Tag Archives: Greek

In Dangerous Times

Most of you (not too busy watching “Dance Your Ass Off” every night) has probably picked up on the notion among more and more experts that the financial crisis, currently residential of Europe, may result in  something far more serious than a long-time recession. At the moment some of us are sitting back  while we are watching the scenarios we have predicted for a long time unfolding before our eyes like a day-time soap opera. And we wonder…

“If we know anything from history, it is that long periods of economic crisis tend to lead not to more progressive politics but rather to its opposite; the right-wing politics of xenophobia.”

George Irvin

The most obvious parallel is the Great Depression of the 30’s and the run-up to World War II. Logical thinking tells us, however, that this is a so well-known story that our political leaders will simply not allow something similar to happen again. But does logic even matter in times like this? Well, that’s not the only  fundamental question that arise from this insecure  situation. Professor George Irvin points points out a few more.

Like: Is the financial market about to kill democracy? Or is it the other way around?

Honorary professor George Irvin at the Univerity of London argues that – for time being – it is the politicians who have failed, not the financial system. And he fear they will make even more and bigger mistakes.

This article was posted last month on professor Irvin’s blog at the EUobserver.com:

Politics and the EU financial crisis

The other day, I was asked in an interview whether finance was killing democracy. Judged over the post-war period, the answer must be a qualified “no”. But things at present are not looking good.

Finance has not killed politics – if anything, the ongoing financial crisis is lading to a reawakening of politics on a scale we have not seen in many years, particularly a re-awakening amongst young people. If the young are out on the streets demonstrating, it is for quite understandable reasons.

Most obviously, the crisis has illuminated the weaknesses of neo-liberal capitalism in a way many though inconceivable a decade ago.

Not only is neo-liberal ideology deeply misleading – the idea that ‘free markets are infallible and don’t require regulation—but the economics it has produced is disastrous.

Inequality is growing everywhere, particularly in the main Anglo-Saxon countries where it is higher today than in the 1930’s.Youth unemployment in the most of Europe ranges between 20- 40%, and we are at risk of producing an entire generation which is locked out of decent work and income.

European “austerity” is destroying the cornerstone of the post-war social settlement; ie, our welfare state.

As for democracy, we have recently witnessed the toppling of two governments by the bond markets, and doubtless there will be more. This is largely the fault of a political elite dominated by bankers which designed a Eurozone where each member- state’s borrowing was vulnerable to attack.

This “fragility” of the Euro zone – the lack of a common fiscal policy and a genuine Central Bank able to act as lender of the last resort – is leading to growing national antagonisms, the most obvious being between Greeks and Germans (a proxy for north v south Europe).

What is truly dangerous is that the financial markets’ notion of ‘common governance’ is all about “greater fiscal discipline,” by which is meant stringent enforcement of the 3% budget deficit limit, the 60% indebtedness rule and, most recently, the notion that all Eurozone countries should follow Germany in adopting a constitutionally binding ‘balanced budget’ (debt brake) provision.

Such views are based on the simple-minded premise that a national economy can be run like a corner shop, the ‘handbag economics’ preached by Maggie Thatcher and more recently by the Schwabian housewife, Angela Merkel.

Not only are such views wrong (they ignore basic national accounting definitions), but they can lead Europe into even deeper economic gloom.

As credit dries up, Europe is on the verge of a new financial crisis which will almost certainly lead to renewed economic depression.

Moreover, the costs of all this is being borne once more by ordinary workers, and increasingly by the middle class. Like markets in the general, the financial market can be a good servant… but it is proving to be a very poor master.

If we know anything from history, it is that long periods of economic crisis tend to lead not to more progressive politics but rather to its opposite; the right-wing politics of xenophobia.

Witness the German depression of 1932 under Chancellor Brüning which saw the extreme right rise from virtually nothing in 1929 to assume power in 1933. I am hardly the first to say it, but we are living in dangerous times.

By George Irvin

George Irvin is a retired professor of economics and for many years was at ISS in The Hague. He is now (honorary) Professorial Research Fellow in Development Studies at the University of London, SOAS.


Filed under International Econnomic Politics, Laws and Regulations, National Economic Politics, Philosophy

Greece: Bloodbath & Beyond

This may very well be another case of wishful thinking. On the other hand – if these experts are right – there may be a light in the end of the tunnel for the people of Greece after all. This analysis is provided by three high-profiled London-professors and syndicated by http://www.eurointelligence.com. They conclude that a new government in Greece may be able to do what Papandreou never managed – create confidence in the nations economic recovery.

” If political forces miss this opportunity, they should be held individually and collectively accountable by the Greek population for the collapse of their financial sector, the destruction of productive forces, and the wealth reduction and re-distribution (from the poor to the rich) that inflation and a return to the Drachma would entail.” 

Michael G Jacobides/Richard Portes/Dimitri Vayanos  

“Time is running out fast for Greece. This is the last opportunity to use the crisis as an occasion to change the structure of the Greek economy and allow Greece to enter the growth path of which it is capable. A cross-party government should not have a narrow mandate on securing the restructuring deal; rather, it should seek consensus to engage in far-reaching reforms that no party alone would dare to initiate,” the three professors writes.

Well, the quote above is quite obvious…

However, the rest of the article, including arguments, suggestions and  proposals, are interesting.

Anyone involved in the current  “Greek Tragedy” should read this piece:

The dramatic political developments in Athens have focused international attention on Greece. Papandreou’s ill-fated initiative to hold a referendum was partly an effort to increase popular support for the bailout and reform package. A new interim government with a strong mandate to engage in far-reaching reforms could achieve exactly that.

That the biggest bailout plan in history has become unpopular among its supposed beneficiaries may seem paradoxical. But this is not only the result of a populist stance from the opposition and of lopsided coverage by the media.

It is also because the plan’s implementation, as run by the government and monitored by the Troika (IMF, EC, ECB), has focused disproportionately on fiscal targets, as opposed to structural reforms.

Over the last eighteen months, fiscal discipline has been limited to reducing capital and discretionary expenditure,  cutting public-sector wages uniformly with no relationship to productivity, and raising tax rates to unsustainable levels.

We have not seen real progress on tackling tax evasion or on a far-reaching rationalization of the public administration.

While there have been some steps in the right direction, effecting real change has been slow.  But deep institutional change is necessary for popular acceptance and hence success of debt relief, to avoid an eventual default and disastrous exit from the euro.

Greece must not waste this opportunity. Structural reforms, including the aggressive pursuit of tax offenders, would reduce the need for unpopular austerity measures.

More important, they would restore faith in the government by reducing the feeling of inequity and cutting waste, corruption and rents held by interest groups, whether in the private or public sector.

Creditors and the IMF should consider whether the proposed debt relief is sufficient for sustainability and growth.

The focus in Greece, however, should now change from fiscal targets and debt restructuring to operational restructuring.

Politically difficult but often economically evident decisions need to be made.

The debt overhang in Greece is the symptom and indeed consequence of the underlying inefficiencies of Greek public administration and of the current economic model. Without addressing the causes, any debt reprieve will surely be temporary.

Three weeks ago, we hosted a meeting at London Business School where former ministers and current MPs of both major parties met with senior policy makers, bankers, regulators and academics from Greece and abroad.

It is sobering to note that this was the first event of its kind, whether inside or outside Greece. Very positively, despite the range and diversity of the participants, a remarkable consensus emerged on the way forward.  

We are thus convinced that a set of bold structural reforms can be supported by many parties, if only they take the courageous step of severing their own ties to practices which led to the onset of the problem.

Our report, informed by the meeting, focuses on four key areas: tax evasion, public administration, privatizations, and the financial sector.

Reform in the public administration is essential for the better functioning of the state and hence for the success of all other reforms.

The main directions of reform are to make the public administration more independent from the politicians, while also introducing greater accountability and incentives.

In the area of tax collection, for example, lack of accountability and incentives have generated a highly inefficient and corrupt system, which strongly resists change.

  • We propose to abolish the current tax collection offices – which would result in minimal loss of tax revenue – and move tax assessment and collection to a new independent authority.
  • This authority should have an arm’s-length relationship with the Ministry of Finance, and its staff should be hired on limited-term contracts and be evaluated based on Key Performance Indicators (KPIs).Independent Authorities with  tight governance and accountability could be useful in other areas as well.
  • We propose three additional such authorities:  one charged with the overall monitoring of structural reforms, one on healthcare procurement (a big expenditure item, where waste is rife), and one on corruption reduction. These authorities may help jump-start the change effort throughout the Greek government and its associated institutions.
  • All authorities should be staffed by competent technocrats and be accountable to the Parliament as opposed to the government.
  • An additional measure, which would bring technocratic skills, continuity and accountability, would be to reinstate Permanent Undersecretary of State, appointed for periods longer than a parliamentary term, accountable to Parliament.
  • We argue that the privatization process has been hastily designed: targets are unrealistic and the mandate does not, as it should, include the increase in value of the assets for ultimate disposal. The resources of the Privatization Fund must increase, and its mandate should be the increase of long-term value of formerly state-owned assets.
  • We propose that the programme’s focus shift from immediate sales to a scheme supported by a moderate amount of debt financing using the assets as collateral. This would provide an incentive to the government to increase the value of assets to be sold, while also avoiding fire-sales.
  • We further point to the risk of increased political interference in banks as an unwanted side-effect of their recapitalization process. Such interference has been common in the past, and has harmed the corporate governance and efficiency of the affected banks, as well as their sound supervision.
  • We suggest ways to promote good corporate governance during the recapitalization process, and we emphasize the need to  strengthen financial supervision.

Time is running out fast for Greece. This is the last opportunity to use the crisis as an occasion to change the structure of the Greek economy and allow Greece to enter the growth path of which it is capable.

A cross-party government should not have a narrow mandate on securing the restructuring deal; rather, it should seek consensus to engage in far-reaching reforms that no party alone would dare to initiate.

Anything short of this will quickly lead to Greece being marginalized and expelled from the euro zone.

A caretaker government with a weak mandate, focusing on elections, will send the ultimate wrong message and risks losing the waning creditor and EU partner support.

It is thus critical to launch a concentrated effort now, and not just a caretaker government.

If political forces miss this opportunity, they should be held individually and collectively accountable by the Greek population for the collapse of their financial sector, the destruction of productive forces, and the wealth reduction and re-distribution (from the poor to the rich) that inflation and a return to the Drachma would entail.

Download: Greece Looking Ahead White Paper

Michael G Jacobides, holds the Sir Donald Gordon Chair for Innovation and Entrepreneurship.

Richard Portes  is Professor of Economics at the London Business.

Dimitri Vayanos is Professor of Finance at the London School of Economics and Political Science.



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The Week Ahead: Hold On To Your Hats!

When it comes to the global economy, it seems like the fun is just getting started: Regulators are now  calling for extra capital to be imposed on the largest banks, Bank for International Settlements urge economic growth to slow down in order to curb inflation, central bankers are screaming for rate hike and Greek deputy prime minister warns that rebels may block new economic reforms.

“You can’t ask for more taxes in an already overtaxed country, in a market that has been sucked dry, with economic activity at zero and a huge recession.”

Antonis Samaras

Yup! Just when you thought the Chinese was going to save the day, it turns out that it’s not that easy after all. No matter what the bureaucrats of Brussels asks for; the people of Greece may very well give them the middle finger. But that’s not all. The central bankers – who have declared the worst is over  every other week for two years – has suddenly discovered that it’s probably not.

Right now rather disturbing news reports are pouring in.

Here’s some of the headlines of the financial press at the moment:





  • French Banks Seek Greek Debt Rollover. French banks have proposed a plan to reinvest half the proceeds from maturing Greek governments bonds ahead of a meeting of key players, in efforts to encourage private investors to contribute to a new bailout for Greece.
  • Nokia, Siemens fail to secure investors. Nokia Corp and Siemens AG failed to secure a deal for investors for a controlling stake in their unprofitable joint venture.



Well, I have a feeling we might get a surprise or two, also, during the week.

When it comes to the economic data, European investors will look closely at the PMI surveys, that will indicate whether global soft-patch continued into June.

Th week also sees a raft of data on inflation, the US housing market and consumer trends, plus business conditions in Japan.

A week in which market attention will remain firmly set on Greece starts with the publication of Italian wages data before attention shifts across the Atlantic to the US, where personal income and outlays numbers will be used to gauge the strength of the consumer sector.





Greece’s Parliament is scheduled to vote on its new package of austerity measures on Tuesday. The reforms are a requirement for the next tranche of the IMF/EU loans to be released in time for the funding of bonds in mid-July.
The day also features a number of key data releases, starting with Japanese retail sales numbers for May, Gfk consumer confidence in Germany, plus business confidence and producer price numbers for Italy.
In the UK, final gross domestic product (GDP) numbers for Q1 are released, as well as current account data. According to official estimates, the UK economy expanded at only a modest rate of 0.5% in the first quarter of 2011.
After cooling in May, German consumer price inflation is expected to quicken from an annual rate of 2.4% to 2.6%.
Weekly US Redbook store chain sales are published before the release of the S&P Case-Shiller home price index takes centre stage. The index of home prices in the nation’s largest cities fell below its April 2009 low towards the end of Q1, raising worries about a double-dip in house prices.

The US Conference Board publishes its June barometer of consumer sentiment. Confidence waned in May amid rising fuel and oil prices and concerns about the employment situation. This apprehension among consumers likely continued in June.

Preliminary industrial production numbers for Japan will be eagerly anticipated after trade data showed exports falling at a faster-than-expected rate.
French GDP data (final) for Q1 are released in advance of UK consumer credit, mortgage lending/applications and money supply numbers.
European Commission economic sentiment figures for June follow.
Weekly US mortgage applications data are released, as well as pending homes sales numbers, which plunged in April. However, there is evidence to suggest that temporary factors, such as bad weather, were behind the severity of the decline.

The Gfk consumer confidence survey for the UK is published ahead of the Markit/JMMA Manufacturing PMI™ for June. The PMI™ pointed to renewed output growth in May, as easing supply chain pressures enabled firms to restart production lines.
Euro zone inflation comes under the spotlight with producer price data for France and the preliminary estimate of consumer price inflation for the single currency area as a whole. After dipping unexpectedly in May, a further easing in the rate of inflation will make a rate hike later in the year less likely. German unemployment numbers are also published for June.
The usual US weekly jobless claims date are accompanied by the Chicago PMI, which will be watched closely due to its good track record with the ISM manufacturing index, published Friday.

Markit’s release of Manufacturing PMIs for Asia follow, notably final data for China, where the flash HSBC PMI™ survey pointed to a stagnation of output and easing price pressures across the sector. HSBC PMI™ releases for South Korea and Taiwan will be monitored for trends in global trade flows.
The Markit Euro Zone Manufacturing PMI™ data follow last week’s flash estimate, which showed the region’s economic growth surge losing momentum at a worrying rate.
The publication of the Markit/CIPS UK Manufacturing PMI™ follows shortly after. May data signalled that manufacturing moved from rapid expansion to near-stagnation.
Italy publishes final GDP numbers for Q1 and jobs numbers before the unemployment rate for the euro zone is released.
The week ends in the US, where the University of Michigan consumer confidence index will shed light on consumer spending patterns. Construction spending numbers follow.

However, the ISM Manufacturing PMI will be the key release in the US; the headline index posted its lowest reading for 12-months in May, reflecting a marked slowdown in output and new order growth.

Friday starts with the release of unemployment, consumer price inflation and household spending numbers for Japan, plus the Bank of Japan’s quarterly survey of business conditions.

Now, hold on to your hats, and trade with attitude!

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