre. It seems to me to be an ill-thought out xenophobic policy.

I did laugh when I read the true European statistics on UK benefits which proves that UK citizens claim far more benefits in other EU countries than non-UK EU citizens claim in the UK. I think the ratio in Ireland was 5:1.

But there must be something wrong beyond the nationalistic myths and nonsense. Either people are losing their jobs to non-UK nationals or jobs are being automated and people are putting the blame at the wrong targets stoked on by UKIP loons.

The more you look at the situation in the whole of the EU the more terrifying everything becomes. Ireland's debt to GDP ratio is 120 something per cent. Italy is worse, Spain isn't as bad as I thought, in fact much better than the UK 70 something versus 90 per cent. Greece's debt is enormous at 175 per cent.

Therefore, it is quite natural to start laughing at Greece. I think it is self-comforting mechanism.

But the real problems are enormous and those numbers above are actually tiny compared to the real problem which is private debt. Ireland's private debt to GDP ratio is over 300 per cent. The UK's is one of the worst in Europe with both public and private at 500 per cent of GDP.

We may be laughing at Greece but really every EU country is a basket case with the exception of Germany whose total debt is about 170 something per cent. But if all of Europe is screwed then Germany is screwed by default as we are the ones that buy all their stuff.

The only way to get rid of debt is a write-down and a massive one at that looking at the figures. Borrowing money and accumulated more debt creates more problems. Crudely slashing public expenditure with little to no strategy together with increasing taxes on the middle and lower income earners is taking more money out of the economy and causing deflation as no one is buying anything and by no one I mean the middle and lower classes - the elites are irrelevant to economic recovery.

 

[arkmundi]

No by existential crisis I mean a crisis of meaning. If no one works for employment where do they get meaning from? A large part of your purpose comes from what you do. If that's taken away what meaning does your life have? Those are the questions that people will face if the Star Trek scenario comes true.

But the suggestion that its Capitalism that provides employment, therefore meaning is completely ludicrous. In fact in colonial New England, these were ventures of people escaping various forms of oppression and persecution in Europe. Often religious sects moving together on a ship and making a new life with vastly improved freedoms. No longer serfs to their master's biddings. No longer bound by an oppressive church, whether Catholic or Anglican. It was the bedrock of the new America. When the founding fathers of the republic came along, they enshrined these principles into the constitution.

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

I believe there is a whole set of revived meanings to be had in a restoration of our original democratic intent, a getting away from monetary slavery, a downsizing of the banking sector, of direct trade & batter, freedom from the tyranny of the dollar and a new principally agrarian society wherein people are directly involved in the production of basic needs including food, shelter, clothing and security. Like the original colony's and their village life.

Its not retro thinking. I'm not a complete Luddite. I like electricity and computers and the Internet. But there is considerable value in the E.F.Schumacher Small Is Beautiful argument. Naomi Klein is right on with This Changes Everything, a book on a par with the greatest economic treatises any time in history - a must read. If you're really interested in a solution to our current dilemma that is. Because its not just Greece and the European Union that is in trouble.

 

[Joseph C.]

ECB has now started to become a political actor doing Germany and France's bidding, or more specifically their banks' bidding.

http://www.thejournal.ie/ecb-criticism-economists-1921598-Feb2015/

Is the ECB ‘so inept’ that Greece may actually end up leaving the euro?

Europe’s lender of last resort is facing a torrent of criticism in the fallout from last night’s statement concerning Greece’s government debt

THE ECB IS coming in for some heavy criticism from economists today for its statement last night regarding Greece’s government debt.
The bank’s assertion that Greece’s government, led by recently elected anti-austerity party Syriza, can no longer use its junk-rated debt as collateral for loans for its own commercial banks could trigger a run on the Greek banks, according to experts.

With Bloomberg suggesting that the Greeks could run out of cash before the end of February if its debt ceiling isn’t raised, commentators have claimed that the union’s central bank is behaving in an overtly political manner when its sole role should be that of lender of last resort.

The ECB statement comes in advance of today’s meeting between the new Greek finance minister Yanis Varoufakis and his German counterpart Wolfgang Schaeuble.

Germany is seen as the greatest stumbling block ahead of Greece’s efforts to reduce its massive debts.

In conversation with TheJournal.ie professor of finance at Trinity College Dublin Brian Lucey describes the ECB statement as a ‘very dangerous move indeed’.

“Syriza have a very solid mandate in Greece. Is grinding them into the ground really what the ECB wants to do?” he said.

Quite apart from the political nature of the move, even if they ‘win’ and Syriza is cowed completely into submission, that is hardly a result either.

Syriza would have to resign and point the finger, and if the ECB just ignore the democratic choices of a proud constituent nation, what kind of approach is that?
The ECB’s role should be in encouraging EU states, not crushing them with an obvious bias towards other countries.

Asked how he thought the situation would develop over the coming weeks Lucey said his guess is as good as ours.

But I’m beginning to worry that the ECB are so inept that the worst could actually happen and Greece could be out of the Euro.

When you’ve got a dog on a leash you give them more slack, you don’t tighten the noose and suffocate them entirely but that seems to be news to the ECB.
And if the worst comes to worst, Greece goes to hell in a handbasket and has to leave the Euro, well what’s to stop other troubled countries, including ourselves, from doing the same?

With the way the ECB are playing the game a Mexican standoff situation is a distinct possibility, i.e. nobody wins.

Earlier this morning economist Karl Whelan was softer in his criticism, describing the ECB’s statement as ‘not helpful’.

“It’s not as dramatic as you might think, if there’s no normal loans available the Greek banks have access to Emergency Liquidity Assistance [ELA] from the Greek central bank,” he told RTE.

But these kinds of darkly-worded statements could trigger a run on the banks in Greece and then you’ve got a liquidity crisis.

It’s really just an increasing of the temperature of the situation, but doing that doesn’t necessarily lead to good decisions, and deeming Greece as being only trustworthy in an IMF programme is a very politicised judgement.

I think it would probably be best for the ECB to take a step back from proceedings and let Germany and Greece work it out for themselves, rather than getting caught in the middle of what is essentially a political situation again.

 

[Joseph C.]

ECB has now started to become a political actor doing Germany and France's bidding, or more specifically their banks' bidding.

http://www.thejournal.ie/ecb-criticism-economists-1921598-Feb2015/

Is the ECB ‘so inept’ that Greece may actually end up leaving the euro?

Europe’s lender of last resort is facing a torrent of criticism in the fallout from last night’s statement concerning Greece’s government debt

THE ECB IS coming in for some heavy criticism from economists today for its statement last night regarding Greece’s government debt.
The bank’s assertion that Greece’s government, led by recently elected anti-austerity party Syriza, can no longer use its junk-rated debt as collateral for loans for its own commercial banks could trigger a run on the Greek banks, according to experts.

With Bloomberg suggesting that the Greeks could run out of cash before the end of February if its debt ceiling isn’t raised, commentators have claimed that the union’s central bank is behaving in an overtly political manner when its sole role should be that of lender of last resort.

The ECB statement comes in advance of today’s meeting between the new Greek finance minister Yanis Varoufakis and his German counterpart Wolfgang Schaeuble.

Germany is seen as the greatest stumbling block ahead of Greece’s efforts to reduce its massive debts.

In conversation with TheJournal.ie professor of finance at Trinity College Dublin Brian Lucey describes the ECB statement as a ‘very dangerous move indeed’.

“Syriza have a very solid mandate in Greece. Is grinding them into the ground really what the ECB wants to do?” he said.

Quite apart from the political nature of the move, even if they ‘win’ and Syriza is cowed completely into submission, that is hardly a result either.

Syriza would have to resign and point the finger, and if the ECB just ignore the democratic choices of a proud constituent nation, what kind of approach is that?
The ECB’s role should be in encouraging EU states, not crushing them with an obvious bias towards other countries.

Asked how he thought the situation would develop over the coming weeks Lucey said his guess is as good as ours.

But I’m beginning to worry that the ECB are so inept that the worst could actually happen and Greece could be out of the Euro.

When you’ve got a dog on a leash you give them more slack, you don’t tighten the noose and suffocate them entirely but that seems to be news to the ECB.
And if the worst comes to worst, Greece goes to hell in a handbasket and has to leave the Euro, well what’s to stop other troubled countries, including ourselves, from doing the same?

With the way the ECB are playing the game a Mexican standoff situation is a distinct possibility, i.e. nobody wins.

Earlier this morning economist Karl Whelan was softer in his criticism, describing the ECB’s statement as ‘not helpful’.

“It’s not as dramatic as you might think, if there’s no normal loans available the Greek banks have access to Emergency Liquidity Assistance [ELA] from the Greek central bank,” he told RTE.

But these kinds of darkly-worded statements could trigger a run on the banks in Greece and then you’ve got a liquidity crisis.

It’s really just an increasing of the temperature of the situation, but doing that doesn’t necessarily lead to good decisions, and deeming Greece as being only trustworthy in an IMF programme is a very politicised judgement.

I think it would probably be best for the ECB to take a step back from proceedings and let Germany and Greece work it out for themselves, rather than getting caught in the middle of what is essentially a political situation again.

 

[arkmundi]

Double post - delete one. But yes, European royalty evolved into banks and their wars ever since are financial. Greece is just a little guy the big guys are beating up on. But they don't want to bruise 'em so bad as to make 'em vindictive, just get 'em in line. Royal family --> big bank --> national central banks, the IMF, bank of reconciliation, etc. --> national leadership --> a whole country --> all the rest of us

 

[Punx0r]

It's starting to look like the best thing for Greece would be to default, leave the Euro and rebuild on their own.

That would make an exit by Portugal and Ireland more likely.

The EU is looking like a failed experiment that no longer serves its original purposes and has ceased to be useful. My only reservation about breaking up the EU is possibly losing the Eastern European states to Russia, increasing its influence in Europe and increased tension with it.

 

[dnmun]

the european union was knda like a dream of how to unify very different cultures into one poltical union.

now you have a conflict between a country like greece where corruption of gument at all levels is endemic and nobody who makes money ever pays taxes and they never even report the money they make off the books where about 50% of the greek economy resides.

so now the greeks want germany to continue paying to keep millions of useless guvment workers in greece employed and asking europe to allow everyone with money in greece to keep it and never pay taxes. maybe ask the germans if they want a free lunch too.

i think it is easy to understand why europe is willing to let the greek guvment become a patron of putin. they share the same moral and religous orientations so maybe it is just as well. plus the russians can now winter on the greek isles instead of the black sea or london.

 

[arkmundi]

The USA had NAFTA. China and its allies have the Shanghai Cooperation Organization. In other words, large multi-national economic trade organizations. Made perfect sense for the EU to develop a single currency and more. Going backwards would be troublesome. Don't know the way forward out of the quagmire. But for your consideration, the entire global economy is in trouble. Greece is just early to the party.

 

[Joseph C.]

It's starting to look like the best thing for Greece would be to default, leave the Euro and rebuild on their own.

That would make an exit by Portugal and Ireland more likely.

The EU is looking like a failed experiment that no longer serves its original purposes and has ceased to be useful. My only reservation about breaking up the EU is possibly losing the Eastern European states to Russia, increasing its influence in Europe and increased tension with it.

Yes and no.

Ordinarily it should make sense for them to default, but they import far more than they export. If they default they will be screwed - €27.57 billion in exports compared to €46.86 billion imported last year. There is simply no economic productivity occurring at all. And the public sector wages are ludicrously high. Train drivers getting paid in excess of €100,000 to drive empty trains is madness. Those wages are fine for the likes of Switzerland or Norway who can easily absorb those costs. But I seriously doubt that even they are handing out those wages to drivers carting around empty carriages.

Of course the Drachma will tank upon default meaning their task becomes monumental. And I don't think they will get EU funding if they do go down that route. Neither do I believe Russia is in a position to help them out either.

At this stage I don't see the Euro or the EU as the problem at all. The real issue is debt and an inability to adhere to the one strategy that offers a solution. It is turning into a worldwide problem. And people generally underestimate the situation as they look solely at public government debt to GDP ratios when the real killer is the private debt each country is carrying.

The only nation that can get away with large debt is the US. But none of the rest of us have that luxury.

The biggest danger for EU countries is copying the failed models employed by the Japanese which is where this all started - Patient Zero. And like Japan we have all adopted their failed QE and added more debt to the problem. You can't work your way out of debt by acquiring more debt. It's just not possible and we will never be able to inflate our way out of it either.

There is only one way out of this mess and that is a debt write-down. And that means imposing heavy losses on the French and German banks which should have been done more than half a decade ago.

The world of extreme leveraging and using cheap foreign labour to temporarily relieve the pressure is done. I wonder how long it will take to sink in.

Greece will probably still flounder though even if a write-down happens. It was a serious mistake to let them join the Euro despite failing the entry requirements. I really can't see Syriza, or anyone else for that matter, correcting all of Greece's systemic failings.

 

[dnmun]

they were able to meet the entry requirements by using derivative financial instruments arranged by GS to cover their imbalance of interest payments.

i see no reason that the banks in europe with deposits from 100s of millions of europeans should be punished because greece has such a culture of corruption that everyone from top to bottom is involved in hiding income and dodging their taxes.

on top of that the entire economy is based on having guvment intstitutions hire anybody and everybody in the country and put them on guvment payroll.

it is not fair for the other people living in europe to have to pay greece to continue to scam them of their own savings.

maybe eventually you will get a job and have to pay taxes and will come to understand why we resent others taking the money we pay in taxes and spend it for themselves on booze and soda pop and the other things allowed by guvment of the people on relief.

 

[Punx0r]

Good points, Joseph. It seems Greece is screwed whatever they do.

I have always been sceptical of the very idea of QE, so I wouldn't be surprised to learn is hasn't achieved the desired effect. It just seems to be delaying the inevitable.

It's hard not to resort to nationalism at times like this. I found myself conflicted in that I felt it would be wrong for Scotland to break with the UK, but at the same time that the UK probably ought to break with the EU. I know the two situations aren't quite alike. Anyway, it turns out my instinct was right for Scotland

I have never been "anti-rich". I prefer low taxes and small government. I don't mind some people having lots of money, it doesn't bother me simply that they have it, and I feel it's kinda inspirational to many. Large personal wealth also supports many top-end industries that I'm glad exist, although I will never enjoy their products. However, it's starting to look like there has been an ever-increasing accumulation of wealth at the top (during these economic hard times) to the direct detriment to the vast majority of people and I find this unsustainable and distasteful. A redistribution seems required and perhaps this should occur as a debt write-down, as you suggest.

 

[Joseph C.]

they were able to meet the entry requirements by using derivative financial instruments arranged by GS to cover their imbalance of interest payments.

maybe eventually you will get a job and have to pay taxes and will come to understand why we resent others taking the money we pay in taxes and spend it for themselves on booze and soda pop and the other things allowed by guvment of the people on relief.

No, they didn't meet the Euro Convergence Criteria requirements. Greece were the only country that failed to qualify by the deadline set on the 1st of January 1999. They were still allowed to join the Euro despite what should have been a clear warning sign.

And of course lenders are responsible for issuing loans. It is one of the banks' main jobs to make sure that loans can be repaid. Banks have large amounts of resources dedicated to making sure clients can pay. Why should the rules be any different if they are lending to citizens or other banks? They should have obtained sufficient collateral as a backup. I do appreciate that they were following what everyone else was doing but that doesn't make it right either.

As for your last remark, I hope that snipping comment isn't directed at me? Irrespective if it is or isn't, it is a completely dickish thing to say and I would have expected better.

I'm neither unemployed nor am I on social welfare and I pay my taxes very well thank you very much.