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Thread: Beware of Greeks Bearing Bonds

   
   
       
  1. #11
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    Economics: Greece, why and how it collapsed!

    Why and how Greece collapsed -

    Bureaucracy: Greece's bureaucracy is famous in the whole of Europe! To open a cafe or pub there are 25 processes to go through!! This is a country of many unnecessary rules and regulations.

    Does this sound familiar?

    Bloated civil service: There are 1.05 milliion civil servants (excluding police and armed forces). The population of Greece is only 10 million!! More than 10% are govt servants!! Salary increases every year and benefit for civil servants in Greece is one of the best in Europe!! More and more money is needed to upkeep these unproductive bloated civil servants. The retirement age is 62 yrs old.

    Does this also sound familiar?

    Corruption: Greece is the most corrupted nation in the Eurozone. Citizens pay "under table" money to:

    # admit into a public hospital

    # pass a driving licence

    # to enter public service

    # renovate your business premises or your home

    # avoid income tax

    Hey, are we sure we’re talking about Greece here?

    Every govt project is awarded to political cronies and at hugely inflated prices! Transparency International compared the prices of the construction costs of stadiums built for the Athens Olympics recently with similar structures in China — 500% more expensive than the Chinese; compared to Los Angeles and Sydney — 50 % more expensive!!! All these with tax payers money! and borrowings!!!

    This sounds like very close to home..

    Tax evasion: Officially 80% of its citizens are supposed to pay tax but only 37% are doing so. Big businessmen and corporations have refined tax evasion to a fine art (or have the tax men taken some coffee money?)

    Over here, it’s only the Nons who pay tax

    No transparency in governance: The politicians and bureaucrats falsified economic data and painted a rosy and manageable picture while the economy was rotting away.

    This is too similar to our politicians’ style here

    Unabated borrowings: Meanwhile, the politicians and bureaucrats continue to issue govt bonds to keep afloat, series after series. They were trying to cover up the financial mess they have created creating one big hole to cover up the previous!!

    Like bailing out the cronies..?

    Lacking political will power to reform: To keep hold on to political power, politicians are prepared to lie, commit economic and political fraud. If reforms were taken some five years ago, the country need not go bankrupt and its citizens need not suffer so much. Political expediency and greed to political power over-rides everything and hence Greece is now a bankrupt country. Luckily, it is part of the European Union and its currency is EUROs, otherwise Greeks will have to eat grass to survive!!

    Reform is no more a choice, it is our only hope..!!

    Laid back attitude: Tourism is THE ONLY industry in Greece and over the years the Greeks have had an easy time. Many flocked to see the historical sites and enjoy summer vacation on the islands. But they forgot that not many tourists will returned after visiting the sites – there are so many other tourists attractions in the world, maybe more exotic and perhaps cheaper!! So once tourism wanes and coupled with higher costs of living – the Greeks could not and refused to adapt and transform – still partying and having a nice time – maybe the Greek Gods will bless them!!! Greece have no natural resources, no electronics industry, no R & D – no anything!! They were so laid back – cannot see what is coming and crashing down on them. Even now, the civil servants refused to take a pay cut – because they feel that the world owes them a living!!
    Now does the above sound very familiar.........!!!
    py

  2. #12
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    Some lessons for us in Malaysia.

    REUVEN BRENNER

    Greek rescue - if only

    Oct 8, 2011 By Reuven Brenner


    Consider first the demographic issues surrounding Greece and Europe, and see how they are linked to potential solutions.


    In a world where political institutions would be stable within a country, and sufficiently similar across countries, capital should flow from the older to the younger generations, be it within a country or across borders. Whether private entities or governments make the promises to pay, the fulfillment of promises depend on returns from the thus-financed investments. Then, either directly, or, indirectly, through taxes, these returns, paid back by future generations would then support the retired generations in their rainy days, be it health or age-related.


    But what if there are no future generations? Or diminishing number of them?


    Once people decide to have fewer kids, fertility falls below



    replacement level and prospects of immigration stays slim (think Japan, Spain, Italy, Greece, other parts of Europe), investment in these societies should diminish. Towns get depopulated, roads go to rack and ruin, trade and communication slow down, many specialists disappear. It happened when Ancient Rome lost an estimated 50% of its population, or more recently in Ireland, after first getting a 10% increase in population due to migration, then rapidly losing much of it.


    Debts that do not take into account depopulation would unlikely be re-paid in full. No monetary policy, no fiscal policy, no financial engineering, no bail-outs may reverse the trends. If there is depopulation, there must be deleveraging - because there is less future income to become leveraged for.


    Ireland gives a small glimpse of the above before our eyes, and it illuminates both problems and opportunities facing Greece and the European Community.


    It turns out that "the miracle" of this Celtic tiger was achieved mainly with Eastern European Cubs. Before the financial crisis, Ireland attracted some 400,000 young entrepreneurial immigrants, expanding its own population by 10%, a large percentage from Eastern Europe after the fall of communism. As these "cubs" headed back to their countries during this crisis, Ireland faced tough choices.


    But first Ireland, along with Britain and Sweden, allowed unrestricted migration from the 10 European nations that joined the European Union in 2004. Shortly after that, more than 130,000 Poles were living in Ireland, with an average of 10,000 more Eastern Europeans arriving every month. Young Poles emigrating to Ireland were quoted as saying, "If you have ambition in Poland, you come to Ireland."


    Before those years, Ireland slashed public spending in areas such as education, agricultural spending, roads, and housing - and it abolished agencies such as the National Social Services Board, the Health Education Bureau, and regional development organizations. By 1993, government non-interest spending had declined to 41% of gross national product (GNP), down from a high of 55% of GNP in 1985 - the type of policies Greece is now expected to do.


    Ireland also significantly lowered corporate tax rates to 12.5%, at a time when the lowest tax rates in Europe averaged 30% and the US rate was at 35%. In 1987, income tax rates were also reduced, and are now standing at 20% for the first $50,000 and 41% at higher levels.


    That is not the policy the EU and International Monetary Fund (IMF) recommend for Greece, not because it would not be good for Greece but because the rest of Europe does not want either heightened competition, nor are either the bureaucracies at the IMF or in Brussels interested in showing that they might not be needed.


    It would be a serious mistake to infer though that the above fiscal changes turned local Irishmen into driven, innovative entrepreneurs and scientists. According to official statistics about Irish formal education, even in 2001 the Irish were, at best, mediocre. Compared to other states in the Organization for Economic Cooperation and Development that year, Ireland ranked 15th out of 30 in the number of people age 25-64 holding degrees; 14th out of 27 for research degrees, and 11th out of 17 for primary degrees.


    It is the large-scale immigration to Ireland starting in 1995 that turned the country around, allowing Ireland to be ranked third among European nations in early stage entrepreneurial activity. Nothing unusual about this: at all times, everywhere, what I have called "the vital few" make things click. Push them out, and the places fall way behind.


    The exceptional performance of the British and Swedish economies in the years leading up to the financial crisis also reflected the inflow of ambitious young talent from Eastern European countries. While France and Germany banned people from the European Union's "junior members" until they gained full-member status, Ireland, the UK and Sweden welcomed them in their "accession" status. Since 2004, 500,000 workers from Eastern Europe have registered with the British Home Office. According to a report issued in 2007, 98% of the UK migrants were employed, 80% were younger than 35, and none were eligible for the dole until they had worked at least a year.


    For the UK such immigration flows represented a significant addition of talent, since, according to recent documents, the country's labor force has a pronounced deficit of skills. A recent government-commissioned study by Lord Sandy Leitch reported that a third of UK adults lack basic high-school levels of general aptitude, half lack any proficiency in numbers, and a seventh is functionally illiterate (numbers not dissimilar to Canada's, as noted in previous columns). The research showed that through their relaxed immigration policies, the UK and Sweden had been prescient in going after the "cream of the crop.


    The financial crisis combined with the large outflow of skilled immigrants heading back to their countries of origin broke the trend and, with declining population, the real estate bust became graver in Ireland than many other places. Still, Ireland now is gradually recovering. It stayed with the euro and did not devalue.


    Now back to Greece. If Greece implemented the type of policies Ireland did, it would likely attract a range of skilled people from around the world - from Europe in particular. However, losing their skilled people is the last thing the rest of Europe would want to see. At the moment, skill-wise, Greece seems to be in a situation not much different from Ireland before the influx. Except tourism, the place has no industry to speak off.


    Because of the universality of English, Ireland perhaps was an easier place to attract skilled people. But Greece's nice weather may compensate for that. Briefly: once the Greeks would find the will to drastically change their policies along the Irish lines, re-allocate misplaced capital and attract massive inflows of talent and entrepreneurs - until gradually it would produce them locally too - there would be a point to buy time and engineer a financial rescue. Notice, though, that Ireland got a 10% increase in its population, which in Greek terms would mean an influx of some 1 million within few years.


    Would Chinese and Indian youngsters come? Would skilled people from other places come? Perhaps.


    But the rest of Europe has been constantly criticizing Ireland for its fiscal policies, its low corporate tax in particular. Would they now allow someone else to follow in that path? Unlikely. It could have a domino effect, pulling out the carpets from under much of Europe's traditional bureaucratic structure. This bureaucracy - and others in Europe - have not much incentive to disclose they understand the solutions since their compensation depends on blindness - pretended or not.


    Briefly, there are solutions to Greece, though not those pursued today. The suggested financial engineering types offer no long-term solution, as none of them takes into account that unless the policies encourage an influx of skilled, entrepreneurial people from around the world, aging and gradually depopulated Greece would become little more than a Disneyland for adults - though environmentalists - and Turkey too, for different reasons - might say that there is nothing wrong with that.


    As to Turkey, its interest in having a weak Greece has little to do with past animosities, but with recent large gas discoveries around Cyprus and Greek Islands, which quickly led to Greece rapidly renew pacts with Israel, both backing Cyprus. For good measure, Russia quickly backed them too, sending submarines in to the now valuable waters, warning Turkey. Now who knows - deus ex machina - revenues for the eventual transportation of the discovered natural resources may serve as Greek collateral, and the crisis would end - without requiring influx of human resources.


    Reuven Brenner holds the Repap Chair at McGill University's Desautels Faculty of Management. The article draws on Brenner's Force of Finance (2002) and "Venture Capital in Canada: Lessons for Building or Restoring National Wealth", Morgan Stanley, JACF, Winter 2010.


    (This is an edited version of an article that is also published onForbes.com.
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  3. #13
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    Economy: Greece in crisis
    Strike-hit Greece heads to standstill ahead of a crucial vote



    October 17, 2011
    Protesters gather in front of the parliament during a rally of the “Indignant” group in front of the parliament in Athens on October 15, 2011. — Reuters pic

    ATHENS, Oct 17 — Greece faces a crucial test this week with much of the country expected to be shut down by a 48 hour strike that will culminate on Thursday as parliament votes on a sweeping package of austerity measures demanded by international lenders.

    Greece’s two main unions, representing about half of the four million-strong workforce, have promised one of the biggest strikes since the start of the crisis two years ago, hitting food and fuel supplies, disrupting transport and leaving hospitals run by skeleton staff.


    Prime Minister George Papandreou, trailing badly in opinion polls, has defied the protests, pledging to push through a deeply unpopular package that includes tax hikes, pay and pension cuts, job layoffs and changes to collective pay deals.


    His four-seat majority is expected to hold up with the support of smaller opposition parties, but at least two members of the ruling PASOK party could oppose part of the bill when the vote is called, probably in two stages on Wednesday and Thursday.


    With European Union leaders racing to prepare a comprehensive new bailout deal in time for a meeting on October 23, Finance Minister Evangelos Venizelos said it was the week “during which many things, maybe everything will be decided”.


    Trapped in deep recession and strangled by a public debt equivalent to some 162 per cent of gross domestic product, Greece has been shut out of bond markets and would run out of money within weeks without international support.


    Many economists believe Athens can no longer avoid defaulting on its debt but in a newspaper interview yesterday, Papandreou said a default would be a “catastrophe” for Greece.


    Inspectors from the EU and International Monetary Fund were in Athens last week and have recommended releasing a vital €8 billion (RM34.56 billion) aid tranche to enable the government to keep paying its bills past November.


    But that will only provide temporary relief and they have urged Papandreou’s struggling Socialist government to push ahead with further belt-tightening, on top of what are already the deepest cuts in Greece’s postwar history.


    Violence


    With memories still fresh of the violent clashes between riot police and anti-austerity demonstrators in June, police will be taking extra precautions to crack down on signs of trouble during the strikes this week.


    “We are fully aware of the huge changes in people’s lives and the problems the economic crisis poses to public services,” the ministers for health, education and transport said in a joint statement published on their websites.


    “But either we do everything now or we face disaster,” they said, calling for unity from all PASOK deputies.


    “Obstructing the operations of the state in sensitive sectors is an attempt to worsen conditions and undermine the fight the country and its citizens are engaged in.”


    The strike on Wednesday and Thursday will hit public sector institutions including tax offices, state schools and airports as well as banks and businesses ranging from taxis and clothes shops to suppliers of everyday staples like bakers.


    Even the country’s judges will hold indefinite stoppages, only issuing rulings on major cases.


    Customs officials who clear fuel refinery deliveries will hold a 24 hour strike today and will decide whether to extend their action, potentially hitting petrol supplies.


    However public transport services in Athens are expected to be operating at least some services to ferry demonstrators to the main site of the protest in Syntagma Square, outside parliament.


    Papandreou’s ruling PASOK party has seen its ratings drop sharply in recent months as it meets the tough terms of EU and IMF aid, and has seen state buildings occupied and daily protests by groups ranging from taxi drivers to lawyers and municipal workers. — Reuters
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  4. #14
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    Greek central banker says return to drachma would be hell



    December 31, 2011
    George Provopoulos, governor of Bank of Greece. — Reuters pic

    ATHENS, Dec 31 — Greece would suffer disastrous consequences if it ditched the euro for the drachma, the country’s central banker said in a newspaper interview, warning that such a move would result in a massive devaluation.“A return to the drachma would mean real hell, at least in the first years,” George Provopoulos, governor of the Bank of Greece, said in an interview with Sunday’s Kathimerini newspaper. “Living standards would plunge. The new currency would be significantly devalued, possibly by up to 60-70 per cent.”

    Debt-saddled Greece, which joined the euro in 2001, is struggling to meet the bailout terms set by its international lenders and could default if there is no deal with private bondholders on a debt restructuring before March.

    Greece is negotiating a bond swap scheme which is a pivotal part of a second, €130-billion bailout package agreed by euro zone leaders in October. The restructuring aims to cut its debt by €100 billion (RM409 billion) and render it more manageable.

    Athens faces bond redemptions of €14.5 billion ($188.23 billion)in March.

    Provopoulos said proponents of a return to the drachma were wrong because it would bring the country back decades and undo significant progress.

    “I don’t believe Greeks would want to experience such a nightmare scenario which would entail huge risks for the country’s security,” he was quoted as saying. “I am certain that Greeks would not allow a return to the distant past.”

    A Kapa Research poll for Sunday’s To Vima newspaper showed more than 77 per cent of Greeks want the coalition government to do all it takes to ensure the country stays in the euro zone, a bloc that now includes 17 countries.

    Banks and investment funds have been negotiating with Athens for weeks on a so-called private sector involvement scheme under which they will accept a nominal 50 per cent write-down on their Greek bond holdings in return for a mix of cash and new bonds.

    If all ends well, Greece will reduce its debt-to-GDP burden from 160 per cent to 120 per cent by 2020. Failure to reach a deal could trigger wider fallout in the euro zone, which has been trying to cope with a spreading debt crisis.

    Echoing these concerns, Greece‘s outgoing representative at the International Monetary Fund, Panagiotis Roumeliotis, told Kathimerini newspaper that Greece could not afford an unsuccessful outcome in talks on the new bailout.

    “If the new funding is not secured in time, anything can happen including a default, which h could open the way for Greece‘s exit from the euro zone,” Roumeliotis told the paper.

    Gikas Hardouvelis, chief economic adviser to Greek Prime Minister Lucas Papademos, told Real News he was optimistic that the bond swap talks would reach a favourable outcome. — Reuters

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  5. #15
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    Germany's Role in Europe and the European Debt Crisis

    Is this Malaysia's future when we go bankrupt - losing our sovereignity?

    January 31, 2012 | 1217 GMT



    By George Friedman

    The German government proposed last week that a European commissioner be appointed to supplant the Greek government. While phrasing the German proposal this way might seem extreme, it is not unreasonable. Under the German proposal, this commissioner would hold power over the Greek national budget and taxation. Since the European Central Bank already controls the Greek currency, the euro, this would effectively transfer control of the Greek government to the European Union, since whoever controls a country's government expenditures, tax rates and monetary policy effectively controls that country. The German proposal therefore would suspend Greek sovereignty and the democratic process as the price of financial aid to Greece.

    Though the European Commission rejected the proposal, the concept is far from dead, as it flows directly from the logic of the situation. The Greeks are in the midst of a financial crisis that has made Greece unable to repay money Athens borrowed. Their options are to default on the debt or to negotiate a settlement with their creditors. The International Monetary Fund (IMF) and European Union are managing these negotiations.

    Any settlement will have three parts. The first is an agreement by creditors to forego repayment on part of the debt. The second is financial help from the IMF and the European Union to help pay back the remaining debt. The third is an agreement by the Greek government to curtail government spending and increase taxes so that it can avoid future sovereign debt crises and repay at least part of the debt.

    Bankruptcy and the Nation State

    The Germans don't trust the Greeks to keep any bargain, which is not unreasonable given that the Greeks haven't been willing to enforce past agreements. Given this lack of trust, Germany proposed suspending Greek sovereignty by transferring it to a European receiver. This would be a fairly normal process if Greece were a corporation or an individual. In such cases, someone is appointed after bankruptcy or debt restructuring to ensure that a corporation or individual will behave prudently in the future.

    A nation state is different. It rests on two assumptions. The first is that the nation represents a uniquely legitimate community whose members share a range of interests and values. The second is that the state arises in some way from the popular will and that only that popular will has the right to determine the state's actions. There is no question that for Europe, the principle of national self-determination is a fundamental moral value. There is no question that Greece is a nation and that its government, according to this principle, is representative of and responsible to the Greek people.

    The Germans thus are proposing that Greece, a sovereign country, transfer its right to national self-determination to an overseer. The Germans argue that given the failure of the Greek state, and by extension the Greek public, creditors have the power and moral right to suspend the principle of national self-determination. Given that this argument is being made in Europe, this is a profoundly radical concept. It is important to understand how we got here.

    Germany's Part in the Debt Crisis

    There were two causes. The first was that Greek democracy, like many democracies, demands benefits for the people from the state, and politicians wishing to be elected must grant these benefits. There is accordingly an inherent pressure on the system to spend excessively. The second cause relates to Germany's status as the world's second-largest exporter. About 40 percent of German gross domestic product comes from exports, much of them to the European Union. For all their discussion of fiscal prudence and care, the Germans have an interest in facilitating consumption and demand for their exports across Europe. Without these exports, Germany would plunge into depression.

    Therefore, the Germans have used the institutions and practices of the European Union to maintain demand for their products. Through the currency union, Germany has enabled other eurozone states to access credit at rates their economies didn't merit in their own right. In this sense, Germany encouraged demand for its exports by facilitating irresponsible lending practices across Europe. The degree to which German actions encouraged such imprudent practices -- since German industrial production vastly outstrips its domestic market, making sustained consumption in markets outside Germany critical to German economic prosperity -- is not fully realized.

    True austerity within the European Union would have been disastrous for the German economy, since declines in consumption would have come at the expense of German exports. While demand from Greece is only a small portion of these exports, Greece is part of the larger system -- and the proper functioning of that system is very much in Germany's strategic interests. The Germans claim the Greeks deceived their creditors and the European Union. A more comprehensive explanation would include the fact that the Germans willingly turned a blind eye. Though Greece is an extreme case, Germany's overall interest has been to maintain European demand -- and thus avoid prudent austerity -- as long as possible.

    Germany certainly was complicit in the lending practices that led to Greece's predicament. It is possible that the Greeks kept the whole truth about the Greek economy from their creditors, but even so, the German demand for suspension of Greek national self-determination is particularly striking.

    In a sense, the German proposal merely makes very public what has always been the reality. For Greece to have its debt restructured, it must impose significant austerity measures, which Athens has agreed to. The Germans now want a commissioner appointed to ensure the Greek government fulfills its promise. In the process, the debt crisis will profoundly circumscribe Greek democracy by transferring fundamental elements of Greek sovereignty into the hands of commissioners whose primary interest is the repayment of debt, not Greek national interests.

    The Judgment of Athens

    The Greeks have two choices. First, they can accept responsibility for the debts on the terms negotiated and accede to the constraints on their budget and tax discretion whether imposed by a commissioner or by a less formal structure. Second, they can default on all debts. As we have learned from corporate behavior, bankruptcy has become a respectable strategic option. Therefore, the Greeks must consider the consequences of simply defaulting.

    Default might see them frozen out of world financial markets. But even if they don't default, they will be present in those markets only under the most constrained circumstances, and to the primary benefit of creditors at that. Moreover, as many corporations have found, borrowing becomes more attractive after default, as it clears the way to new post-default debt. It is not clear that no one would lend to Greece after a default. In fact, Greece has defaulted on its debt several times and managed to regain access to international lending.

    More significantly, defaulting would allow Greece to avoid fueling its internal political crisis by forfeiting its national sovereignty. Much of the political crisis inside of Greece stems from the Greek public's antipathy to austerity. But another part, which would come to the fore under the German proposal, is that the Greeks do not want to lose national sovereignty. In their long history, the Greeks have lost their sovereignty to invaders such as the Romans, the Ottomans and, most recently, the Nazis. The brutal German occupation still lives in Greek memories. The concept of national self-determination is thus not an abstract concept to the Greeks. Its loss plus austerity imposed by foreign powers would create a domestic crisis in which the Greek state would be seen as an economic and political enemy of Greek national interests along with the commissioner or some other mechanism. The political result could be explosive.

    It is unclear if the Greeks will opt not to default. The certain price of default -- being forced to use their national currency instead of the euro -- actually would increase national sovereignty. There will be economic pain if the Greeks continue with the euro, and there will be economic pain if the Greeks leave the euro; the political consequences of losing sovereignty in the face of such pain could easily be overwhelming. Default, while painful to Greece, might well be less painful than the alternative.

    The German Dilemma

    The Germans are caught in a dilemma. On the one hand, Germany is the last country in Europe that could afford general austerity in troubled states and the resulting decline in demand. On the other hand, it cannot simply tolerate Greek-style indifference to fiscal prudence. Germany must have a structured solution that to some degree maintains demand in countries such as Spain or Italy; Germans must show there are consequences to not complying with the orderly handling of debt without default. Above all, the Germans must preserve the European Union so they can enjoy a European free-trade zone. There is thus an inherent tension between preserving the system and imposing discipline.

    Germany has decided to make an example of the Greeks. The German public largely has bought into Berlin's narrative of Greek duplicity and German innocence. German Chancellor Angela Merkel has needed to frame the discussion this way, and she has succeeded. The degree to which the German public is aware of the complexities or the consequences of a generalized austerity for Germany is less clear. Merkel must now satisfy a German public that questions bailouts and sees Greece as simply irresponsible. Capitulation from Greece is necessary for her as a matter of domestic politics.

    The German move into questions of sovereignty has raised the stakes in the debt crisis dramatically. Even if the Germans simply back off this demand, the Greek public has been reminded that Greek democracy is effectively at stake. While Greece may have borrowed irresponsibly, if the price of that behavior is yielding sovereignty to an unelected commissioner, that price not only would challenge Greek principles, it would bring Europe to a new crisis.

    That crisis would be political, as the ongoing crisis always has been. In the new crisis, sovereign debt issues turn into threats to national independence and sovereignty. If you owe too much money and your creditors distrust you, you lose the right to national self-determination on the most important matters. Given that Germany was the historical nightmare for most of Europe, and it is Germany that is pushing this doctrine, the outcome could well be explosive. It could also be the opposite of what Germany needs.


    Germany must have a free-trade zone in Europe. Germany also needs robust demand in Europe. Germany also wants prudence in borrowing practices. And Germany must not see a return to the anti-German feeling of previous epochs. Those are several needs, and some of them are mutually exclusive. In one way, the issue is Greece. But more and more, it is the Germans that are the question mark. How far are they willing to go, and do they fully understand their national interests? Increasingly, this crisis is ceasing to be a Greek or Italian crisis. It is a crisis of the role Germany will play in Europe in the future. The Germans hold many cards, and that's their problem: With so many options, they must make hard decisions -- and that does not come easily for postwar Germany.
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    Greece warns bailout rebels of disaster


    February 12, 2012
    Prime Minister Lucas Papademos addresses the nation: “Vortex of recession, instability, unemployment and protracted misery.” – Reuters pic



    ATHENS, Feb 12 — Greek Prime Minister Lucas Papademos yesterday told lawmakers to back a deeply unpopular EU/IMF rescue in a vote today or condemn the country to a “vortex” of recession.

    He spoke in a televised address to the nation, ahead of today’s vote on €3.3 billion (RM13.2 billion) in wage, pension and job cuts as the price of a €130-billion bailout from the European Union and International Monetary Fund.


    The effort to ease Greece’s huge debt burden has brought thousands into the streets in protest, and there were signs yesterday of a small rebellion among lawmakers uneasy with the extent of the cuts.


    Papademos said parliament had a historic responsibility to back the bill, or face catastrophic consequences if Greece missed a March 20 deadline to service its debt.


    “A disorderly default would set the country on a disastrous adventure,” he said. “It would create conditions of uncontrolled economic chaos and social explosion.


    “The country would be drawn into a vortex of recession, instability, unemployment and protracted misery and this would sooner or later lead the country out of the euro.”


    Parliament’s finance committee approved the bill yesterday, and a full vote in the chamber is expected late today.
    The Papademos coalition has a huge majority, which should ensure parliament approves the package needed to secure Greece’s second bailout since 2010.


    But the number of dissenters is growing.


    About 20 MPs belonging to the two major parties backing Papademos shrugged off threats from party leaders and warned they might reject the bailout. It would take more than 80 rebels to scupper the law.


    Six members of the Papademos cabinet have already resigned.


    Incalculable consequences


    In an interview with the newspaper Imerisia, Deputy Finance Minister Filippos Sachinidis described the catastrophe he believed Greece would suffer if it failed to meet debt repayments of €14.5 billion euros next month.


    “Let’s just ask ourselves what it would mean for the country to lose its banking system, to be cut off from imports of raw materials, pharmaceuticals, fuel, basic foodstuffs and technology,” he said.


    Two anti-austerity banners, placed by activists of the Greek Communist party, rally support on a hill at the Acropolis in Athens, February 11, 2012. – Reuters pic

    On the second day of a 48-hour protest strike, about 50 Communist party activists draped two large banners on the ramparts of the Acropolis yesterday, reading: “Down with the dictatorship of the monopolies (and the) European Union.”
    About 7,000 protesters gathered in Athens, police said, but there was no repeat of the tear gas and petrol bombs of Friday.


    Members of the conservative New Democracy party, which has a big lead in opinion polls before elections possible in April, are likely to back the deal solidly. About 10 have threatened not to.


    “This is obviously an issue of party discipline,” party leader Antonis Samaras told his lawmakers in parliament, warning anyone who voted “No” “will not be a candidate in the next election”.


    Former Socialist prime minister George Papandreou, who negotiated the first bailout before his government collapsed in November, acknowledged the pressure.


    “I’ve lost friends, my family suffered, I gave up my office, I was insulted, vilified, like no other politician ever was in this country,” he told PASOK’s parliamentary group.


    “Still, all that is nothing compared with what our people will suffer if we fail to do the right thing.”


    Party discipline is much weaker at PASOK, whose support has dived to 8 per cent in the latest opinion polls from the nearly 44 per cent it commanded when Papandreou led it into power in 2009.


    The deal includes a bond swap to ease Greece’s debt burden by cutting the real value of private investors’ bond holdings by some 70 per cent.


    Fifteen billion more?


    The chief negotiator for private creditors in the debt swap deal, Charles Dallara, urged a “Yes” vote, saying the deadlines allowed “no room for slippage”.
    A defaced Bank of Greece sign in Athens reflects sentiment against Germany. – Reuters pic

    In comments published yesterday, Dallara, who is managing director of the International Institute of Finance (IIF), said private creditors were committed to a voluntary agreement and that he expected a “very high participation rate”.

    “It is important for lawmakers to understand what is at stake,” Dallara told Kathimerini newspaper.


    Lawmakers needed to approve the deal by today, otherwise the country would not make a February 17 deadline to submit the debt swap offer to its private-sector bondholders, Finance Minister Evangelos Venizelos said yesterday.


    Euro zone finance ministers have told Greece that by then it must also explain how €325 million out of this year’s total budget cuts will be achieved before it agrees to the bailout.


    Bailout documents released on Friday left blank the amount of the rescue. Venizelos said €15 billion more might be needed to rescue the country’s banks, confirming estimates from EU officials.


    The EU and IMF have been exasperated by a series of broken promises and weeks of wrangling over the bailout. They will not release the aid without clear commitments by the main party leaders that reforms will be implemented, whoever is in power.
    The uncertainty has upset world financial markets, with stocks snappin
    g a five-day winning streak on Friday and the euro tumbling.


    The bill, approved by the cabinet on Friday along with hundreds of pages of accompanying documents, sets out reforms including a 22 per cent cut in the minimum wage, pension cuts worth €300 million this year, as well as health and defence spending cuts.


    The government promised to speed up implementation of reforms in the labour, product and services markets, cut spending, and push through a privatisation plan. —
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  7. #17
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    Economics: Right, deal sealed - now get it to the Greeks

    Tuesday, 21 February 2012 13:16


    Right, deal sealed - now get it to the Greeks











    EUROZONE finance ministers sealed a deal for a massive new bailout of Greece this afternoon, including a major writedown of privately-held Greek sovereign debt, an EU official said.


    "We have the essentials of the deal," the source said referring to both the write-down of Greek debt held by private creditors and the contribution of eurozone governments.


    The euro immediately jumped against the dollar in Asian trading after finance ministers gave their green light to a €230 billion ($284 billion) financial lifeline, in exchange for strict surveillance of the Athens government over coming years.


    The deal came after 12 hours of tense talks in Brussels, that saw Greek Prime Minister Lucas Papademos -- a former European Central Bank No. 2 -- act as go-between for ministers with negotiators for private creditors.


    The deal will bring government debt in Athens down to "120.5 per cent" of gross domestic product (GDP) by 2020, a eurozone governmental source also told AFP.


    This is just a fraction above the 120 per cent target set by the European Union and International Monetary Fund, and means a €5.5 billion gap in funding was reached to bring it down from an estimated 129 per cent according to the latest analysis by international creditors.
    Sources earlier said that banks were readying to up their write-down by several percentage points, from the 50 per cent "haircut" initially agreed by eurozone leaders in October.


    National eurozone central banks also agreed to engage in their own write-down of Greek bonds.


    A report on Greece's debt sustainability drawn up by the European Union and the International Monetary Fund first discussed last week by ministers was leaked as the talks headed into overtime.


    This showed that in the worst-case scenario, Greece would need a whopping €245 billion in bailout aid by 2020, the Financial Times reported.
    Under "the most optimistic scenario," it said that spending cuts imposed on Greece by backers could plunge Greece so deep towards depression that a new three-year bailout would fail to provoke growth.


    A senior eurozone official said that these figures were already "factored in" by ministers a week ago, but that they might have worn down private creditors led by Deutsche Bank chairman Josef Ackermann.


    The target of reducing Greek debt levels to 120 per cent of GDP by 2020 was set by eurozone leaders in October, down from around 160 per cent at present.
    A eurozone governmental source told AFP the nightmare scenario "probably helped in the effort" to bring the bailout package closer to achieving that goal.
    The mood had been one of determination all day.


    Greece, Germany, the IMF and Eurogroup chief Jean-Claude Juncker, had each maintained that a deal was do-able -- Greek Finance Minister Evangelos Venizelos signalled "a long period of uncertainty coming to a close".


    But Dutch Finance Minister Jan Kees De Jager demanded that the EU and the IMF take "permanent" control of decision-making over revenues and public expenditure in Greece.


    Athens faces debt repayments of about €14.5 billion on March 20, otherwise it could be classed as bankrupt.


    Full delivery of the package, as well as IMF assistance, will be contingent on Greece enacting deeply unpopular spending cuts and reforms.


    Eurozone hardliners' patience with Greece almost snapped over recent weeks with growing suggestions Athens could be cut adrift.


    Many euro partners see Greece as the victim of decades of chronic financial mismanagement by dynastic political forces -- what Italian Prime Minister Mario Monti last week called a "perfect catalogue" of errors.


    Ahead of a general election in April, the new bailout has been likened to the aid equivalent of a hospital drip after the failure of an initial €110 billion EU-IMF rescue approved nearly two years ago.
    On top of €3.2 billion euros in the latest spending cuts, Greece has agreed in principle to open a blocked, or "escrow" account to ensure that aid for repayments to government creditors is set aside and not used for other purposes.
    -AAP
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  8. #18
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    In Pictures: Greeks protest austerity cuts,

    Bix Weir, Road to Roota.
    Around 100,000 protesters converged in Athens to protest against austerity measures being debated in parliament nearby.

    Al Jazeera staff Last Modified: 20 Feb 2012 09:22

    Riots engulfed central Athens and at least 10 buildings went up in flames in mass protests as lawmakers prepared for a historic parliamentary vote on harsh austerity measures demanded to keep the country solvent and within the eurozone.


    Protesters set bonfires in front of parliament and dozens of riot police formed lines to try to deter them from trying to make a run on the legislative building on Sunday evening.


    Many in the crowd wore gas masks and had their faces covered, prepared for the clouds of tear gas that drifted across the square.


    Several protesters and police were injured, while an unspecified number of suspected rioters were detained, authorities said.


    Clashes erupted after more than 100,000 protesters marched to parliament to rally against drastic austerity cuts that will ax one in five civil service jobs and slash the minimum wage by more than a fifth.

    • STRINGER/REUTERS Thousands gathered while it was still light out to take part in an anti-austerity demonstration in Athens' Syntagma (Constitution) Square on Sunday as officials debated austerity measures.
    • SAKIS MITROLIDIS/AFP/Getty Images Protesters brought a symbolic coffin covered with a Greek flag to the Sunday demonstration, in which around 20,000 protesters took to the streets.
    • ARIS MESSINIS/AFP/Getty Images Greek police today used tear gas against protesters outside parliament where lawmakers were debating a new austerity plan aimed at staving off bankruptcy.
    • LOUISA GOULIAMAKI/AFP/Getty Images Some demonstrators came prepared to fight police with petrol bombs. Police said some 25,000 protesters were massed outside the parliament building and at nearby Omonia Square, with some 3,000 police deployed and more protesters arriving.
    • ANGELOS TZORTZINIS/AFP/Getty Images Police clad in riot gear were hit by petrol bombs as tens of thousands massed in a rally against austerity plans being debated by lawmakers.
    • Vladimir Rys/Getty Images In addition to petrol bombs, protesters brought fireworks to shoot toward police and the parliament building in Athens.
    • Vladimir Rys/Getty Images Medics treated some injured demonstrators near the action, and brought others away, as protesters and police clashed in Athens.
    • JOHN KOLESIDIS/REUTERS Greek Finance Minister Evangelos Venizelos addressed lawmakers in the Greek parliament while massive protests and clashes were going on outside.
    • YIORGOS KARAHALIS/REUTERS Protesters aimed green laser pointers at riot police as well as at news cameras in order to cause confusion and distraction during anti-austerity demonstrations in the capital on Sunday.
    • PANAYIOTIS TZAMAROS/REUTERS In the midst of the chaos, a Starbucks coffee shop went up in flames in central Athens while parliamentarians debated austerity cuts.
    • PANAYIOTIS TZAMAROS/REUTERS Numerous buildings were burned during the clashes in central Athens on Sunday.
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  9. #19
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    Greek knife to Wall Street

    By Ellen Brown

    In an article titled "Still No End to 'Too Big to Fail'", William Greider wrote in The Nation on February 15:
    Financial market cynics have assumed all along that Dodd-Frank did not end "too big to fail" but instead created a charmed circle of protected banks labeled "systemically important" that will not be allowed to fail, no matter how badly they behave. [1]
    That may be, but there is one bit of bad behavior that Uncle Sam himself does not have the funds to underwrite: the US$32 trillion market in credit default swaps (CDS). Thirty-two trillion dollars is more than twice the US gross domestic product and more than twice the national debt.

    CDS are a form of derivative taken out by investors as insurance against default. According to the Comptroller of the Currency, nearly 95% of the banking industry's total exposure to derivatives contracts is held by the nation's five largest banks: JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs. The CDS market is unregulated, and there is no requirement that the "insurer" actually have the funds to pay up. CDS are more like bets, and a massive loss at the casino could bring the house down.

    It could, at least, unless the casino is rigged. Whether a "credit event" is a "default" triggering a payout is determined by the International Swaps and Derivatives Association (ISDA), and it seems that the ISDA is owned by the world's largest banks and hedge funds. That means the house determines whether the house has to pay.

    The Houses of Morgan, Goldman and the others in the Big Five are justifiably worried right now because an "event of default" declared on European sovereign debt could jeopardize their $32 trillion derivatives scheme. According to Rudy Avizius in an article on The Market Oracle (UK) on February 15, that explains what happened at MF Global, and why the 50% Greek bond write-down was not declared an event of default. [2]

    If you paid only 50% of your mortgage every month, these same banks would quickly declare you in default. But the rules are quite different when the banks are the insurers underwriting the deal.

    MF Global: Canary in the coal mine?
    MF Global was a major global financial derivatives broker until it met its unseemly demise on October 30, 2011, when it filed the eighth-largest US bankruptcy after reporting a "material shortfall" of hundreds of millions of dollars in segregated customer funds. [3]

    The brokerage used a large number of complex and controversial repurchase agreements, or "repos", for funding and for leveraging profit. Among its losing bets was something described as a wrong-way $6.3 billion trade the brokerage made on its own behalf on bonds of some of Europe's most indebted nations.

    Avizius writes:
    [A]n agreement was reached in Europe that investors would have to take a write-down of 50% on Greek Bond debt. Now MF Global was leveraged anywhere from 40 to 1, to 80 to 1 depending on whose figures you believe. Let's assume that MF Global was leveraged 40 to 1, this means that they could not even absorb a small 3% loss, so when the "haircut" of 50% was agreed to, MF Global was finished. It tried to stem its losses by criminally dipping into segregated client accounts, and we all know how that ended with clients losing their money ...

    However, MF Global thought that they had risk-free speculation because they had bought these CDS from these big banks to protect themselves in case their bets on European Debt went bad. MF Global should have been protected by its CDS, but since the ISDA would not declare the Greek "credit event" to be a default, MF Global could not cover its losses, causing its collapse.
    The house won because it was able to define what "winning" was. But what happens when Greece or another country simply walks away and refuses to pay? That is hardly a "haircut". It is a decapitation. The asset is in rigor mortis. By no dictionary definition could it not qualify as a "default".

    That sort of definitive Greek default is thought by some analysts to be quite likely, and to be coming soon. Dr Irwin Stelzer, a senior fellow and director of Hudson Institute's economic policy studies group, was quoted in Saturday's Yorkshire Post (UK) as saying:
    It's only a matter of time before they go bankrupt. They are bankrupt now, it's only a question of how you recognise it and what you call it. Certainly they will default ... maybe as early as March. If I were them I'd get out [of the euro]. [4]
    The Midas touch gone bad
    In an article in The Observer (UK) on February 11, titled "The Mathematical Equation That Caused the Banks to Crash", Ian Stewart wrote of the Black-Scholes equation that opened up the world of derivatives:
    The financial sector called it the Midas Formula and saw it as a recipe for making everything turn to gold. But the markets forgot how the story of King Midas ended. [5]
    As Aristotle told this ancient Greek tale, Midas died of hunger as a result of his vain prayer for the golden touch. Today, the Greek people are going hungry to protect a rigged $32 trillion Wall Street casino. Avizius writes:
    The money made by selling these derivatives is directly responsible for the huge profits and bonuses we now see on Wall Street. The money masters have reaped obscene profits from this scheme, but now they live in fear that it will all unravel and the gravy train will end. What these banks have done is to leverage the system to such an extreme, that the entire house of cards is threatened by a small country of only 11 million people. Greece could bring the entire world economy down. If a default was declared, the resulting payouts would start a chain reaction that would cause widespread worldwide bank failures, making the Lehman collapse look small by comparison.
    Some observers question whether a Greek default would be that bad. According to a comment on Forbes on October 10, 2011:
    [T]he gross notional value of Greek CDS contracts as of last week was €54.34 billion [US$72 billion], according to the latest report from data repository Depository Trust & Clearing Corporation (DTCC). DTCC is able to undertake internal netting analysis due to having data on essentially all of the CDS market. And it reported that the net losses would be an order of magnitude lower, with the maximum amount of funds that would move from one bank to another in connection with the settlement of CDS claims in a default being just €2.68 billion, total. If DTCC's analysis is correct, the CDS market for Greek debt would not much magnify the consequences of a Greek default - unless it stimulated contagion that affected other European countries. [6]
    It is the "contagion", however, that seems to be the concern. Players who have hedged their bets by betting both ways cannot collect on their winning bets; and that means they cannot afford to pay their losing bets, causing other players to also default on their bets. The dominos go down in a cascade of cross-defaults that infects the whole banking industry and jeopardizes the global pyramid scheme.

    The potential for this sort of nuclear reaction was what prompted billionaire investor Warren Buffett to call derivatives "weapons of financial mass destruction". It is also why the banking system cannot let a major derivatives player - such as Bear Stearns or Lehman Brothers - go down. What is in jeopardy is the derivatives scheme itself. According to an article in The Wall Street Journal on January 20:
    Hanging in the balance is the reputation of CDS as an instrument for hedgers and speculators - a $32.4 trillion market as of June last year; the value that may be assigned to sovereign debt, and $2.9 trillion of sovereign CDS, if the protection isn't seen as reliable in eliciting payouts; as well as the impact a messy Greek default could have on the global banking system. [7]
    Players in the future may simply refuse to play. When the house is so obviously rigged, the legitimacy of the whole CDS scheme is called into question. As MF Global found out the hard way, there is no such thing as "risk-free speculation" protected with derivatives.

    Notes
    1. See here.
    2. See here.
    3. See here.
    4. See here.
    5. See here.
    6. See here.
    7. See here.


    Ellen Brown is an attorney and president of the Public Banking Institute. In Web of Debt, her latest of 11 books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are WebofDebt.com and EllenBrown.com.
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  10. #20
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    TUESDAY, FEBRUARY 21, 2012

    Eurozone approves new $173B bailout for Greece

    The Fed quietly loans over $1 trillion to the ECB in December. $1.5 trillion available for lending to European banks by early 2012. European banks through the power of fractional reserved banking will leverage this number to $14 trillion. The European banks borrow these funds at 1% and lend just over 4%. This subsidized money flow, carefully orchestrated to prevent calling it a bailout, is intended to repair balance sheets and buy time. The banks, in turn, purchase the sovereign debt from countries struggling with default.

    Was there really any doubt that Greece would receive additional funds?

    Headline: Eurozone approves new $173B bailout for Greece

    (CNN) -- Eurozone finance ministers sealed a deal Tuesday morning for a second bailout for Greece, including €130 billion ($173 billion) in new financing.

    The finance ministers from the 17 nations that use the euro, known as the Eurogroup, gave Greece the funding it needs to avoid a potential default next month.

    While this new deal provides some short-term relief for Greece, difficult days lie ahead as the government tries to trim debt to 121% of the country's gross domestic product by 2020. Greece's debt now stands at about 160% of GDP.

    The announcement came at an early morning press conference in Brussels after finance ministers met for more than 13 hours. "In the past two years and again this night, I've learned that 'marathon' is indeed a Greek word," said Olli Rehn, vice president of the European Commission. "But in the end we came to an agreement (that is) very far-reaching and important."

    "It's clear that the Greek economy cannot rely anymore on a large public administration financed by cheap debt, but rather needs to lean on investment both Greek and foreign," Rehn said.

    "This should give Greece enough space to improve its competitiveness," added Christine Lagarde, managing director of the International Monetary Fund, saying that the goal of the terms of the new bailout is to create growth for the Greek economy. "There are downside risks, that is clear."

    Greece is in its fifth year of recession, and the government reported last week that Greece's GDP, the broadest measure of a nation's economic output, fell 6.8% last year.



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