Updates on Greece

The situation in Greece remains fluid, so to speak. As an update to yesterday's and last week's missives on Greece, here are links to a number of recent media reports.

The English language version of the report in German news magazine Der Spiegel which we mentioned yesterday has now become available:

Der Spiegel: 'EU Should Admit that Greece Will Need Debt Cut'

The Wall Street Journal also reports that the German government is slowly but surely moving toward 'Greek bailout number three'.

WSJ: “German Lawmakers Shift Toward Extending Greek Aid

As everybody knows, 'more time means more money' in this case. The opponents seem already resigned to where all of this is inexorably going. A quote:


“Bundestag members might not be happy about bigger loans for Greece, but "nobody wants to endanger the current calm in financial markets," said Tilman Mayer, a political scientist at Bonn University. The stalwarts against aid for Greece within the coalition have been unable to attract new recruits, he says.

[…]

"I'm not going to vote for it," said Frank Schäffler, a Free Democrat lawmaker who has voted against every previous Greek aid measure. But he is resigned to other coalition members, including the chancellor, granting Greece more money despite their past promises. "That's how politics works. People say pretty things," he says.”

 

(emphasis added)

We could think of a slightly harsher way of putting it: you immediately know when a politician is lying – his lips are moving.

 


 

Angela Merkel has a razor-thin majority in parliament – requests for more Greek aid usually require opposition support.

 


 

Meanwhile, Greece's finance minister has let it be known that the 'old boys' in the government coalition will ignore their junior partner's refusal to vote for the labor reform package and intend to ram the measure through with or without the Democratic Left after all:

 

 

 

 

 

 

 

 


 

Reuters: “Greece to vote on labor reform despite coalition split


“Samaras's government is still hoping the party, led by moderate leftist Fotis Kouvelis, changes its stance, but was prepared to move ahead without its support, a government official said.

"From the government's side we want to be ready on everything relating to the budget, reforms … with or without Kouvelis's agreement," the official said.


The Reuters article inter alia mentions a point we discussed yesterday as well: this could endanger the coalition and lead to defections by MP's. In that sense, it it takes guts to go through with the vote. We believe that this is the right decision though, even if it is politically difficult. Much needed reforms are always 'politically difficult' after all.

 

Italy – Back in the Headlines

First there were large 'anti austerity' and therefore 'anti-Monti' demonstrations in Rome. They even called it the 'No Monti Day'. 

Reuters: Tens of thousands protest against austerity in Rome

If one reads between the lines of the article, the protest was evidently organized by unions who primarily want to roll back labor reform, and organizations to the left of them.

The photo below sported the caption  “a range of protesters from communists to academics mounted a demonstration...”, which means in short that the reds were marching. As one can immediately see, as it were:

 


 

Reds on the march against 'austerity'.

 


 

We have been critical of the measures introduced by Monti's government as well. His austerity measures were weighed way too heavily toward tax hikes, in an attempt the preserve the size and scope of the State (Monti as a life-long professional bureaucrat apparently cannot really conceive of a smaller State). But that is not what these people are protesting against – they want to see the minimal spending cuts reversed as well as what were at best halfhearted labor reforms.

Italy is at this stage way behind in terms of regaining its competitiveness compared to other 'PIIGS' members. Its large private savings are a counterweight to the government's indebtedness, but there cannot be any economic growth unless more radical free market oriented reforms are undertaken – which are of course anathema to the communists, the unions  and their sympathizers.

It is all the more strange that Silvio Berlusconi, who has just been sentenced to four years imprisonment in one of the countless corruption scandals he is involved in, and who has let it be known that he won't stand for office in the upcoming election, announced that

 “Italy's centre-right may withdraw confidence in Monti” (Reuters)

That would undoubtedly shake the markets out of their current complacency regarding Italy. It is not too surprising that Monti keeps putting pressure on Spain's prime minister Rajoy to apply for ESM aid. He presumably calculates that once the ECB begins to intervene, Italy will be spared unwelcome attention by the markets.  That may actually be a miscalculation.

 


 

Bouncing along an area of lateral support: Italy's 10 year government bond yield – click for better reolution.

 


 

Meanwhile, many Italians are beginning to learn German, just in case.

 

Spain – Economic Contraction Still Severe

First it was reported that Spanish retail sales collapsed by nearly 11% year-on-year, with the decline seen mainly as a result of recent VAT hikes:

Reuters: “Spain: retail sales decimated by VAT hike

 

“Sales fell 10.9 percent year on year, Monday's National Statistics Institute data showed, reflecting an economy struggling through its second recession in three years and plagued by chronically high unemployment.

The drop was the biggest in calendar-adjusted terms since current records began in January 2004, and marked the 27th monthly decline in a row.

That figure is expected to rise further as a large public deficit forces the government to implement deeper spending cuts and further tax hikes to persuade markets it can control its finances. It increased sales tax on September 1. "It's clear there are no signs the crisis is abating," economist at Nomura Silvio Peruzzo said.

 

(emphasis added)

It is actually not quite true that there 'no signs that the crisis is abating' as we noted in yesterday's chart update. A few signs do exist, but they are subtle and not making headlines.

However, more bad news poured forth today – even if they were not unexpected:

Bloomberg: Spain's Contraction Continues as Inflation Grows

A slightly better than expected GDP contraction was accompanied by pretty high CPI inflation of 3.5% – a toxic cocktail. Spain's 'misery index' is off the charts.


Gross domestic product declined 0.3 percent in the three months through September, compared with 0.4 percent the prior quarter, the National Statistics Institute said today. That compared with the Bank of Spain’s estimate on Oct. 23 of a 0.4 percent contraction. Consumer prices, rose 3.5 percent from a year earlier, Madrid-based INE said.”



 

Spain's economic performance has been dismal for quite some time (data via INE).

 

 


 

Bloomberg reports on the 'bailout split' between Monti and Rajoy, with the former trying to push the latter to make haste and go for it:

Bloomberg: “Rajoy Faces Bailout Split With Monti at Madrid Meeting

As we mentioned above, we believe this may be a miscalculation on Monti's part: once Spain applies for aid, Italy will almost automatically be next on the market's list of problem countries to focus on. As long as market participants are 'waiting for Spain',  they're apparently not looking for potential trouble elsewhere in the euro area.


FROB Issues Bad Bank Details

Meanwhile, on the positive side of the ledger, it appears that the discounts that will be applied to assets Spain's 'bad bank' will take over are going to be realistic and very harsh. It is always a good thing when unsound credit is written down to its true value, especially considering that Spain's banks are past masters at 'extend and pretend' schemes. The details announced by FROB can be seen here (pdf).

 

ECB – 'Der Spiegel' Interviews Mario Draghi

'We couldn't just sit back and do nothing', so ECB president Mario Draghi in an interview he gave to German news magazine 'Der Spiegel'. There were no earth-shattering new revelations in this interview, but the news magazine at least tried to ask Draghi a few uncomfortable questions.

However, it must be pointed out again that the slick and eloquent central banker knows how to handle such questions with aplomb. When put on the spot with a perfectly reasonable question like: 'Why should it matter if rates are higher in Spain than elsewhere?' he argues that the ECB has 'evidence' that the scale of the differences is 'not normal'  –  the details regarding such evidence can of course not be explained in an interview (it comes down to 'trust us').

We are still waiting for a well-read reporter to sally forth and confront a central banker with the fact that the entire 'stability policy' – which aims to increase the mythical 'general price level' by 2% per year – is actually extremely dangerous nonsense, even if it is 'mandated'.

Has no-one looked at money supply and credit growth in the first decade of the euro's existence? And if one does look at it, must one not inescapably conclude that something has gone very wrong? Putting this question differently: how can an increase in the money supply of more than 130% in ten years be expected to do anything but enormous structural economic damage?

Link: Draghi Interview

 

 

Charts by: bigcharts, WSJ, Reuters, INE


 

 

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3 Responses to “Tidbits, Euro Area”

  • RedQueenRace:

    I don’t want to be a grammar PITA but there is one item that I initially dismissed as a typo when I first encountered it some time back, but that keeps repeatedly showing up in articles. It is the use of adverb / conjunction “so” where some form of the verb “say” appears to be the correct word. It has occurred in this post and another very recent one, in addition to others. It may be an artifact of translation software.

    In this post it showed up in:

    “‘We couldn’t just sit back and do nothing’, so ECB president Mario Draghi in an interview he gave to German news magazine ‘Der Spiegel’.”

    I believe “so” should be “said.”

    In “Has Deutsche Bank Been Fudging its Numbers?” it happened again as shown below.

    “According to Hein’s analysis, the investment banking unit’s compensation costs were not properly accounted for. Since 1999, so Hein, the unit has not even earned its cost of capital.”

    Again, it would appear “so” should be “said.”

    • Crysangle:

      So say translation software says so , but so is said say those who say so , and those who say said are saying so .

      Said say translation software so said , but said is so say those who say said, and those who say so are saying said.

      1000 . No decimal places or fractions , a constant 1000 X error by google tr. . Translate ‘billones’ from Sp. to En. and the translation given is ‘billions’ , not even ‘Spanish billion’ which happens to mean a trillion in English , but simply billions .

    • Not the fault of a translation software – it is my own doing. I can tell you where I picked it up. It is a manner of referring to the speech of third persons Thomas Bernhard used in his books. For instance, in ‘Gehen’ (‘Walking’) the narrator tells the story of the day when Oehler, whom he walks with, walked with Karrer and Karrer lost his mind. Oehler tells the story to the narrator, who relates it to us. Frequently there are passages where Oehler tells the narrator of something Karrer said, either to him or to someone else. That reads for instance as follows: ‘These trousers’, so Karrer, says Oehler to me, ‘are by no means of excellent British quality. These trousers are substandard Czechoslovakian rejects. When Rustenschacher holds these trousers in front of me”, so Karrer, says Oehler, “then I can see Rustenschacher’s face through them with a clarity with which I really don’t want to see it”, etc.etc.
      I know it sounds a bit funny….

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