The less reported Greek side to the crisis

[Abhinav Choudhry]

This is one of several articles which report the Greek angle to the
crisis. There are several excellent articles also detailing the
reasons behind the great economic disparity between Northern and
Southern Europe that is to a great extent responsible for the
crisis.This article underlines what the austerity measures mean for
the Greek populace and why they are protesting.

The link to the article posted below.
http://www.globalpost.com/dispatch/news/regions/europe/110923/greeks-wrestle-national-debt

Feeling Greece's pain:
Greek debt may threaten the euro zone. But taxes and spending cuts are
making its citizens desperate.

ATHENS, Greece — Theodore Flesouras, among the rising number of
unemployed in debt-ridden Greece, is a regular at his local betting
parlor where he visits friends but rarely gambles. Winning just seems
impossible.

"There is no future for us," the 49-year-old father of two said while
sipping a coffee near Lambrini Square. "There is no hope for the
people here, no hope. You see, around here, nobody smiles. Every day
we hear bad news. Every day."

Ordinary Greeks are feeling enormous pressure from the government's
efforts to persuade wary lenders that it can cut spending and raise
revenue. Without rescue loans from Europe and the International
Monetary Fund, Greece faces financial collapse, which threatens not
just the euro but the global economy.

In the past year, the government reduced pensions and salaries and,
among other initiatives, began overhauling a dysfunctional tax
collection system that had allowed widespread evasion.

But when auditors up and left the country earlier this month —
reportedly frustrated with the slow pace of reforms — it forced Prime
Minister George Papandreou's Socialist government, which inherited a
$410 billion debt in 2009, to accelerate austerity measures in a bid
to clinch the latest installment of the $150 billion loan package
negotiated in May 2010.

A new property tax was imposed in a bid to raise $2.8 billion. It will
be collected through electricity bills. Power will be cut off if you
don't pay. A parliamentary vote is scheduled next week. In recent
days, the government announced it will put 70,000 workers on a
"reserve" list to be laid off after one year on reduced salaries.

Uncertainty about the country's future — it is already battling a
recession and an unemployment rate of 16.3 percent — is causing
anxiety.

"One day we hear from the government about property taxes, the next
day it's something else. I'm worried," said a fruit-and-nuts vendor at
an open-air market in the Galatsi neighborhood. She would only give
her first name, Katherine. "I don't feel safe."

Unions shut down trains, buses and taxis on Thursday — the latest in a
series of protests that turned violent this past summer when riot
police and demonstrators clashed in the streets. Mass transit strikes
are planned for next Tuesday and Wednesday. Air traffic controllers
were to strike Sunday. General strikes are planned in October and
unions say they'll go to court to challenge the constitutionality of
the government's latest moves.

Meanwhile, the workers union of the state-owned electric utility have
vowed to block collection of the new property tax. Despite that,
Finance Minister Evangelos Venizelos said Thursday the property tax —
originally announced as a temporary measure — would be extended "in
coming years." He warned Greece would face an Argentina-like crisis,
referring to its 2000 bankruptcy, if reforms are not implemented.

Papandreou says there's no turning back. "I am fully committed to this
national effort of ours," the U.S.-educated prime minister said in a
recent speech in Thessaloniki. "It is for the sake of our shared
future and joint interests. And this is a road of no return."

But Christos Argyris, a 32-year-old pediatrician at a public hospital,
said the government is asking too much. He joined 1,000 fellow health
workers in a peaceful march that ended at the doors of the Health
Ministry on Wednesday.

"We are not rich," said Argyris, who estimated that he earns $32,000
annually and works "100 hours" per week. "Now, they are cutting more."

Salary cuts this year will cost him about $550 per month, he said.

"We have few doctors in the public hospitals. They are cutting 300 to
400 euros per month in our wages to give the money to the banks," he
said. "So we say no, we say drop the debt. It's not our debt. It's a
capitalist debt from the banks, from big capitalist corporations."

At the open-air market in the Galatsi neighborhood, a florist who
preferred to give only his first name, Theo, said the financial crisis
has taken a toll on his family. His wife lost her business-consulting
job a year ago. They sold one of their two cars, moved to a smaller,
older apartment, and pulled their two young children out of private
preschool.

"I'm waiting for them to get older so they go to public school, which
is free," said Theo, who was born in New York to Greek parents and
returned to Athens when he was 3 years old.

His clients are buying fewer flowers and plants, some ask if they can
pay next week and others stopped coming.

"People here are afraid that we're already bankrupt and they just
don't tell us," he added. "But I don't think it's as dramatic as they
show it to be. Fear is a very good way to control the masses."

He hopes to see more strikes.

"They have us by the neck. What are we going to do, just sit there and
die? Not going to happen. Not here, this is Greece. We survive, we
never die," he said. "You can't live in fear. I have two kids to
raise. I have to find a way."

[Abhinav Choudhry]

http://www.globalpost.com/dispatch/news/regions/europe/110926/europe-economy

Throwing Greece under the busThe euro zone’s end game comes into
focus.
Michael GoldfarbSeptember 26, 2011 09:58

London —Over the weekend, European leaders attending the annual
International Monetary Fund meeting in Washington were verbally
flogged for their inaction in solving the euro zone crisis. The fear
is that their foot-dragging will mean that sovereign default in Greece
could spill over into other countries and take down the entire global
economy.

They appear to be getting the message. Finally, a plan is coming into
focus. Expected within five to six weeks, it would allow Greece to
default on its debts, and banks and other creditors would take a 50
percent loss. But the euro zone will not break up — not yet at least.
The plan would also expand Europe’s bailout fund to 2 trillion euros,
according to the BBC.

In an interview with Bloomberg over the weekend, German Chancellor
Angela Merkel called for a “barrier” around Greece to prevent the
fallout from taking down other European economies. (Bloomberg also
reported that the chancellor said she is being treated for high blood
pressure.)

So how does the plan stack up?

For starters, recognizing the inevitability of Greek default appears
to be a step in the right direction. For all its profligacy and
inability to collect taxes, Greece’s problems are rooted in a problem
beyond their control, namely the imbalance between economic
performance in the euro zone's northern and southern tiers.

Europe has a two-speed economy, in much the same way that America had
a two-speed economy in the seventies and eighties when the rust belt
contracted and the sun belt boomed.

 But America — being a single
country with a unified fiscal policy — is able to buffet such
imbalances. Europe, which lacks such a fiscal policy, cannot.

"In the first decade of the euro's existence Germany had weak price
growth, wages barely rising," explains Simon Tilford of the Centre for
European Reform, a London think-tank. The result, he says, was an
export-driven boom. The euro strengthened, and the Mediterranean
countries found themselves living with an inflation created by
Germany's economic success.

"Now," says Tilford, "for the south to export and grow their
economies, Spanish and Italians need to cut their costs relative to
Germany. Germany needs to engineer inflation." This would mean German
labor costs would go up.

.Given that fear of inflation has been part of Germany's social DNA
since the 1920s, it is hard to imagine Chancellor Angela Merkel or any
German politician advocating a inflation so that fellow euro zone
citizens can improve their economies.

What Merkel can do is promote ratification of the European Financial
Stability Facility — the bailout fund — agreed to at the EU summit on
July 21st. The Bundestag is due to vote on it this coming Thursday.

It is expected to pass, with the help of opposition parties. But
nothing is simple in this crisis. The key question is how many members
of Merkel's coalition will vote in favor. Ulrike Guerot of the
European Council on Foreign Relations in Berlin calls this "the
chancellor majority." Guerot says "60 or 70 percent of the political
parties in the Bundestag are in favor of the [bailout fund]." Most of
the resistance comes from Merkel's own Christian Democratic Union. If
a significant number rebel against the chancellor, short sellers may
continue to make money betting against the euro.

While Guerot doesn't expect the rebellion to be that large, she says
Merkel has to level with the German people. "She needs to tell them
there are no good solutions to the crisis. There must be more fiscal
union." She adds, "Ultimately, that will happen. She will say there
has to be deeper fiscal and political union and probably a euro bond."

But that is for the medium term, over the next two years. The short
term for the euro zone is a more difficult proposition. Simon Tilford
says, "The euro is unlikely to be in its current form in 12 months."
He expects some countries to abandon the currency.



Stephen Gallo, head of market analysis at London's Schneider Foreign
Exchange, does not see the situation as that bleak. He expects the
European Financial Stability Facility to be ratified by all euro zone
countries. "When they do that they will buy themselves time." He adds
that the euro zone can "absorb a Greek default ... and possibly that
of Portugal" in order to protect its core countries.

Then he expects the markets to turn to "the biggest elephant in the
room — U.S. debt."

[Abhinav Choudhry]

The article makes it even clearer the consequences of imbalance in
economies. It is amazing. At one stage banks go out of the way to lend
money imprudently, the gains of which are shared by some people. Then
later on, in case of a debt crisis, the country as a whole is
castigated and everyone bears the losses. Private gain, public losses.
That is where the Greek protests echo the grievances of
OccupyWallStreet.

http://www.washingtonpost.com/wp-dyn/content/article/2010/05/20/AR2010052005278.html

Forget Greece: Europe's real problem is Germany

By Steven Pearlstein
Friday, May 21, 2010
Ground zero of Europe's debt-currency-banking crisis isn't in Greece,
or Portugal, or Ireland or even Spain. It's in Germany.

So says Martin Wolf, the estimable economics columnist of the
Financial Times, who this week offered this wonderfully concise, if
somewhat mischievous, description of how the vaunted German economic
machine really works:

At one end is a powerful and highly efficient industrial export engine
that generates a large trade surplus with the rest of the world,
including most other countries in the eurozone. Instead of spending
this new export wealth on a higher standard of living, however,
parsimonious Germans prefer to save it, handing it over to thinly
capitalized German banks that have proved equally efficient in
destroying said wealth by investing it in risky securities issued, not
coincidentally, by trading partners that need the capital to finance
their trade deficits with Germany. To prevent the collapse of those
banks, German taxpayers are dragooned into using what remains of their
hard-earned savings either to bail out their hapless banks or their
profligate trading partners.



We Americans, of course, know all about this rather perverse form of
economic recycling. It describes what happened in the 1980s with Japan
and more recently with China. And to a lesser degree, it describes our
economic relationship with Germany, whose banks and insurance
companies were big buyers of American subprime mortgage securities and
commercial property. It's what inevitably happens when a large,
productive country tries to run a "mercantilist" economic policy
predicated on running large and persistent trade surpluses.

Normally, what should happen to such a country is that, as a result of
its trade surplus, wages rise, along with the value of its currency,
to reflect its new wealth and productivity. That has the effect of
making those exports less competitive while encouraging workers to
spend their increased income on cheaper imports. And in that way, the
system brings imports and exports more into balance.

That rebalancing, however, hasn't happened in Germany. It hasn't
happened because much of Germany's trade surplus is with other
European countries with which it shares a common currency, so the
currency can't adjust. It hasn't happened because Germans, by their
nature, are eager to save and reluctant to spend their newfound wealth
on imported goods and services. And it hasn't happened because the
European Central Bank, driven largely by German economic rectitude and
fear of inflation, has followed a tight monetary policy that has
reduced growth and discouraged domestic consumption and investment.

But that's not how most Germans see things. They look at the current
crisis and blame their spendthrift Mediterranean neighbors for using
the cover of the euro to rack up public and private debts that they
now cannot support. They blame hedge funds and other speculators for
making a bad situation worse and profiting from other people's misery.
And they are furious that they are being told by their leaders that
they have no choice but to bail everyone out.

What Germans won't accept is that they wouldn't have been able to sell
all those beautifully designed cars and well-engineered machine tools
if Greeks and Spaniards and Americans hadn't been willing to buy those
goods and German banks hadn't been so willing to lend them the money
to do so. Nor will they accept that German industry was able to thrive
over the past decade because of a common currency and a common
monetary policy that, over time, rendered industry in some neighboring
countries uncompetitive while generating huge real estate bubbles in
others.

The danger of Germans misunderstanding the causes of the current
crisis is that it leads them, and the rest of Europe, to the wrong
solutions.

While European governments surely have long-term structural budget
problems, the immediate fiscal challenge comes from the decline in tax
revenues and the increase in transfer payments that result from slow
growth and high unemployment. The right policy response to that --
along with the very real threat of price deflation in Europe -- isn't
to put the entire continent in a fiscal straitjacket that makes the
recession even worse. The immediate need is for the European Central
Bank to deliver additional monetary stimulus in the form of lower
interest rates and direct purchases of government bonds. The reality
is that the price of avoiding a dangerous deflationary spiral in
Greece and Spain is allowing inflation in Germany to rise to 3 or 4
percent.

It's also time to give up the fiction that Greece can avoid a default.
It can't -- nor should taxpayer money be used to prevent banks and
other private-sector bondholders from suffering losses on their unwise
investments. If public money is used, it should be as a sweetener for
a "voluntary" restructuring in which bondholders are invited to swap
old bonds for new ones that have a lower face value but are insured
against default by the European Union. The same tack could be used
with the bonds of other countries facing insolvency.

Such a restructuring not only reduces the problem of moral hazard, but
it also avoids forcing countries into the kind of grinding depression
and deflation that, as with Greece, would inevitably result in a
default. And if it turns out that losses from the restructuring
threaten the solvency of some European banks, as is feared, then the
E.U. could use proceeds from its new bank tax to inject fresh capital
into failing banks in way that dilutes existing shareholders and gives
taxpayers the chance to earn a profit if and when the banks recover.
That strategy worked in the United States, and there's no reason it
can't work in Europe.

In the long run, the eurozone won't be fixed until Germany figures out
how to generate growth and wealth without beggaring its neighbors and
its trading partners. As Finance Minister Wolfgang Schauble
acknowledged this week in an interview with the Financial Times,
Germany has become so prosperous "because it has more advantages from
European integration than any other country." Unless Germans can find
a way to share that prosperity, other countries may conclude that the
price of membership to its club is just too high.