Sunday, March 1, 2015

Today's Links

 Quote:  "In 2010, the EU establishment and core countries stepped in and ‘strongly encouraged’ the periphery countries to take on government loans from the troika rather than consider alternatives such as debt restructuring, which would have ensured that the banks paid some of the price for their excessive lending.
The funds were then, to a large degree, channelled back to the creditor countries. This entailed a double shift in liabilities: from the banks of the periphery to the governments (and citizens) of the periphery; and from the banks of the core to the governments (and citizens) of the eurozone as whole, since most of the troika bailout funds came from EMU countries.


This irrefutably puts to shame the claim that ‘the European taxpayers’ money’ was used to save Greece and the other reckless, profligate countries of the periphery; the truth is that these bailouts amounted effectively to ‘a back-door bailout of reckless German lending’, as an International Financing Review article put it, taking German lenders off the hook while sending the public debt levels of ‘bailed out’ countries through the roof. Philippe Legrain, former advisor to then-European Commission president Barroso, writes that ‘to avoid losses for German and French banks, eurozone policymakers, led by German Chancellor Angela Merkel… lent European taxpayers’ money to the insolvent Greek government, ostensibly out of solidarity, but actually to bail out creditors’.


Greece’s reckless borrowing was financed by equally reckless lenders, but ‘the European Union chose to resolve the debt crisis by punishing the Greeks and by saving the Northern banks’, is Paul De Grauwe’s unequivocal conclusion.


The troika saved banks and creditors – not Greece
https://www.opendemocracy.net/can-europe-make-it/thomas-fazi/troika-saved-banks-and-creditors-%E2%80%93-not-greece 








1---Humiliated Greece eyes Byzantine pivot as crisis deepens, AEP, Telegraph


Less visible, but more threatening, are powerful forces within the economic oligarchy who are starting to question whether they might not do better protecting their vested interests outside the euro, shielded from EU scrutiny. They have links to the military, police, and security apparatus.
Mr Varoufakis said the latent danger is the far-Right. "If pro-European and democratic governments like ours are asphyxiated, and voters are driven to despair, the only people who will benefit are fanatics, racists, nationalists, and all those who feed on fear," he told France's Charlie Hebdo.
....
Alekos Flambouraris, the government affairs minister, has already begun uttering the fatal word "delay", as if were possible to delay an IMF payment without triggering a total collapse of confidence. Syriza insiders warn privately that default is becoming an alarmingly real possibility. "It is so bad that anything could happen. I can't talk any more, the phones are bugged,” said one official.
He blamed the European Central Bank (ECB) for setting off a "self-fulfilling deposit flight" from the banking system by refusing to accept Greek collateral in exchange for loans. This decision was made within days of Syriza's landslide election, and before EMU's elected leaders had issued any opinion.
The ECB's pre-emptive move is seen in Athens as counter-insurgency warfare against the first radical-Left party elected in Western Europe since 1945. It will not be forgotten lightly.
The outflows were brisk even before that. Deposit losses reached €12.8bn in January. This is showing up in the "Target2" payment data of the ECB system. The Greek central bank's liabilities to the rest of the EMU network rocketed from €49bn in December to €76bn in January as capital flight accelerated. They may have hit €100bn by now.
This is double-edged. Creditors have even more to lose if Greece spins out of control. A full repudiation of debt to the EMU institutions and states would cost over €300bn. It would be the biggest default of all time, by an order of magnitude....


The prime minister is heeding the warnings. Privatisation of the power utilities, airports, and ports have been cancelled or face drastic review, leaving only "completed" deals in tact. This a minimalist reading of the text signed in Brussels, another sign that Syriza has no intention of buckling to Mr Schaueble's very different hermeneutics....


A veteran EU diplomat in Athens said the Troika is so determined to extract money that it has turned a blind eye to some of the dubious deals tailored to the interests of powerful oligarchs. "The sales are a stitch-up, all going to the same small circle. We know exactly who the biggest smuggler of shipping fuel is, and why nothing has been done. He was very close to the previous government. Syriza are not part of this system and don't have 'checks to pay back'," he said.
It is this debt collector's agenda that has fed contempt for the word "reform" in Greece. The Greeks know from leaked IMF minutes that their country was sacrificed in the first bail-out of 2010 in order to save the euro and Europe's banks at a time when EMU had no defences against contagion. “Debt restructuring should have been on the table,” said Brazil's IMF member.


2--Family Feud: The Tortured Relationship between Schäuble and Varoufakis, Spiegel


The German finance minister regards Europe as an educational project, one for which the past seven decades has been about civilizing the Europeans and educating them about peace and democracy. Indeed, a Kantian imperative is visible in EU regulations and directives. The rules issued in Brussels force member states to act in such a way that the union will not break apart, provided the others do so as well.


It's an imperative that is also a factor in the fight over Greek debts and Greek blame. Athens' revolt is reminiscent of a teenager who doesn't want to accept the limits to personal freedom that living in a mutually dependent collective necessitates -- moreover, in a collective designed by his predecessors.


3--Fascism Is Coming Alive Again, Eric Margolis


4---Ex-guerrilla, pot-legalizing, champion of the poor president: Uruguay's Mujica steps down, RT


Mujica's kindness speaks volumes: He refused to move to Uruguay’s luxurious presidential mansion to live in a farm outside Montevideo with his wife and a three-legged dog named Manuela. Pepe gives away about 90 percent of his salary to charity, saying he simply doesn't need it. He drives an 1987 Volkswagen Beetle.


5--What impact will Nemtsov’s death have on Russian opposition?, RT


Dmitry Babich: No, I don’t think he was dangerous to the Kremlin politically, because his electoral support was very low. The last election that his party – the Union of Right Forces – the last election that they actually managed to show good results at was in 2001. In 2001, his party got about 10 percent of the vote. Since then, he never managed to pass the threshold of five percent. So electorally, he wasn’t strong. But, certainly, he represented a certain minority view in Russia and especially on the events in Ukraine. He full-heartedly supported the new regime in Kiev.


6--Getting out of the “bet on America” would turn into a real mess., wolf street


Thanks to the ratchet effect, whereby each PE firm helped drive up prices for the others, the top four landlords booked a 23% gain on equity so far, with Invitation Homes alone showing  $523 million in gains, according to RealtyTrac. The “bet on America” has been an awesome ride.


But now what? PE firms need to exit their investments. It’s their business model. With home prices in certain markets exceeding the crazy bubble prices of 2006, it’s a great time to cash out. RealtyTrac VP Daren Blomquist told American Banker that small batches of investor-owned properties have already started to show up in the listings, and some investors might be preparing for larger liquidations.
“It is a very big concern for real estate professionals,” he said. “They are asking what the impact will be if investors liquidate directly onto the market.”...


What kind of impact will these large investors have on our communities?” wondered Rep. Mark Takano, D-California, in an email to American Banker. He represents Riverside in the Inland Empire, east of Los Angeles. During the housing bust, home prices in the area plunged. But recently, they have re-soared to where Fitch now considers Riverside the third-most overvalued metropolitan area in the US. So Takano fretted that “large sell-offs by investors will weaken our housing recovery in the very same communities, like mine, that were decimated by the subprime mortgage crisis.”


7--Poll surge for Alexis Tsipras’ Syriza as Greeks learn to smile again
Approval ratings for radical left party soar despite U-turns forced in debt talks and collapse of tax collection, but the people still expect the government to deliver


Banks create money by issuing a loan to a borrower; they record the loan as an asset, and the money they deposit in the borrower’s account as a liability. This, in one way, is no different to the way the Federal Reserve creates money, which Rosenberg rails against as fraud. In reality it is simply the nature of a monetary economy: money is simply a third party’s promise to pay which we accept as full payment in exchange for goods. The two main third parties whose promises we accept are the government and the banks.

That’s simply the nature of money: it is not backed by anything physical, and instead relies on trust. Of course that trust can be abused—and frankly that’s done more often by the banks than by the government. But thanks to the anti-government attitude of monetary cranks like Rosenberg, and the dominance of economics by “barter cranks” like Krugman—who ignore banks completely and yet pretend to understand the economy—we continue to ignore the main game: what the banks do (for good and for ill) that really drives the economy


9---The IMF’s Road to Ruin (Weisbrot forecasts Greece's fututer in 2010) CP


(Greece) is trying to accomplish an “internal devaluation.” In other words, with a deep enough recession and sufficient unemployment, wages and prices can be pushed down. In theory this would allow the economy to become competitive again, even while keeping the (nominal) exchange rate fixed.....


... the European Union and the IMF's ...plan for Greece is all about pain and punishment. And with a public debt of 115 percent of GDP and a budget deficit of 13.6 percent, Greece will be forced to make spending cuts that will not only have drastic social consequences but will almost certainly plunge the country deeper into recession.

This is a train going in the wrong direction, and once you go down this track there is no telling where the end will be. Greece ...will be at the mercy of external events to rescue its economy. ...

Now matter how you slice it, these 19th-century-brutal pro-cyclical policies don’t make sense. They are also grossly unfair, placing the burden of adjustment most squarely on poor and working people.


With Europe's economy still weak, an excessively rapid tightening of its budget deficit would risk throwing Greece into a deep recession. Adjustments always take time, and are always painful. Europe should reframe the short-run budgetary targets it sets for Greece in terms of the structural deficit – what the deficit would have been had the country been able to achieve full employment. In recent years, even the IMF has reframed most countries' budgetary targets in terms of the primary deficit – net of interest payments, recognizing that volatile financial markets mean that interest payments are not really within a country's control.


The EU could and should show support for the honesty and integrity of Greece's government and its efforts not only to bring the budget under control, but to increase transparency of the entire budgetary framework and to reduce corruption. The EU can go further: institutions like the European Investment Bank should undertake countercyclical investments in the country, to offset the deflationary impacts of the budget cuts. Europe should show that it will stand behind Greece, much as the IMF provides support funds for developing countries. The provision of such support might lower interest rates, and make it easier for the country to reach budgetary balance. The EU, the euro, and the premise of European solidarity is being tested again. The measure of Europe will not be in the harshness of its actions, but in the spirit of solidarity that it shows in assisting its neighbour.


America too has unprecedented deficits, as do many countries around the world. Like Obama, Papandreou inherited an economic situation that was not of his making. Both of their predecessors had made mistakes of colossal proportions. Both of their predecessors had engaged in dishonest bookkeeping – but Bush's pale in comparison to that of Papandreou's predecessor. Both were elected on a platform that promised change, and both brought new standards of honesty and transparency to government. Both had their original vision compromised by the exigencies of the economic situation they confronted.


For the sake of European solidarity and democracy, Europe should support Papandreou's efforts in every way they can, not turn their back on the people of Greece who must be convinced that supporting the government's austerity measures is in everyone's best interest. ....
The European Union and the IMF have the money and the ability to engineer a recovery based on counter-cyclical policies in Greece as well as the Baltic states. If it involves a debt restructuring – or even a haircut for the bondholders – so be it. No government should accept policies that tell them they must bleed their economy for an indeterminate time before it can recover.


Would it surprise you to know that Europe’s taxpayers have provided as much financial support to Germany as they have to Greece? An examination of European money flows and central-bank balance sheets suggests this is so.
Let’s begin with the observation that irresponsible borrowers can’t exist without irresponsible lenders. Germany’s banks were Greece’s enablers. Thanks partly to lax regulation, German banks built up precarious exposures to Europe’s peripheral countries in the years before the crisis. By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks’ aggregate capital. In other words, they lent more than they could afford.


When the European Union and the European Central Bank stepped in to bail out the struggling countries, they made it possible for German banks to bring their money home. As a result, they bailed out Germany’s banks as well as the taxpayers who might otherwise have had to support those banks if the loans weren’t repaid. Unlike much of the aid provided to Greece, the support to Germany’s banks happened automatically, as a function of the currency union’s structure.  ...


It’s hard to quantify exactly how much Germany has benefited from its European bailout. One indicator would be the amount German banks pulled out of other euro-area countries since the crisis began. According to the BIS, they yanked $353 billion from December 2009 to the end of 2011 (the latest data available). Another would be the increase in the Bundesbank’s claims on other euro-area central banks. That amounts to 466 billion euros ($590 billion) from December 2009 through April 2012, though it would also reflect non-German depositors moving their money into German banks.
By comparison, Greece has received a total of about 340 billion euros in official loans to recapitalize its banks, replace fleeing capital, restructure its debts and help its government make ends meet. Only about 15 billion euros of that has come directly from Germany. The rest is all from the ECB, the EU and the International Monetary Fund. ...


Germany’s changing financial exposure has major implications for its role as a leader of Europe’s response to the crisis. Before Germany’s banks pulled back their funds, they stood to lose a ton of money if Greece left the euro. Now any losses will be shared with the taxpayers of the entire euro area -- particularly France, whose banks still have a lot of outstanding loans to Greece. Perhaps this is what some German officials mean when they say that the euro area is better prepared for a Greek exit.


12---The troika saved banks and creditors – not Greece


in 2010, the EU establishment and core countries stepped in and ‘strongly encouraged’ the periphery countries to take on government loans from the troika rather than consider alternatives such as debt restructuring, which would have ensured that the banks paid some of the price for their excessive lending.
The funds were then, to a large degree, channelled back to the creditor countries. This entailed a double shift in liabilities: from the banks of the periphery to the governments (and citizens) of the periphery; and from the banks of the core to the governments (and citizens) of the eurozone as whole, since most of the troika bailout funds came from EMU countries.
This irrefutably puts to shame the claim that ‘the European taxpayers’ money’ was used to save Greece and the other reckless, profligate countries of the periphery; the truth is that these bailouts amounted effectively to ‘a back-door bailout of reckless German lending’, as an International Financing Review article put it, taking German lenders off the hook while sending the public debt levels of ‘bailed out’ countries through the roof. Philippe Legrain, former advisor to then-European Commission president Barroso, writes that ‘to avoid losses for German and French banks, eurozone policymakers, led by German Chancellor Angela Merkel… lent European taxpayers’ money to the insolvent Greek government, ostensibly out of solidarity, but actually to bail out creditors’.
Greece’s reckless borrowing was financed by equally reckless lenders, but ‘the European Union chose to resolve the debt crisis by punishing the Greeks and by saving the Northern banks’, is Paul De Grauwe’s unequivocal conclusion.
.....
Now, it is widely believed that Greece’s bailout by the troika, to the tune of 226 billion euros, was mainly aimed at keeping the bankrupt Greek state afloat, maintaining its basic operations and paying the salaries of its overpaid, skiving public workers. Given that the lion’s share of the loans came from the rich countries of the core (first and foremost Germany), one could be forgiven for viewing this as the lender countries extending a helping hand to their troubled brethren, albeit reluctantly; and for understanding Germany’s indignant reaction to Tsipras’ refusal to pay back the debt. But where did the money go? And who really got bailed out, the debtors or the creditors?


A recent study by the Greek economist Yiannis Mouzakis, based on European Commission review documents, IMF evaluation reports and Greek government budget documents, revealed that only 27 billion euros – a meagre 11 per cent of the total funding – were used for the Greek state’s operating needs. Which squares with the fact that the Greek government, as a result of the brutal belt-tightening imposed by the troika, has been running a primary surplus (i.e., its revenues have exceeded expenses) since 2013.


What about the rest of the money? Well, it went to the country’s banks and foreign creditors, mostly French and German banks. In other words, more than 80 per cent of the bailout funds were used to bail out, either directly or indirectly, the financial sector (both Greek and foreign) – not the Greek state. In the process, the overwhelming majority of Greek government debt was shifted from the private sector to the public sector, with other eurozone governments now liable for around 65 per cent of Greece’s debt (and another 20 per cent in the hands of the ECB and IMF).


This is the same conclusion reached by a 2013 Attac Austria report and by a more recent Jubilee Debt Campaign analysis (both worth reading, as is Mouzakis’ article). Interestingly, the same dynamics apply to the other sovereign bailouts as well (see here for an overview of the various cases and here for a in-depth analysis of the Irish case). In this light, the troika bailouts can be seen as ‘phase two’ of the bailout of Europe’s financial sector.  

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