EuroWatch: Brits warned, Grecian games, Spain

The big guns of monetary policy are making more noises, and listening with a discerning ear is critical because folks with an interest in keeping the game afloat don’t want to rock the boat too much.

The latest target of a major warning is Britain. Yep, Old Blighty’s on the way to becoming Old Blighted unless Important Advice is heard and obeyed.

There’s lots going on with Greece, the trembling cornerstone threatening to bring the euro game down, including the latest of what’s become an onslaught of stump speeches by big shots from Northern Europe hoping to restore the old coalition government in Greece, offering both threats and sweets to drum compliant Greeks to the polls.

And there are labor woes in Spain and Germany.

Britain grabs the IMF’s attention

You’ll read a lot these days about how the U.S. is recovering and Latin America and Asia are booming, stories that ignore, among other things, Brazil’s embrace of a neoliberal tax cut to stimulate a stagnating economy, Fitch’s latest Japan downgrade and China’s massive real estate bubble and increased military spending in response to Barack Obama’s declaration of an Amerasian Coprosperity Sphere.

Alarms are screaming everywhere, but prognosticators have a vested interested in hedging their remarks for fear of making things even worse. And yes, we’ve made the point before. And we’ll make it again.

And now the IMF is laying down the British line.

From John Hall of The Independent:

The International Monetary Fund today called for the Bank of England to stimulate UK growth with further quantitative easing or cutting the 0.5 per cent base interest rate.

In its annual report on the state of the UK economy, the IMF said the Government should prepare an economic Plan B, featuring temporary tax cuts and increased infrastructure spending to support the UK economy should the Eurozone collapse or recovery fail to take off.

Christine Lagarde, the IMF’s managing director, said: “If the economy turns out to be significantly weaker than forecast, fiscal easing should be considered… measures should be focused on supporting growth and employment.”

And as the IMF warned of the “large” risk of an escalation in the Eurozone crisis delivering a “substantial contractionary shock” to the UK economy, the OECD forecast Eurozone contractions were close to “a severe recession”, with knock-on effects for the rest of the world.

Read the rest.

More from The Guardian’s Phillip Inman:

The IMF urged the Bank of England to make the first move and cut borrowing costs, along with further quantitative easing and measures to make credit more readily available. It warned that without swift action from the central bank and initiatives from the Treasury to direct loans to small businesses tax cuts may become necessary.

The Bank of England has resisted following the European Central Bank’s programme of cheap three-year loans to banks, which has boosted the European banking sector. It has also been unwilling to buy corporate bonds, which amounts to direct lending to businesses.

Lagarde praised the Bank of England’s £325bn quantitative-easing scheme, which she said had proved a key support for the UK economy, but urged it to go further and consider further base rate cuts, more QE and a wider range of credit schemes to boost direct lending.

She said policies designed to stimulate growth obviously came with risks, but she added: “These risks need to be weighted against the risk of lost years of growth. To this end, further monetary easing is required.”

Read the rest.

Britain’s class divide, strong as ever

Those old school ties? Just as valuable as they ever were.

Deputy Prime Minister Nick Clegg, the top Liberal Democrat in Prime Minister David Cameron’s coalition government,

From The Independent’s Andrew Grice:

There is a “stark gap” between the life chances of the poorest and the better-off in Britain, the Government will admit today, as it publishes alarming research that reveals how wide that gulf is.

The study, to be unveiled by Nick Clegg, shows that:

One child in five is on free school meals, but only one in 100 Oxbridge entrants is.
Only 7 per cent of children attend private schools, but these schools provide 70 per cent of High Court judges and 54 per cent of FTSE 100 chief executives.
One in five children from poorer homes achieves five good GCSEs, compared with three out of four from affluent homes.

In response to the findings, Mr Clegg will take a political gamble by publishing new benchmarks so the public can track whether the Government is delivering its pledge to improve social mobility. Ministers admit they are making a rod for their own backs.

Read the rest.

The OECD predicts contraction

And what rude creature will be born thereof?

From Deutsche Welle:

The Organization for Economic Cooperation and Development (OECD) has said that the eurozone risks falling into a severe recession this year. If the slump is not curbed, the global economy might be dragged down too.

The 17-nation eurozone was “close to a scenario” that would lead to a 2-percent contraction of economic activity this year, the Paris-based think tank of 34 industrialized countries said Tuesday.

In the first of its biannual growth reports, the OECD warned that the present situation in the eurozone was making this “downside scenario” increasingly likely, upsetting earlier predictions of an 0.1-percent contraction in 2012 and weak growth of 0.9 percent in 2013.

OECD chief Economist Pier Carlo Padoan said the eurozone risked falling into a “vicious circle” of rising sovereign debt, weak banks, excessive fiscal consolidation and lower growth.

“The crisis in the eurozone remains the single biggest downside risk facing the global outlook,” he said, with the United States and Japan set to grow modestly, and emerging economies such as China and Brazil in for a cyclical upswing this year.

Read the rest.

More from Padoan via The Guardian’s Larry Elliott:

“We also see flat growth in the euro area which hides important differences, with northern countries growing and southern countries in recession,” he added. Padoan expressed concern about a debt default in Greece and the shaky condition of Spain’s banks, but said the emergency action by the European Central Bank, including a €1tn (£808bn) liquidity injection had so far prevented the debt crisis from spiraling out of control.

“If the situation gets worse, there are ways to enhance the firewall capacity which could include a stronger intervention or role of the ECB,” Padoan said.

Read the rest.

The OECD offers a Greek oracle

The Delphic seers have inhaled the gas and exhale visions.

The debt-primed pumps of the Greek economy, with workers impoverished and collective bargaining enchained, thanks to that austerity mandate, will continue to struggle, says the OECD.

From A. Papapostolou of Greek Reporter:

Greece’s battered economy will keep shrinking until mid-2013 as fiscal belt-tightening continues to weigh while austerity fatigue may hamper the pace of reforms, the OECD projected in its May outlook on Tuesday.

The twice bailed-out country is headed for crucial elections on June 17 that could determine if it continues to get funding from its currency partners and remain in the euro zone.


“The economy is set to contract until mid-2013 due mainly to needed fiscal retrenchment. Growth may turn positive in the second half of 2013,” the OECD said, expecting a deeper downturn this year than the country’s central bank and the EU Commission.

The OECD sees the Greek economy shrinking 5.3 percent this year after a 6.9 percent slump in 2011. The Bank of Greece and the EU Commission expect a contraction of 5.0 and 4.7 percent, respectively, this year.

While growth may return sometime in the second half of 2013, the OECD projected a 1.3 percent contraction for the year as a whole, extending Greece’s recession into a sixth year. The EU Commission’s full-year projection sees flat GDP growth.

Read the rest.

And the IMF has Greek expectations

Here comes more of that politicin’, with powerful people declaring their demands on viters in advance of the election just more than three weeks ahead.

From Keep Talking Greece:

The International Monetary Fund expects Greece’s next government to implement its agreed bailout program, IMF managing director Christine Lagarde said Tuesday, according to Dow Jones.

“The clear preference of the IMF in the interests of stability is that appropriate implementation of the program be endorsed by whoever of the political forces that will result from the election of June 17, and that those political forces will engage in a constructive dialogue with both their euro-area partners as well as the IMF,” Lagarde said at a press conference in London.

Were that not to happen, Lagarde said, “the job of the IMF is also to look at all possible technical options and all possible alternatives, and this is what the IMF has to do.”

Thus speaketh the oracle.

Tsipras keeps the game interesting

Syriza leader Alexis Tsipras paid a visit to the belly of the beast, Berlin, where the Iron Chancellor has held the strongest line against easing the Greek burden.

And he says Greece would have no intent on leaving the euozone should his party end up forming a coalition government after next month’s election.

From Agence France-Presse:

Greece would remain in the eurozone if the radical left were to win upcoming elections, Greek anti-austerity leftist leader Alexis Tsipras said in Berlin on Tuesday.

“A vote for the left does not mean that we would leave the euro. Quite the opposite, we would keep the euro,” said the leader of the Syriza party, which is tipped to win another round of elections expected on June 17.

“I do not think that a rejection of the austerity programme means that the country would have to leave the eurozone,” he said, in comments translated into German.

“We will try to find solutions at a European level and I am convinced we will be able to succeed,” he said.

Read the rest.

More from The Guardian’s Kate Connolly:

Following a visit to Paris on Monday, Tsipras met likeminded, anti-capitalist far-left politicians in Berlin.

He said the trenchant views of Angela Merkel’s German government on the eurozone debt crisis and her adherence to unpopular austerity measures were part of the problem.

“It would be helpful if we focused on this as a geographical problem facing the whole of Europe rather than concentrating on one country and looking to destroy a nation of peoples,” he said.

He said he wanted to “deliver a message of friendship, of hope”, adding: “I want to appeal to your sense of solidarity and … to persuade the Germans that we’re not trying to blackmail you.”

The political turmoil facing Europe “affects you, too,” he said, adding that the crisis was the result of a politics that had “largely failed” and needed to be stopped.

Read the rest.

New Democracy gets an ally

In the pre-election jockeying, a splinter party that didn’t win enough votes to earn seats in the last parliamentary election has allied with conservative New Democracy to give Syriza’s leading competitor more edge in the polls.

The party does have one significant standard bearer, which seems to be the major heft they give to the alliance.

From EUbusiness:

Leaders of Greece’s conservative New Democracy party said yesterday (21 May) that a small splinter group led by former Foreign Minister Dora Bakoyannis had agreed to rejoin it for the 17 June election, which is seen as crucial for the country’s future in the eurozone.

Political deadlock after the inconclusive 6 May election and the inability of warring parties to forge a coalition government have forced Greece to hold a second election as the threat of economic collapse grows (see background).

Bakoyannis’s small liberal Democratic Alliance won 2.55% of the vote on 6 May, less than the 3% required to enter Parliament.

Bakoyannis is the daughter of veteran Greek politician Constantine Mitsotakis. In 2010, she had to leave New Democracy (ND), because she supported the EU/IMF backed austerity measures, which at that time ND rejected.

Read the rest.

More Greek electioneering — this time Austria

Another German-speaker is heard from, declaring that the election’s a referendum in itself, and those creepy Greek lefties should just shut up.

From Keep Talking Greece:

One of Greece “best friends”,  Austrian Finance Minister Maria Fekter set new rules in the decision -making process of democratic elections. For Greece, not for Austria. “Greek elections are a de facto referendum” said Fekter during an interview with Austrian newspaper Die Presse.

“The elections are a de facto referendum on the euro. The Greeks have to think about what they want. Even with an exit, they will continue to be dependent on funding from the EU. To the austerity measures, the country will not get around, either way.”

Fekter’s equation of the impossible comes hours after – or despite of – the German government denials, that Chancellor Angela Merkel never made such a ‘sinner’ proposal to Greek President.

The Austrian FinMin expressed her concern about the country’s – Greece’s- political situation:

“The political instability in Greece is alarming. Before the elections we can not establish a de facto calculation probability.  The question is also: What does the International Monetary Fund do? The contact was broken off until the election. Certain statements coming from Greece  give me the creeps: that the EU would continue to pay anyway, even if the Greeks would not satisfy the requirements. I can not explain it anymore to my taxpayers.”

Read the rest.

The solution? How about a geuro?

And no, that’s not a German euro, but name does come from Germany.

It’s not a euro nor a drachma, but a sort of IOU, denominated in euros.

From Valentina Pop of euobserver:

Germany’s financial giant Deutsche Bank has floated the idea of a “geuro” – a parallel currency allowing Greece to devaluate while staying in the eurozone if an anti-bail-out government takes over in Athens.

If left-wing radicals win the 17 June elections in Greece and stick to their promise of scrapping the €130 billion bail-out and its austerity requirements, Greece could still stay in the eurozone without financial aid if it introduced a parallel currency, says a Deutsche Bank study published on Monday (21 May).

The “geuro” would consist of promissory notes, a form of government debt that can be sold on. It would devaluate sharply against the euro but would allow the government to buy itself some more time to carry out reforms and pass budget cuts.

“I think such a parallel circuit alongside the euro is the most probable development,” Deutsche Bank chief economist Thomas Mayer said on Monday during a press conference in Berlin. He said the “geuro” would allow Greece to lower its wages and boost exports: “This way they would be back in business.”

One pre-condition for the scenario to work would be that aid would still come from other euro-countries and the International Monetary Fund – most likely only for paying back Greece’s debt. Cash-strapped Greek banks would also need to be rescued by creating a European “bad bank” – according to the Deutsche Bank projection.

Read the rest.

Greek business adopt the drachma

Not officially, but they’re inserting weasel words in business contracts that provide for payment in drachmas instead of euros if worse comes to worse.

From the Liz Alderman of the New York Times:

Worries that Greece might default on its debts or even leave Europe’s currency union have deepened since May 6, when Greeks voted in shocking numbers for a left-wing party willing to tear up Greece’s $170 billion international bailout agreement. These days, even though 80 percent of Greeks say they want to stay with the euro, talk of “drachmageddon” can be heard in conversations all around Athens — in executive suites, at mom-and-pop shops and even in nightclubs.


Any departure from the euro, if it did occur, would not come quickly, even if a new government repudiates Greece’s bailout terms; orchestrating the exit would be legally complicated and lengthy. European leaders may also move to prevent a Greek default or exit at the 11th hour, considering the almost unending uncertainties.

But these days, few people are taking chances.

Big tourism operators like TUI of Germany and Kuoni of Britain are demanding the addition of so-called drachma clauses to contracts with Greek hoteliers should the euro no longer be in use here. British newspapers are filled with advice columns for travelers worried about the wisdom of planning a vacation in Greece, or even Portugal and Spain, should the euro crisis worsen. Large multinational companies like Vodafone Group, Reckitt Benckiser and Diageo have taken to sweeping cash every day from euro accounts back to Britain to limit their exposure.

Read the rest.

Still more words in German

This time they’re directed at France and any other country that calls for more bonds to fund further bailouts.

From Athens News:

Germany does not believe that jointly issued eurozone bonds offer a solution to the bloc’s debt crisis and will not change its stance despite calls from France and other countries to consider such a step, a senior German official said on Tuesday.

“That’s a firm conviction which will not change in June,” the official said at a German government briefing before an informal summit of EU leaders on Wednesday. A second summit will be held at the end of June.

The official, requesting anonymity, also said he saw no need for leaders to discuss a loosening of deficit goals for Greece or Spain, nor to explore new ways to recapitalise vulnerable banks at Wednesday’s meeting.

But guess what? There’s under-the-table cash

And it’s been going to Greece, from Europe’s central bank.

This is really starting to get curious.

From Ralph Atkins of Financial Times:

There has been no official announcement. No terms or conditions have been disclosed. But Greece’s banking system is being propped up by an estimated €100 billion or so of emergency liquidity provided by the country’s central bank — approved secretly by the European Central Bank in Frankfurt. If Greece were to leave the eurozone, the immediate cause might be an ECB decision to pull the plug.

Extensive use of “emergency liquidity assistance” (ELA) to help banks in the weakest economies has been one of the less-noticed features of the eurozone crisis. Separate from normal supplies of liquidity and meant originally as a temporary facility for national authorities to use when banks hit problems, ELA proved a lifesaver for the financial system Ireland and is now even more so in Greece. As such, it has given the ECB — which has ultimate control over the facility — considerable power to determine countries’ fates.


The ECB’s guard slipped a little late last month. Its weekly financial statement published on April 24, showed an unexpected €121 billion increase in the innocently titled heading “other claims on euro area credit institutions,” the result of putting all ELA under the same item. By definition, €121 billion was the minimum amount of ELA being provided by the “eurosystem” — the network of eurozone central banks.

By scouring ECB and national central bank statements analysts, have since pieced together more details. Analysts at Barclays, for instance, reckon Greece is now using €96 billion in ELA, with Ireland accounting for another €41 billion and Cyprus €4 billion. If correct, total ELA in use has exceeded €140 billion — more than 10 per cent of the amount lent to eurozone banks in standard monetary policy operations.

Read the rest.

More from the central bank via Ekathemerini:

European Central Bank Vice President Vitor Constancio said on Tuesday he does not expect Greece would exit the euro and urged Athens to work with Europe to remove the risk of its crisis spreading to other countries.

”I don’t think the worst is going to happen in Europe. I don’t anticipate Greece will exit … but it doesn’t mean Greece will not face a difficult situation,” Constancio said in a panel discussion at a conference held by the Institute of Regulation and Risk, North Asia, in Hong Kong.

Twice bailed-out Greece is headed for crucial elections on June 17 that could determine if it continues to get funding from its currency partners and remains in the euro zone.

Constancio’s comments came a day after he said in Tokyo it was too early to consider unwinding unconventional monetary policies, but it was necessary to monitor the risks posed to price stability and investment flows.

Read the rest.

Greek pharmacies strike for unpaid bills

Austerity’s been hitting hard at the Greek health system, and part of it’s gouing on strike Wednesday.

From Ekathemerini:

Pharmacies will close on Wednesday as owners protest the fact that social security funds have yet to settle their mounting unpaid drugs bill, while pharmacists are warning that some medicines are already in short supply.

Pharmacists have decided to close their stores for one day and to stop supplying customers with medicines on credit until the National Organization for Healthcare Provision (EOPYY), the country’s main healthcare provider, settles debts of some 250 million euros for prescriptions issued in March. The pharmacists claim they are also owed about 250 million euros for medicines they sold on credit in 2011 to customers insured with social security funds that were incorporated into EOPYY earlier this year.

In fact, pharmacists claimed on Monday that they have seen an internal EOPYY document that suggests the organization will get a maximum of 784 million euros in funding this year. The pharmacists point out that the bill for medicines they supply to those insured with EOPYY reaches 250 million euros most months and that the organization will soon not be able to pay its drugs bills.

State spending on medicines was cut by 1.75 billion to 3.8 billion euros but the government wants to bring it below 1 billion euros this year, partly through the use of cheaper generic medicines. An electronic prescription system, which has had a troubled launch, is also expected to reduce waste.

Read the rest.

Another strike, this time in Spain

The cause is the same, austerity, but the strikers are teachers.

From Deutsche Welle:

School teachers and their colleagues in universities went on strike across Spain on Tuesday to protest deep cuts to the country’s education sector as part of austerity measures aimed at reining in the country’s public debt.

Some took to the streets in demonstrations, with tombs being erected in front of universities to symbolize the view that the country’s schooling system is dying.

Union officials said all but three of Spain’s 17 regions took part. They say the cuts will put 100,000 substitute teachers out of work. Millions of students were also called on to join the one-day strike.

The cuts in government spending have led to a lack of teachers, larger class sizes, increased university fees, and a declining number of extra-curricular activities. All told, Spain’s regions were told to slash 3 billion euros ($4 billion) from education spending. This was part of a plan to reduce Spain’s public deficit from 8.9 percent to 5.3 percent of its gross domestic product.

Read the rest.

EU sends team to probe Spanish debt

With Spain declaring its unable to meet its EU-mandated deficit level, the EU’s sending its own team of bean counters to look at their books.

From Valentina Pop of EUobserver:

The EU statistical office, Eurostat, will this week send experts to Spain to double-check why the country’s deficit for 2011 is worse than previously declared.

The move was confirmed by a commission spokeswoman on Monday (21 May), amid attempts by Spain to convince investors that it is different than Greece.

The Spanish government last week informed Eurostat that an investigation into regional spending, following the passage of a new financial disclosure law, revealed that the 2011 budget deficit is in fact 8.9 percent of GDP.

The new number represents almost half a percent more than previously reported and comes after the public deficit was already revised twice in less than six months.

“Eurostat intends to clarify without delay whether this adjustment concerning the lower level of the general government can be considered as exhaustive, in co-operation with the Spanish statistical authorities,” the EU statistical bureay said in a press release.

Read the rest.

The secret of Germany’s success: Low wage workers

While Germany’s Europe’s one economic powerhouse these days, it built on a substratum of poor paid labor that draws little attention.

But, as Deutsche Welle reports, word is getting out:

Many German employees who earn low wages are forced to work very long hours to stay afloat financially. A quarter of all low-wage earners with full-time jobs work at least 50 hours a week, a study by the Berlin-based German Institute for Economic Research (DIW) claims.

“It’s a social and a political problem, if those people can make ends meet only by having such long working weeks,” the survey says. It adds that those affected are often exposed to above-average health risks, which implies that they also constitute a burden for the statutory health system.

In Germany, people are categorized as low-wage earners if they get less than two thirds of the average hourly wage. That means they have to earn less than 9.26 euros ($11.85) per hour.

The DIW claims that at present nearly 900,000 Germans work at least 50 hours a week for low pay, among them truck drivers, warehouse assistants and people employed in the catering sector. The institute, which is to officially present its study on Wednesday, points to Germany’s Working Time Act, according to which the weekly working time must not exceed 48 hours on a regular basis.

Read the rest.

Truck drivers? Guess Germany could use some Teamsters organizers.

Rating agencies come under scrutiny

The picadors of the arena, the folks who go in and inflict the wounds that get the drama fired up, are the rating agencies.

Once they’ve done their work, the folks with the capes and swords swoop it, teasing the wounded beast before inflicting the death blow.

Given their inordinate power these days, they’re coming in for some deserved scrutiny.

From EurActiv:

European Union countries agreed yesterday (21 May) to press for new controls on credit ratings agencies, with a law to challenge the power of the debt raters whose downgrades of countries angered politicians as they struggle with an economic crisis.

The draft rules, which will turn into EU law after the completion of negotiations with the European Parliament, could make it easier to sue ratings agencies if they were seen to make errors when ranking the creditworthiness of debt.

Diplomats from EU countries gave their broad backing to a draft law that will clamp down on the agencies, who had come under fire for giving top-notch AAA credit scores to debt that unravelled in the financial crisis.

“The proposals…set out to amend existing legislation on credit rating agencies in order to reduce investors’ over-reliance on external credit ratings, mitigate the risk of conflicts of interest in credit rating activities and increase transparency and competition in the sector,” the European Council said in a press release.

The deal, which some countries including France had hoped would be stricter, injects fresh momentum into a regulatory drive to change the way the big three credit rating agencies – Fitch, Moody’s, and Standard & Poor’s – work.

It means country ratings may have to be reviewed every six months, rather than once a year, as is often now the case.

One of the strongest proposed reforms imposes legal liability on rating agencies for their decisions although it is not clear how this would be enforced.

“The possibility to claim damages for an infringement of the (EU) rules … should be available for all,” the draft law says.

Read the rest.


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