COMMENT - Towards a centralized European state, and budgets from Brussels. Less accountability of government, less democracy, brought to you by the International Monetary Fund. The IMF/World Bank and it's owners have been refining their methods on developing countries for 40 years, and now they are going for world control.
IMF calls for action as euro crisis escalates
By Ben Rooney @CNNMoneyInvest July 18, 2012: 9:09 AM ET
NEW YORK (CNNMoney) -- The International Monetary Fund urged euro area policy makers Wednesday to address the worsening crisis in the currency zone. Eurozone authorities have made some progress, but "stronger more collective action" is needed, according to an IMF review of policies in the 17-nation currency union.
The current situation in the eurozone is "at critical state," said Mahmood Pradhan, deputy director of the IMF's European department, in a conference call with reporters. Specifically, the IMF recommends forming a banking union with common deposit insurance and a mechanism to resolve failed banks.
Eurozone leaders agreed last month to move towards more integrated oversight of the financial system, but stopped short of a full fledged banking union.
The goal is to break the "pernicious" link between banks and governments, in which weak financial institutions threaten to drag down states, and vice versa.
"It is vital that they make more progress towards a banking union," said Pradhan.
The eurozone banking system is "fragmented," Pradhan added, as governments encourage domestic banks to maintain liquidity. As a result, Pradhan said a banking union is important to ensure that access to credit is spread more evenly across the euro area.
"We hope they will follow up with a deposit insurance and resolution framework," he said.
In addition to joint banking regulation, the IMF called for deeper fiscal integration in the euro area. A more centralized approach to national budgets could help "reduce the tendency for economic shocks in one country to imperil the euro area as a whole," the report states.
Eurozone leaders also need to take steps to boost economic activity, including structural reforms in uncompetitive regions and targeted spending in more well off nations.
Related: Euro stability fund 'on ice' until September
The European Central Bank, which recently cut interest rates to an all-time low, can do more, the IMF said. Pradhan thinks the ECB could lower interest rates further, offer more low-cost loans or "scale up" its controversial bond buying program.
The IMF stressed that Eurozone leaders need to act quickly to ward off a deepening crisis that could have serious consequences for the rest of Europe and the global economy.
"The euro area is in an uncomfortable and unsustainable halfway point," the IMF said in its report. "While it is sufficiently integrated to allow escalating problems in one country to spill over to others, it lacks the economic flexibility or policy tools to deal with these spillovers."
Labels: EU, EURO, IMF
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Chikwanda urges Zambians to brace themselves for the economic challenges
TIME PUBLISHED - Sunday, June 17, 2012, 8:28 am
Finance Minister Alexander Chikwanda has urged Zambians to brace themselves for the economic challenges. Mr. Chikwanda says the current economic slump being faced by the Euro zone has the potential to spread to Africa, a situation he says will be unfortunate.
He has charged that the Euro zone accounts for more than 30 percent of the world trade adding that the ongoing Euro zone crisis is likely to spread.
Meanwhile, Mr. Chikwanda has observed that the macroeconomic fundamentals in the country are working.
Mr. Chikwanda has however warned against complacency in doubling the pace of the country’s economic development.
The finance minister has since called for more vigorous actions by government departments to ensure that the positive achievements being recorded in the economy are sustained.
QFM
Labels: ALEXANDER CHIKWANDA, ECONOMY, EURO, GREAT DEPRESSION II
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Greece and the Euro: Fifty Ways to Leave Your Lover
Alternatives to an "Ugly Divorce"
by Ellen Brown
Global Research, June 6, 2012
The problem is all inside your head she said to me
The answer is easy if you take it logically
I’d like to help you in your struggle to be free
There must be fifty ways to leave your lover.
–Lyrics by Paul Simon
The Euro appears to be a marriage of incompatible partners. A June 1st article in the UK Telegraph titled “Why Europe’s Love Affair with the European Project Is Ending” reported that two-thirds of 9,000 respondents thought that having the euro as their single currency was a mistake.
For Greece, it was a tragic mismatch from the beginning; and like many a breakup, it is really about money. Greece is a vivacious young woman chained to a tyrannical old man. She yearns to be free to dance on her own; but breaking up is hard to do. Defaulting on her debts will force her out of the Eurozone and back to issuing drachmas, and she could get brutally beaten by speculators on foreign exchange markets for her insolence.
Fortunately, there are alternatives to an ugly divorce. The treaties binding the 17 member nations are just a set of rules, entered into by mutual agreement; and rules can be bent or broken, especially in crises. The ECB (European Central Bank) broke a litany of rules to save the banks, and so did the Federal Reserve to save Wall Street in 2008. Rules that can be bent for banks can be bent for people and nations—not just Greece, but all the other Eurozone countries threatening to file for divorce.
Paul Simon says there are 50 ways, but here are five creative alternatives.
1. The Open Marriage: Return to the Drachma Without Abandoning the Euro
James Skinner, former chairman of NEF (the New Economics Foundation in the UK), suggests that the Greek government could start issuing drachmas without abandoning the euro. Drachmas could be reserved for domestic use—to pay the government’s budget, hire workers, build infrastructure and expand social services. He writes:
Greece is suffering from a lack of money because the only source, the single currency, has dried up. But there is no law that states that there has to be only one currency.
. . . By enabling the Government, monitored by the Central Bank, to spend newly created money directly into the economy, bypassing the banking sector, the burden of increasing national debt can be avoided. . . .
This programme for creating a new Greek Drachma, bypassing the private banking sector, could start tomorrow. Its immediate effect would be to get the unemployed back to work. All existing Euro transactions can continue as before, quite separately from the new currency. The two currencies can perfectly well co-exist and run alongside each other. . . . Foreign banks will continue to deal in Euros and other currencies as usual.
This solution was successfully used in Argentina when its currency collapsed in 2001. The government walked away from its debts and started issuing its own Argentine pesos. Three years after a record debt default on more than $100 billion, the country was well on the road to recovery. Exports increased, the currency was stable, investors returned, unemployment diminished and the economy grew by 8 percent for 2 consecutive years.
2. Separate Bank Accounts: Fire Up the Printing Presses at the Greek Central Bank
In a March 19 article on Seeking Alpha, George Kesarios observed that the Greek central bank has the power to issue more than just drachmas. The ECB is not an ordinary central bank:
Rather, it is a confederation of central banks. Each European national central bank can theoretically do the same types of market operations as the ECB and then some. The forefathers of the euro have left many monetary windows open, which, if used correctly, can solve the European debt crisis in a very short period without taxpayer funds.
He cited article 14.4 of the Protocol on the Statute of the European System of Central Banks, which provides:
14.4. National central banks may perform functions other than those specified in this Statute unless the Governing Council finds, by a majority of two thirds of the votes cast, that these interfere with the objectives and tasks of the ESCB. Such functions shall be performed on the responsibility and liability of national central banks and shall not be regarded as being part of the functions of the ESCB.
That means the National Center Banks can do whatever the ECB can do—and even things it can’t. The Greek central bank could step in and start issuing euros itself. Again, there is precedent for this. It was under Article 14.4 that the Irish Central Bank was able to print 80 billion euros as “emergency liquidity assistance,” and the Greek central bank has already printed 44 billion euros itself.
The Greek government could print euros, refinance its sovereign debt, and pay the interest to itself, effectively eliminating the interest burden. Among other precedents, there is Canada, which borrowed from its own central bank from 1939 to 1974 to fund major infrastructure projects and social programs. It pulled this off over a 25-year period without hyperinflating the currency, driving up prices, or increasing the public debt, which remained low and sustainable.
There is the concern that the euro might suffer by devaluation if other Eurozone members followed suit. But Kesarios points to the Japanese experience, “where one can print and print and then print some more, without the value of the currency being marked down (due to positive trade flows).” The euro might be equally resilient.
3. Divorce: Just Walk Away
According to the May 29th New York Times, the 130 billion euro bailout that was supposed to buy time for Greece is now mainly just servicing the interest on the debt. The “troika”—the ECB, IMF, and European Commission—which holds three-fourths of the debt, is sequestering the bailout funds to be paid right back to themselves in interest payments. This is merely going to compound the debt to disastrous levels, without a single cent going to the Greeks or their comatose economy.
Interest rates on Greek ten-year bonds have gone to nearly 30 percent recently. Under the Rule of 72, at 30% compounded annually, debt doubles in 2.4 years. If the Greeks can’t even pay the interest on the debt today except by borrowing, how are they going to repay double the principal in a mere 2.4 years? At 30%, the Greeks could be paying over 100% of their GDP in interest charges. Legally, a contract that is impossible to perform is void.
Alexis Tsipras, leader of the radical left-wing Greek party Syriza, which is now in second place in the Greek parliament, calls it an “odious debt,” a legal term for a national debt incurred by a regime for purposes that do not serve the best interests of the nation. An odious debt under international law need not be repaid.
4. Spousal Support: The Public Bank Option
If divorce is too much to contemplate, Greece’s crippling interest burden can be relieved by taking advantage of the ECB’s very generous 1% rate for bankers. Article 123 of the Maastricht Treaty forbids member governments from borrowing directly from the ECB, but it makes an exception in paragraph 2 for “publicly-owned credit institutions”—something Greece will have plenty of when it nationalizes its banks. They can line up at the ECB’s window for its bargain-basement 1% banking rate and use the borrowed funds to buy up the national debt.
Researcher Simon Thorpe wrote to the ECB and asked whether they would object if a publicly-owned credit institution were to borrow from the ECB and use the funds “to supply the money to a government such as the Greek government in order for that government to pay off its debts to financial markets.” The ECB replied:
According to the Treaty—as you have just quoted—such publicly owned credit institutions “shall be given the same treatment by national central banks and the ECB as private credit institutions.” It is up to the banks to decide how to use the money they have borrowed from the central bank system.
5. The Dowry: Impose a Financial Transaction Tax
Thorpe notes that the ECB has issued and lent nearly one trillion euros to the banks at 1% since December 2011—three times the total Greek debt of 355 billion euros. If Greek public banks borrowed from the ECB at 1% and bought Greece’s sovereign debt, the debt could be paid off in 10 years just from the returns on a very modest Financial Transaction Tax (FTT) of 0.3%.
Imposing a tiny FTT on all financial trades would not only be a lucrative source of revenue but would prevent the attacks of speculators, both on the newly-issued drachma and on the sovereign debt of Greece and other Eurozone countries. The FTT has already been implemented in many countries. In 2011, there were 40 countries that had FTT in operation, raising $38 billion (€29bn).
Where There Is a Will, There Is a Way
The problem is finding the will, particularly among the Eurocrat leaders holding the reins of power, who may not be looking for an amicable workout. The marital problems of Greece and the Eurozone stem from an arbitrary set of rules that were entered into and can be changed by agreement. But as Mike Whitney maintained in a June 3 article titled “Europe Moves Closer to Banktatorship”:
These people are not interested in fixing the EZ economy. They are engaged in a stealth campaign to . . . solidify the power of big finance over the individual states . . . .
To avoid that dire scenario, the popular majority needs to grab the reins of power. It is fitting that Greece, the birthplace of European culture and democracy, is the focus of the struggle against bondage to an elite banker class. Greece can dance again if she can set herself free.
Ellen Brown is a frequent contributor to Global Research.
Labels: EURO
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No Solution to The Eurozone Crisis
October Summit Agreement Spells Disaster
by CADTM
Global Research, October 29, 2011
CADTM
The agreement of the 26/27 October 2011 European summit meeting is unacceptable
The agreement made at dawn on the 27th October 2011 brings no solution to the eurozone crisis, neither to the banking crisis, the sovereign debt crisis or the euro crisis. The decisions taken do not solve any of the problems in an acceptable way, they only postpone them. CADTM considers this agreement unacceptable.
by Pascal Franchet , Yorgos Mitralias , Griselda Pinero , Eric Toussaint (CADTM Europe)
The heads of states, heads of governments, the leaders of the European commission (EC), the private banksters and the managing director of the IMF met in Brussels in order to find a solution to the risk of serial bankruptcies among Europe’s biggest banks, particularly French, Spanish, Greek, Italian, German, Portuguese and Belgian...
Those who, before and after 2007 - 2008, multiplied their risk taking behaviors to make short term profits for their shareholders and to give marvelous bonuses to their directors and traders. Domestic and business loans being only a small part of their turnover : between 2 and 5 %. The massive support they have received from the states, the ECB (European Central Bank) or the Fed (Federal reserve Bank of the USA) has not been used to stimulate the productive economy, it has been diverted to more highly speculative activities. Private banks are financed for the short term at the same time as they take on medium and long term engagements : public or private bonds, commodity futures, currency swaps and positions on derivatives that are not under any public control. The bankruptcy of the Franco-Belgian bank Dexia at the beginning of this month of October 2011 is the direct result of these policies. The fear of an oncoming domino effect in Europe and north America weighed heavily on the meeting of the 26/27th October 2011.
The decision to give Greek bonds in bankers possession a 50% haircut, as opposed to the 21% cut agreed on the 21st July, had become inevitable since August following their 65% to 80% price fall on the secondary debt market. Although the state leaders announced they had imposed important sacrifices on the banks, as usual the banks are coming out well. This explains why for the time being, bank stock in particular and the financial markets in general have shown important upward movements.
The 27th October agreement is not a solution for the Greek people who are suffering the full effects of the crisis, aggravated by the austerity measures the government has inflicted on them. This operation is entirely managed by the creditors and is in conformity with their interests.
This debt reduction plan is a European version of the "Brady plans" that had such devastating effects on the developing countries during the eighties and nineties. The Brady plan (named after the US Treasury secretary at the time) involved debt restructuring by exchange of bonds, in the principal indebted countries that took part. These were Argentina, Brazil, Bulgaria, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Panama, Peru, Philippines, Poland, Russia, Uruguay, Venezuela and Vietnam. At the time, Nicholas Brady had announced that the volume of the debts would be reduced by 30% (in fact, the reductions, when they did happen, were much less ; in some cases, and not the least, debts even increased) and the new bonds (Brady bonds) guarantied a fixed interest rate of around 6%, which was very favorable to the creditors. This also assured application of austerity measures dictated by the IMF and the World Bank. Today, under other latitudes the same logic provokes the same disasters. The Troika (ECB, EC, IMF) imposes endless austerity measures on the Greek, Irish and Portuguese people. If there is no reaction from their people in time, others will have the same : Spain, Belgium, France...
This plan cannot validly permit Greece to resolve its problems for two reasons :
- 1. the debt reduction is totally insufficient ;
- 2. the economic and social policies applied in accordance with the Troika demands will fragilize the country even more. This characterizes the odious nature of these financial agreements with Greece, any future loans in this framework and the restructuring of the previous debts.
Greece must make a choice between two options :
- Throw in the towel and be again subject to the gauntlet of the Troika ;
- Refuse the dictatorship of the markets and the Troika in suspending the payments and by proceeding to a debt audit so that the illegitimate part may be repudiated.
Other countries are, or soon will be, confronted with the same choice : Spain, Ireland, Italy, Portugal... This list is far from exhaustive. In any case, these same policies are applied, in differing degrees, all over the EU. These austerity plans must everywhere be refused and citizen controlled audits of public debt put into operation.
The events of 2007 - 2008 have not incited governments to imposing strict prudential rules. On the contrary, measures must be taken to prevent financial institutions, banks, insurance companies, pension and hedge funds from causing further damage. Public authorities, company directors directly, or complicity responsible for the stock market and banking Kraches must be brought to justice, it is urgent to expropriate the banks and put them to the service of the common good by nationalizing them under worker’s and citizen’s control.
Not only must any form of indemnity for the shareholders be refused but they should also have there own wealth put to contribution to cover the cost of repairing the financial system. It is also necessary to repudiate the illegitimate claims that the private banks hold on public authorities. Of course a series of complementary measures must also be adopted : control the movements of capital, prohibit speculation, prohibit transactions going through tax havens, creation of taxes aimed at establishing social justice... In the European Union certain treaties, such as Maastricht and Lisbon must be repealed. It is also necessary to radically change the statutes of the ECB. Before the crisis gets to its worst it is high time to radically change direction. The CADTM supports, along with other organizations, the initiatives that have been taken in certain countries in favor of public debt audits under citizens control. The « Occupy Wall Street » movement has set a creative and emancipative ball into motion. It must be reinforced.
Translated by Mike Krolikowski
URL: http://www.cadtm.org, CADTM Europe (Comité pour l’annulation de la dette du tiers monde) is present in Greece, France, Belgium, Spain, Switzerland and Poland. In all, the CADTM network is present in 33 countries. The most recent CADTM book is : La dette ou la vie : Damien Millet – Eric Toussaint (coord.), ADEN, Bruxelles, 2011.
Labels: EURO, FINANCIAL CRISIS, GREAT DEPRESSION II
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Can the euro be saved?
By Joseph E. Stiglitz
Tue 11 May 2010, 04:00 CAT
The Greek financial crisis has put the very survival of the euro at stake. At the euro’s creation, many worried about its long-run viability. When everything went well, these worries were forgotten. But the question of how adjustments would be made if part of the eurozone were hit by a strong adverse shock lingered. Fixing the exchange rate and delegating monetary policy to the European Central Bank eliminated two primary means by which national governments stimulate their economies to avoid recession. What could replace them?
The Nobel Laureate Robert Mundell laid out the conditions under which a single currency could work. Europe didn’t meet those conditions at the time; it still doesn’t. The removal of legal barriers to the movement of workers created a single labor market, but linguistic and cultural differences make American-style labor mobility unachievable.
Moreover, Europe has no way of helping those countries facing severe problems. Consider Spain, which has an unemployment rate of 20 per cent – and more than 40 per cent among young people. It had a fiscal surplus before the crisis; after the crisis, its deficit increased to more than 11 per cent of GDP. But, under European Union rules, Spain must now cut its spending, which will likely exacerbate unemployment. As its economy slows, the improvement in its fiscal position may be minimal.
Some hoped that the Greek tragedy would convince policymakers that the euro cannot succeed without greater cooperation (including fiscal assistance). But Germany (and its Constitutional Court), partly following popular opinion, has opposed giving Greece the help that it needs.
To many, both in and outside of Greece, this stance was peculiar: billions had been spent saving big banks, but evidently saving a country of eleven million people was taboo! It was not even clear that the help Greece needed should be labeled a bailout: while the funds given to financial institutions like AIG were unlikely to be recouped, a loan to Greece at a reasonable interest rate would likely be repaid.
A series of half-offers and vague promises, intended to calm the market, failed. Just as the United States had cobbled together assistance for Mexico 15 years ago by combining help from the International Monetary Fund and the G-7, so, too, the EU put together an assistance program with the IMF. The question was, what conditions would be imposed on Greece? How big would be the adverse impact?
For the EU’s smaller countries, the lesson is clear: if they do not reduce their budget deficits, there is a high risk of a speculative attack, with little hope for adequate assistance from their neighbors, at least not without painful and counterproductive pro-cyclical budgetary restraints. As European countries take these measures, their economies are likely to weaken – with unhappy consequences for the global recovery.
It may be useful to see the euro’s problems from a global perspective. The US has complained about China’s current-account (trade) surpluses; but, as a percentage of GDP, Germany’s surplus is even greater. Assume that the euro was set so that trade in the eurozone as a whole was roughly in balance. In that case, Germany’s surplus means that the rest of Europe is in deficit. And the fact that these countries are importing more than they are exporting contributes to their weak economies.
The US has been complaining about China’s refusal to allow its exchange rate to appreciate relative to the dollar. But the euro system means that Germany’s exchange rate cannot increase relative to other eurozone members. If the exchange rate did increase, Germany would find it more difficult to export, and its economic model, based on strong exports, would face a challenge. At the same time, the rest of Europe would export more, GDP would increase, and unemployment would decrease.
Germany (like China) views its high savings and export prowess as virtues, not vices. But John Maynard Keynes pointed out that surpluses lead to weak global aggregate demand – countries running surpluses exert a “negative externality” on their trading partners. Indeed, Keynes believed that it was surplus countries, far more than deficit countries, that posed a threat to global prosperity; he went so far as to recommend a tax on surplus countries.
The social and economic consequences of the current arrangements should be unacceptable. Those countries whose deficits have soared as a result of the global recession should not be forced into a death spiral – as Argentina was a decade ago.
One proposed solution is for these countries to engineer the equivalent of a devaluation – a uniform decrease in wages. This, I believe, is unachievable, and its distributive consequences are unacceptable. The social tensions would be enormous. It is a fantasy. - Project Syndicate
Labels: EURO, JOSEPH STIGLITZ
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