What’s been called a “Greek Tragedy” is now looking more and more like a day time soap opera. The Greek government confirms that it has started talks with the E.U. and the IMF about receiving the offered aid package, but says it’s not sure it will use it. ECB warns of a new global financial crisis, but the German economic institutes says Germany is to do absolutely nothing. And the financial industry is being accused of “mathematical abuse”. Thank God it’s Friday!
“Now, more than ever, mathematicians need to get out of their ivory towers or back offices, not just for their sake, but for economists.”
Mr. George Papandreou confirms that Greece have asked for a meeting with the EU, the IMF and the ECB, to discuss the conditions for the EU/IMF loans. The government’s request came after the yield on Greece’s benchmark 10-year government bond surged to 7.319% Thursday, higher than before the rescue package was announced. But Papandreou points out that the talks don’t mean Greece is activating the aid request.
The talks between Greece and EU/IMF/ECB will start in Athens on April 19, according to the Financial Times.
Greece capitulated to market pressure on Thursday and took an important step towards a bail-out from its euro zone partners and the International Monetary Fund as it formally sought “consultations” over a €30bn-plus ($40bn, £26bn) loan package to stave off default.
In a letter to the European Commission, Greece’s finance minister, George Papaconstantinou, said Athens wants to discuss “a multi-year economic policy programme with the Commission, the European Central Bank and the International Monetary Fund”.
A “New” Crisis
As reported by high5finance yesterday, the European Central Bank (ECB) now warns about a new crisis, a return of global imbalances in the coming years.
“At the current juncture, global imbalances continue to pose a key risk to global macroeconomic and financial stability . . . The stakes are high to prevent a disorderly adjustment in the future that would be costly to all economies.”
Financial Times quotes Jurgen Stark saying that we entered a new stage in the financial crisis – a sovereign debt crisis.
He says the crisis would leave us with a heritage of severe macroeconomic imbalances.
“Dealing with them will represent one of the most daunting challenges for policymakers in modern history.”
Not Our Problem
Germany’s economic institutes says in their annual spring report that Germany needed to do absolutely nothing in view of the rise in global imbalances, as well as internal imbalances in the euro zone.
In their view, the deficit countries need to improve their competitiveness and reduce their wages and prices.
Furthermore, German institutes’ report that the goal would have to be for the entire euro zone to model itself on Germany, i.e. achieve an export surplus against the rest of the world.
The EVROintelligece comments; “We would be intrigued to hear what their recommendation would be for the world economy. A trade surplus against Mars? The doctrine of German economics is beggar-thy-neighbors. That may just work for Germany, but can hardly be a recipe for the world’s second largest economy.”
Inflation? What Inflation?
ECB board member Juergen Stark considers rising commodity prices and “strong” economic growth in Asia’s emerging markets may drive up inflation in the euro area, Bloomberg News report.
Stark also commented on fiscal policy.
“I am particularly concerned about the dramatic deterioration in public finances, which will require very ambitious fiscal consolidation efforts in the years to come,” Stark says.
“We may already have entered into the next phase of the crisis: a sovereign debt crisis following on the financial and economic crisis.”
The remarks come ahead of an ECOFIN meeting Friday to discuss how to curb rising deficits in the E.U.
However, Spiegel Online reports that wages in the euro zone increased 2.6% in 2009, compared to 3.2% in 2008, despite the economic crisis.
Finland had the biggest wage growth last year with 3.9%. Germany is on average with 2.6%, while France had the lowest rise with 2.3%.
At first sight this contradicts the widely held view that German wages undercut France to gain a competitive advantage, though some sector by sector analysis would be required to confirm this.
Experts also expect wage growth to fall further in 2010.
Sounds more like deflation, to me…
But numbers are obviously not to be trusted anymore.
In today’s Financial Times Gillian Tett writes that what really damaged the financial system in recent years was not so much “maths” or “economics”, but bad maths (and economics) that was used and abused.
The mathematician Tim Johnson even thinks instead of absolutes calculations of “probability” might shift according to context.
“Now, more than ever, mathematicians need to get out of their ivory towers or back offices and state that loudly, not just for their sake, but for economists,” he says today.
Related by the Econotwist:
Related articles by Zemanta
- EU Finance Chiefs Meet as Greece Moves on Bailout (Update1) (businessweek.com)
- Eurozone Ministers Seek Ways to Stem Debt Crisis (abcnews.go.com)
- Greece Closer to Aid Request; IMF, EU Due in Athens (Update1) (businessweek.com)