Re: New EC Thread

[Badboy]

IF EVERY BANK IN THE EUROZONE NEEDED BAILOUT,I THINK IT TAKE ALL THE MONEY IN THE WORLD AND MORE TO SORT OUT THE PROBLEMS.

[Panda]

IF EVERY BANK IN THE EUROZONE NEEDED BAILOUT,I THINK IT TAKE ALL THE MONEY IN THE WORLD AND MORE TO SORT OUT THE PROBLEMS.

Italy has a deficit of 2.3 TRILLION!!! Germany is reluctant to use their money for any more bailouts but there is no way she can carry on with her
austerity plan . The main aim is to go for growth but growth around the World has slowed down so I think they should let some of the smaller Spanish Banks fail to reduce the borrowing costs. Gordon Brown was quick to bail out Northern Rock and RBS , NR has just been sold at a big loss and RBS is
selling some of its assets .

[AnnaEsse]

Thanks AnnaEsse......Brilliant.!!!! It's like a Domino Effect, watching all these Countries seeking help. I do wonder what the Hell the EU was doing to
monitor the finances of the Euro Countries over the past 14 years. It was remarked today that Angela Merkel's attempt to get the rest of the World to
help out financially will be ignored. Her Parliament is unlikely to bail out any more countries and what exactly will these bail-outs achieve? Insermountable
debt , the downgrades by the agencies means their borrowing will be even more costly .

It really is a mess and hard to know where it will all end but Nick Farage is right and I noticed he got quite a lot of applause.

It looked as if those in attendance were mostly listening intently to what he had to say and he has been right for quite some time I think.

[Badboy]

Alot of greeks especially rich ones are leaving with their money very day(500 MILLION EUROS,I THINK)

[AnnaEsse]

Alot of greeks especially rich ones are leaving with their money very day(500 MILLION EUROS,I THINK)

I think I read it was closer to a billion.

[Badboy]

Alot of greeks especially rich ones are leaving with their money very day(500 MILLION EUROS,I THINK)

I think I read it was closer to a billion.

A GOOD QUESTION IS HOW MUCH MONEY IS STILL LEFT

[AnnaEsse]

Alot of greeks especially rich ones are leaving with their money very day(500 MILLION EUROS,I THINK)

I think I read it was closer to a billion.

A GOOD QUESTION IS HOW MUCH MONEY IS STILL LEFT

Greek Bank Run Update: Up To $1 Billion A Day Now

Yesterday, we did an update of the Greek bank jog, when noting that between €100-€500 million per day was being withdrawn from Greek banks based on Kathimerini reports. 24 hours later the jog has become a trot with the most recent estimate from Reuters now estimated at nearly double: "Combined daily deposit outflows from the major Greek banks have reached 500-800 million euros over the past few days, with the pace picking up as the election draws closer and rising noticeably on Tuesday, two bankers said." This is roughly $1 billion a day in the upper case, and a number that is approaching 0.5% of the entire documented €170 billion (now likely much less) deposit base.

Deposit outflows at smaller and medium sized banks were running at 10-30 million euros.



"This includes cash withdrawals, wire transfers and investments into money market funds, German Bunds, U.S. Treasuries and EIB bonds," said one banker, who spoke on condition of anonymity.



Fears that Greece may have to quit the single currency and return to a weak drachma have fuelled a steady stream of withdrawals by companies and businesses alarmed at the prospect of seeing the value of their deposits cut sharply.



The result of the election, called after a previous vote in May failed to produce a government, remains too close to call, with the conservative New Democracy party running neck and neck with radical leftist SYRIZA.



Both groups say they want Greece to remain in the single currency but SYRIZA has pledged to scrap a 130 billion euro bailout agreement signed in March which has imposed some of the toughest austerity measures seen in Europe in decades.

At the daily rate of doubling the "estimate" by Friday the trot will be an all out sprting and Greece will be experiencing a $4 billion in outflows. We wonder which banks will have any cash left at that point.

How much of this is fact, and how much pre-election rumormongering to scare people from voting against Syriza remains to be seen. Due to the polling moratorium it is impossible to get any grasp of which is the most popular party in Greece currently, even if the polls that had been released had the accuracy of an Excel random number generator.

http://www.zerohedge.com/news/greek-bank-run-update-1-billion-day-now

[Panda]

Most of these withdrawals are because of the election on Sunday but I think even if Greece leaves the Euro the problem of Spain and Italy, Portugal,
Cyprus, Ireland and Belgium will not be resolved .

At last Mervyn King is going to do something, he is going to make available £100 billion to help Banks must the money must be used to help small
businesses and potential home buyers. British Banks are owed billions by some Euro Countries.

[Panda]

http://news.sky.com/home/video/world-news/video/16247370

[AnnaEsse]

[Badboy]

GREEK GOVERNMENT SAYS IT ONLY HAS SUFFICENT MONEY RESERVES TO LAST UNTIL JULY 15.

I HAVE CALCULCATED(SP?) THAT GREEK BANK RESERVES ARE BELOW 160BILLION EUROS FROM A GUARDIAN ARTICLE(168.9 BILLION IN APRIL,5 BILLION WITHDRAWN IN LAST TWO WEEKS)

[Panda]

Handelsblatt, 15 June 2012


The day after the emergency aid to Spanish banks was released, on the eve of a crucial vote in Greece and with rumours of an appeal to the European Stability Mechanism (ESM) rife in Italy, Handelsblatt devotes a special edition to the ills of the old continent, asking: “What now, Europe?" Many economists and politicians in Germany and Europe – including the former head of Deutsche Bank, Josef Ackermann, former British Foreign Minister David Owen and British historian Timothy Garton Ash – share their vision of the crisis and their suggestions on how to get out of it.

To believe Torsten Rieke, editor of the opinion pages, and the daily’s own analyses, the continent is split in two: between the Europe of cultures that have converged, and the Europe of states in crisis – and the two cannot find common ground on what the solution to the crisis will be –


Europe is facing two crucial questions: can we succeed in providing a democratic basis for the common house of Europe – and do we even want it? And second: can a re-founded monetary union be the motor of European integration? The answers depend on each other – but to start with, we’re not ready for the United States of Europe. It also means we should wind down our ambitions for the euro.

Source profiles
Handelsblatt

Related

[Panda]

http://www.bbc.co.uk/news/business-18419873

This is a Video and news on Spain....interesting.

[Panda]

An electorate under surveillance


15 June 2012
To Ethnos Athens Comment13


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Alexis Tsipras: “It's my turn!” Antonis Samaras, “Hey, hands off!”

Ilias Makris


Never has a Greek population gone to the polls under such international pressure — at a level close to blackmail complains left-wing daily To Ethnos. Nonetheless, Athens’ partners have chosen their man — conservative Antonis Samaras — and not left-wing leader Alexis Tsipras.

Giorgos Delastik


There has never been anything like it in the history of modern Greece. In my 30 years of covering Greek and international politics, I have never seen anything resembling this foreign interference in Greek elections, which is yet further evidence of the humiliation inflicted on our country.

Now it seems that the most lowly leaders in the most insignificant countries in Europe have the right to tell the Greek population how to vote – something that would have never been tolerated before the country was placed in tutelage by the memorandum signed by George Papandreou and his associates.

It is hard for us to believe our eyes and ears when almost every day we read and hear German Chancellor Angela Merkel and her Finance Minister Wolfgang Schäuble command the Greek people to vote for Samaras and not for Tsipras. And they are not alone.

Backed up by the chorus of the pyramidal bureaucracy in Brussels, France’s socialist president François Hollande and Italian Prime Minister Mario Monti have demanded exactly the same thing, and their call has been re-echoed by all of the European institutions – the Commission, the ECB, the European Parliament – and the rest of the Eurozone.

Syriza in with a chance

Such is the result of the political hysteria that spread across the continent in the wake of the early general elections on 6 May, when the pro-memorandum parties suffered a massive decline in support which reduced their share of the vote from 80% to 30%. New Democracy, which topped the poll, scored less than 19%, while Syriza [the radical left coalition] became the country’s main opposition party with 16.8% of the vote.

In view of its performance on 6 May, Syriza can legitimately expect to be in with a chance of winning this election, and it is this outcome which has struck fear into the hearts of the Germans. Having said that, the main cause for concern is not what Tsipras intends to do if he becomes Prime Minister. What is troubling Berlin is the fact that a Syriza victory will pave the way for the first far-left government to take office in Western Europe since 1950.

It will mean that the left will once again come to the fore – and in a critical time of economic crisis. Following the end of “real socialism” in 1989 and the fall of the Eastern Bloc in 1991, the Germans and the other European leaders thought that they were permanently rid of the left.

Regardless of the policies that it may adopt, the Germans are now intent on doing all they can to prevent the formation of a left-wing government in Greece, and that is why they are crudely attempting to intimidate the Greek population into voting for Samaras.

“The real situation in Greece”

Never in his wildest or most paranoid dreams could Antonis Samaras have imagined that the German Chancellor along with the French President, the Italian Prime Minister and the President of the United States would be campaigning for him.

If, in spite of this international assistance, Antonis Samaras obtains the worst result – not counting the success of the party’s 19% score on 6 May – in the history of New Democracy, then these leaders can be proud of their political talents.

If the New Democracy result is still low, that is to say around 30%, even if the party tops the poll Samaras will have to accept conditions that may deprive him of the post of prime minister. However, this is a hypothesis which is of limited interest to the Greek people, at least for the moment.

Much more important is the Wolfgang Schäuble’s recent declaration to the effect that "the real situation in Greece, which is one of painful crisis caused by bad financial management, will not be altered by the result of the elections.”

[Badboy]

COMING UP ONM SKY NEWS LATER,1/3 OF GREEKS LIVING BELOW POVERTY LINE.

[Panda]

Bas van der Schot


Who should win the European football championship to save the single currency? Though some are hoping that victory would boost confidence in some countries, the real match-up – with all apologies to sports fans – is far from the pitches, warns SME.

Petr Schutz


The terminal stage of the crisis is giving not only Europe the shakes, but evidently some forecasters as well. An analyst at Amsterdam’s AMRO Bank describes the hinge that the future will swing on: “The fundamental thing, if the disease is not to spread to the core of the eurozone, is that it would be best if France won the Euro 2012 football championships. This would greatly revive confidence.”

Hmm. Probably he wished to say by this that while the lyrics of the Marseillaise are resonating through the streets, no one will think about heading down to start a run on the BNP Paribas and Société Generale... The question, though, is whether that faith would not be elevated even further if Germany were to win. While the fans – the voters – would be toasting the victory with wine and beer, the ECB would be quietly buying up truckloads of Spanish bonds.

And Merkel, a football fanatic (at the recent G8 meeting in Camp David, the leaders had to take a break while Bayern played Chelsea), would push eurobonds on the Bundestag. What about Greece? Would Tsipras – if they won Euro 2012 – sign off on the memorandum and budget surpluses till 2100 on top of it?

In something, however, the prognosis is prophetic. Though the big favourite to win Euro 2012 is Spain, the AMRO soothsayer expects nothing from a Spanish victory. The reigning consensus is that the country is at the point of no return. And it matters not whether Prime Minister Rajoy is right or wrong in claiming that his country is “collateral damage” of the chaos in the eurozone. Whether it is or not, the crux of the matter is that Spain is on the edge of a bailout.

“Pouring more money into a bottomless pit”

In the meantime, Barclays (and others) are warning that the country’s real estate market “is only half-way” down the road to collapse, and with a fall in prices of a further twenty per cent, which it seems nothing will stave off, “the financial sector will bleed to death.” Add in the highest unemployment in Europe, a fatal distortion of the labour market and debt held by both the private and non-financial sector at 200 percent of GDP, and it immediately becomes obvious, as the Financial Times commentator has long been saying, that “the question is not whether the Spanish economy will rebound in 2012 or 2013, but whether it can do it before the decade runs out.”

Sticking with football, Spain is past saving even if the Primera Division clubs pay the €750 million in back taxes (or benefits) that they owe the government. In Greece, the game is “only” about whether it manages to go bankrupt in an orderly way within the safety net for taxpayers in Europe, or whether it will spill over outside the euro area with consequences that have been calculated by some at one trillion euros and by others as open-ended – ‘infinite’. Still others, meanwhile, go about saying it’s not proper to put such a fright into everyone.

Merkel can no longer wriggle out from under the decision over whether the eurozone tears itself apart this beautiful summer or sweats on under its debt as a federation. And that will be more exciting than Euro 2012 and Bayern–Chelsea put together. While Germany’s Interior Minister (Hans-Peter Friedrich) declares Germany’s unwillingness to keep “pouring more money into a bottomless pit” and the joint head of the Bundesbank (Jurgen Fitschen) calls Greece “a failed State,” the most influential adviser, Bofinger, is arguing that “the Greeks have made the biggest fiscal correction in the postwar era; the reduction in the structural deficit is unique and, I think, excessive.”

Opinions are unsure and divided. The Chancellor is a convinced federalist, but she knows that if she were to shrink back now and give the nod to a pooling of debts, and to do so without a budget Czar in Brussels (i.e., in Berlin) Germany itself will be at the point of no return.

Translated from the Slovak by Anton Baer

[Panda]

Published: June 15, 2012





Carrefour, the giant French supermarket and retail group, said on Friday that it was selling its entire stake in Greece at a loss to its local franchise partner, so it could concentrate “on markets where it sees growth,” a spokesman said.

Coca-Cola’s operations in Greece were also downgraded by Moody’s Investors Service, which cited the increased likelihood that Greece could exit the euro zone. A day earlier, the French bank Crédit Agricole said it was ring-fencing its Greek operations to protect itself should that happen.

Two of the world’s largest import-export insurers, Euler Hermes and Coface, have recently refused to cover transactions involving companies in Greece, imperiling the import of basic goods.

Global businesses and investors are retreating both because of the uncertainty on whether they might be paid someday in a devalued currency, and because domestic consumption has plunged after three years of painful austerity.

Nearly a quarter of the people are out of work. Buying power has shriveled. Sales of clothing and pharmaceuticals have slumped, and even gas purchases are down as people drive less to save money. Companies short on cash have stopped paying one another.

Amid rows of unsold screws, drills and power tools at his hardware store here, Deodoris Diamadis is one of many Greeks awaiting elections that he hopes could bring much desired economic improvement.

“Commerce in Greece is down to almost nothing because of all the economic and political uncertainty,” Mr. Diamadis said grimly on a recent weekday as he watched the occasional customer flit in and out without buying anything. “We’re hoping that a new government will resolve this crisis.”

Those hopes are likely to be dashed, given the bleak outlook. Even the strongest parts of the economy are suffering badly. Tourism, which accounts for nearly 20 percent of all jobs in Greece, is expected to plunge by about 15 percent this year as dire headlines leave visitors uneasy about planning vacations. The shipping business here has been losing steam to China, and its profitability fading, especially in the last year.

“The economic international isolation of Greece is growing progressively day by day,” said Vassilis Korkidis, the president of the National Confederation of Greek Commerce.

Even if a new government wanted to remain in the euro, allaying concerns that the euro zone was breaking apart, it would have to satisfy the demands of the international community for financial aid. Though its coffers are running dry, the Greek government must find 15 billion euros in savings by the end of the month under the terms of its bailout.

The state power agency is warning of imminent electricity blackouts because it can’t pay its bills. And Gazprom, the Russian gas giant, has threatened to cut Greece off unless it is paid by June 22.

Alexis Tsipras, the left-wing leader who is emerging as a front-runner in Sunday’s elections on promises of repudiating Greece’s loan agreement, said in an interview Thursday that growth would mainly be restored by reversing the harsh austerity measures required by the international community for Greece’s bailout.

He promised initiatives to stimulate the economy, without specifying what those initiatives would be or where the money would come from — aside from taxing wealthy businesses and individuals more, collections that have failed repeatedly in this tax-evasive culture. Greece needs to get its finances in order, he added, “but if we annihilate growth while doing it, what’s the point?”

Global companies have been wary about the country for a while, but their concerns shot to new heights last month after Greeks voted in large numbers for Mr. Tsipras’s left-wing party, stoking fears that his willingness to tear up the country’s 130 billion euro bailout agreement could lead Greece to exit the monetary union.

Qatar recently froze a 5 billion euro investment because it wanted to see if Greece was staying in the euro, George A. Papandreou, Greece’s former prime minister, said in an interview.


Rachel Donadio contributed reporting from Athens.

New York Times 14/6/12

[Panda]

http://edition.cnn.com/2012/06/15/world/europe/europe-future/index.html?hpt=ieu_t2

This is a CNN Report, very interesting video.!!

[Badboy]

IT IS BEING SAID THAT THE REASON MANY GREEKS ARE WITHDRAWING MONEY FROM THE BANKS IS TO BUY FOOD TO STOCKPILE FOR AFTER THE ELECTIONS,METHINKS BECAUSE OF FEARS OF WHAT WILL HAPPEN AFTER THE ELECTIONS.

[Lioned]

Well the Greeks will be celebrating tonight.

I do admire the rather disfunctional nature of the Greeks actually.Very casual and laid back,seem to work when they feel like it and the men spend a lot of time sitting around drinking.

They have a lot of water mellons in Greece so they probably wont starve when it goes pear shaped !

[Panda]

Well the Greeks will be celebrating tonight.

I do admire the rather disfunctional nature of the Greeks actually.Very casual and laid back,seem to work when they feel like it and the men spend a lot of time sitting around drinking.

They have a lot of water mellons in Greece so they probably wont starve when it goes pear shaped !

All the more reason to let Greece default then Lioned instead of trying to prop up the country to keep the Euro . Same with Spain , how are they ever going to repay their debt? Maybe this is the time for a World Wide recession and out of the ashes will rise a more honest form of Government where
money will not be the prime consideration.

[Panda]

3:30am UK, Sunday June 17, 2012

Alistair Bunkall. business correspondent, in Germany

Germany, like the rest of Europe, will be watching the Greek elections closely with the knowledge that the wrong result could have an impact on their lives.
There is huge pressure on the German government to do more to help save the single currency, but Chancellor Angela Merkel knows that by doing so the German people might have to consider a decline in their living standards.

The question everybody here is asking themselves is: "How much is the euro really worth?"

"Up to a certain degree I can understand that Germany sends money to Greece but I think there have to be limits," a railway worker told Sky News.

:: Read more on the Greek election

"I don't know about the economic strength of Greece. I'm not sure if they will ever get out of their financial problems."

A factory worker we spoke to was more bullish: "I think we invest too much in Greece.



Chancellor Angela Merkel has some big decisions to make

"I think the people who live here need the money more than the Greek people who are lazy and lie about in the sun. I mean, we should help these people too but only up to a certain degree. What we give to them could be given to people here without work and to companies so people don't lose their jobs anymore."

In the steel town of Duisberg we came across Dirk Potocnik. He works as a road sweeper and has an extreme view of Germany's place in the single currency. He wants to revert back to the deutschemark.

"In Germany we have so many people without work and yet we give billions of euros to Greece.

"With the euro things became worse. Everything became more expensive and we, the people who live here, still think in deutschemark even though we pay in euros."



It is very easy to assume that Germany could just use the money it so obviously has to save Greece, Spain and the euro but it is not as simple as that.

For all its comparative wealth, Germany couldn't do it alone. And even if it could, how much does it want to? Their affluence is hard won, they got here by playing it safe and playing by the rules and they don't want to give it up.

And it isn't a country without its problems, without poverty. Politics always plays its part.

It is worth remembering that Ms Merkel faces tough elections next year - any decisions she makes now will have a bearing on the overall result of those polls.

But one rival politician explained to us that the Chancellor isn't afraid to act in Europe's interests, only that she does so right at the last minute when all other options have run out.

It is not quite the final minute for the euro but time is certainly running out.

If true to form, maybe Ms Merkel will choose to act now, for the greater good and regardless of what her electorate think.

[Panda]

Government austerity measures have been met with protests in many countries - but would young people be wise to encourage politicans to pay-off national debts now to avoid an even more miserable financial future? Continue reading the main story
Governments should be more honest about the size of their debts and young voters would be wise to get politicians to pay them off as soon as possible, says economic historian Niall Ferguson in the first of his BBC Reith Lectures.

The critics of Western democracy are right to discern that something is amiss with our political institutions. The most obvious symptom of the malaise is the huge debts we have managed to accumulate in recent decades, which - unlike in the past - cannot largely be blamed on wars.

According to the International Monetary Fund, the gross government debt of Greece this year will reach 153% of GDP. For Italy the figure is 123%, for Ireland 113%, for Portugal 112% and for the United States 107%.

Britain's debt is approaching 88%. Japan is the world leader, with a mountain of government debt approaching 236% of GDP - more than triple what it was 20 years ago.

Continue reading the main story
“
Start Quote
Society is indeed a contract. The state is a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.”
End Quote
Edmund Burke

Political theorist, writing in 1790

Now, often these debts get discussed as if they themselves are the problem, and the result is a rather sterile argument between proponents of "austerity" and "stimulus".

I want to suggest that they are a consequence of a more profound malfunction.

The heart of the matter is the way public debt allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn.

In this regard, the statistics commonly cited as government debt are themselves deeply misleading, for they encompass only the sums owed by governments in the form of bonds.

The rapidly rising quantity of these bonds certainly implies a growing charge on those in employment, now and in the future, since - even if the current low rates of interest enjoyed by the biggest sovereign borrowers persist - the amount of money needed to service the debt must inexorably rise.

Continue reading the main story
Past, Present and Future: Government debt as percentage of GDP
Country 2000 2012 2017
China
16.4
22
10.1

France
57.4
89
84.6

Germany
60.1
78.9
71

Greece
103.4
153.2
136.8

Ireland
37.5
113.1
109.2

Italy
108.5
123.4
118.9

Japan
140.1
235.8
256.6

Portugal
48.4
112.4
109.2

Spain
59.4
79
91.6

United Kingdom
40.9
88.4
86.8

United States
54.8
106.6
113


Source: IMF, April 2012 World Economic Outlook. Figures for 2012 and 2017 are estimates.

Eurozone debt web: Who owes what to whom?

But the official debts in the form of bonds do not include the often far larger unfunded liabilities of welfare schemes like - to give the biggest American schemes - Medicare, Medicaid and Social Security.

The most recent estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly thirteen times the debt as stated by the U.S. Treasury.

Notice that these figures, too, are incomplete, since they omit the unfunded liabilities of state and local governments, which are estimated to be around $38 trillion.

These mind-boggling numbers represent nothing less than a vast claim by the generation currently retired or about to retire on their children and grandchildren, who are obligated by current law to find the money in the future, by submitting either to substantial increases in taxation or to drastic cuts in other forms of public expenditure.

In his Reflections on the Revolution in France, published in 1790, Edmund Burke wrote that the real social contract is not Rousseau's contract between the sovereign and the people or "general will", but the "partnership" between the generations.

"Society," says Burke, "is indeed a contract. The state is a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born."

In the enormous inter-generational transfers implied by current fiscal policies we see a shocking and perhaps unparalleled breach of precisely that partnership.

Restoring the social contract

I want to suggest that the biggest challenge facing mature democracies is how to restore the social contract between the generations.

Continue reading the main story
“
Start Quote
It is surprisingly easy to win the support of young voters for policies that would ultimately make matters even worse for them”
End Quote
Niall Ferguson

But I recognise that the obstacles to doing so are daunting. Not the least of these is that the young find it quite hard to compute their own long-term economic interests.

It is surprisingly easy to win the support of young voters for policies that would ultimately make matters even worse for them, like maintaining defined benefit pensions for public employees.

If young Americans knew what was good for them, they would all be in the Tea Party.

A second problem is that today's Western democracies now play such a large part in redistributing income that politicians who argue for cutting expenditures nearly always run into the well-organised opposition of one or both of two groups: recipients of public sector pay and recipients of government benefits.

Continue reading the main story
The Rule of Law and its Enemies

Prof Niall Ferguson is an economic historian. He is Laurence A. Tisch Professor of History at Harvard University and senior fellow at Jesus College, Oxford.

For the 2012 Reith Lectures he will explore the role of man-made institutions in driving economic and political change around the world.

The first lecture will broadcast on BBC Radio 4 on Tuesday, 19 June at 09:00 BST and will be repeated on Saturday, 23 June at 22:15 BST

The lectures will also broadcast on the BBC World Service.

Listen via the Radio 4 website
Download Niall Ferguson's Reith Lectures
Download the Reith Lectures 1948 - 1975
Download the Reith Lectures 1976 - 2011

Is there a constitutional solution to this problem?

The simplistic answer - which has already been adopted in a number of American states as well as in Germany - is some kind of balanced budget amendment, which would reduce the discretion of lawmakers to engage in deficit spending, much as the practice of giving central banks independence reduced lawmakers' discretion over monetary policy.

The trouble is that the experience of the financial crisis has substantially strengthened the case for using the government deficit as a tool to stimulate the economy in times of recession.

Last year, following a German lead, continental European leaders sought to solve that problem by resolving to limit only their structural deficits, leaving themselves room for manoeuvre for cyclical deficits as and when required.

But the problem with this fiscal compact is that only two eurozone governments are currently below the mandated 0.5% of GDP ceiling - most have structural deficits at least four times too large, and experience suggests that any government that tries seriously to reduce its structural deficit ends up being driven from power.

Conservatism ain't cool

It is perhaps not surprising that a majority of current voters should support policies of intergenerational inequity, especially when older voters are so much more likely to vote than younger voters.

The Occupy Movement has galvanised young political activists all around the world
But what if the net result of passing the bill for baby-boomers' profligacy is not just unfair to the young - but economically deleterious for everyone?

What if uncertainty about the future is already starting to weigh on the present? It seems as if there are only two possible ways out of this mess.

In the good, but less likely scenario, the proponents of reform succeed, through a heroic effort of leadership, in persuading not only the young but also a significant proportion of their parents and grandparents to vote for a more responsible fiscal policy.

Continue reading the main story
“
Start Quote
We bay for tougher regulation, though not of ourselves”
End Quote
Niall Ferguson

As I have already explained, this is very hard to do. But I believe there is a way of making such leadership more likely to succeed, and that is to alter the way in which governments account for their finances.

The present system is, to put it bluntly, fraudulent. There are no regularly published and accurate official balance sheets. Huge liabilities are simply hidden from view.

Not even the current income and expenditure statements can be relied upon in some countries. No legitimate business could possible carry on in this fashion.

Continue reading the main story
Defining Government Deficit
A government deficit occurs when it spends more money than it receives in income.

Cyclical deficit occurs when the economy weakens during a recession and government income falls because of shrinking tax revenues and increased welfare spending.

When the economy improves, the cyclical deficit turns into a cyclical surplus.

Structural deficit is different from cyclical deficit as it occurs no matter how strong the economy is.

It is debt that has come about as a result of government borrowing. Countries are judged on their ability to pay off this debt on the basis of national debt relative to GDP.

If a country's debt-to-GDP ratio gets too high, investors will worry that the government will default on the debt. However, it is debt governments can try to control through lower borrowing, spending cuts and higher taxes.

The last corporation to publish financial statements this misleading was Enron.

There is, in fact, a better way. Public sector balance sheets can - and should be - drawn up so that the liabilities of governments can be compared with their assets.

That would help clarify the difference between deficits to finance investment and deficits to finance current consumption. Governments should also follow the lead of business and adopt the Generally Accepted Accounting Principles.

And, above all, generational accounts should be prepared on a regular basis to make absolutely clear the inter-generational implications of current policy.

If we do not do these things - if we do not embark on a wholesale reform of government finance - then I am afraid we are going to end up with the bad, but more likely, second scenario.

Continue reading the main story Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
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Glossary in full Western democracies are going to carry on in their current feckless fashion until, one after another, they follow Greece and the other Mediterranean economies into the fiscal death spiral that begins with a loss of credibility, continues with a rise in borrowing costs, and ends as governments are forced to impose spending cuts and higher taxes at the worst possible moment.

In this scenario, the endgame involves some combination of default and inflation. We all end up as Argentina.

There is, it is true, a third possibility, and that is what we now see in Japan and the United States, and maybe also the United Kingdom.

The debt continues to mount up. But deflationary fears, central bank bond purchases and flight to safety from the rest of the world keeps government borrowing costs down at unprecedented lows.

The trouble with this scenario is that it also implies low to zero growth over decades: a new version of classic economist Adam Smith's stationary state, with economic growth slowing throughout the Western world.

As our economic difficulties have worsened, we voters have struggled to find the appropriate scapegoat.

We blame the politicians whose hard lot it is to bring public finances under control, but we also like to blame bankers and financial markets, as if their reckless lending was to blame for our reckless borrowing.

We bay for tougher regulation, though not of ourselves.

The first of Prof Niall Ferguson's 2012 Reith Lectures will broadcast on BBC Radio 4 on Tuesday, 19 June at 09:00 BST.

Three more lectures will broadcast at the same time on June 26, July 3 and July 10. The programmes will also be broadcast on the BBC World Service and will be available to download.
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Global Economy

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Jun 17, 3:29 AM EDT

PARIS (AP) -- French voters are choosing a new parliament Sunday that will determine how far Socialist President Francois Hollande can go with his push for economic stimulus in France and around a debt-burdened, stagnant Europe.

The left is in the spotlight and expected to take the driver's seat of the 577-seat National Assembly after Sunday's second round of legislative elections.

Hollande's Socialists dominated the first round last week and pollsters predict they will win the most seats in the lower house. That would wrench it from the hands of former President Nicolas Sarkozy's conservatives, who have led it for a decade.

The French election campaign focused on local issues but it will determine this country's political direction, which has Europe-wide importance. France is the second-biggest economy in the eurozone and, along with powerhouse Germany, contributes heavily to bailouts to weaker nations and often drives EU-wide policy.

Sunday's decisive second round election comes after a hasty new bailout for Spanish banks, and the same day as crucial voting in Greece. The Greek elections may determine whether the country stays in the euro, with repercussions for all the other 16 countries that use the joint currency.

After budget-tightening in France under Sarkozy that leftists warned would send France back into recession, Hollande is pushing for government-sponsored stimulus to encourage growth - and has met opposition from German Chancellor Angela Merkel as the two try to stem Europe's crisis.

Hollande's Socialist government has pledged to reduce the deficit, but markets are worried about higher spending when France's debts are so high.

Hollande, a moderate and mainstream leftist who is committed to European unity, is hoping to get an absolute majority of 289 seats for the Socialists to avoid having to make concessions to the Euro-skeptic far left.

Voting started at 8 a.m. (0600GMT) in mainland France and the final polls close in big cities at 8 p.m. (1800GMT). Polling agency projections of the results are expected soon afterward, and official results are expected late Sunday night.

Political and personal intrigue - and the resurgent far right - marked the legislative campaign. The anti-immigrant National Front, which wants to abandon the euro and stop immigration, is wrangling for its first real presence in parliament in more than a quarter century.

Sarkozy's conservative UMP party is struggling to hold onto seats, and many candidates are angling for far-right votes to defy polls and win, or assure a respectable presence in parliament.

National Front leader Marine Le Pen has revamped the party to try to shed its reputation as racist and anti-Semitic inherited under party founder Jean-Marie Le Pen. Daughter Marine placed a solid third in spring presidential elections and its candidates ranked third in last Sunday's first round of parliamentary voting.

But the French parliament system is such that the party is not expected to get more than three or four seats.

Any candidate who won support of more than 12.5 percent of registered voters in the first round advanced to Sunday's runoff, and many districts have three-way races.

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EU Prepares for Greek Aftermath as Summit on Euro Looms

By James Hertling - Jun 16, 2012 11:23 PM GMT+0100
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Faced with Greek elections that threaten to result in only more disarray, European leaders are set to turn their attention to safeguarding the other 98 percent of the euro-area economy.

With investors and policy makers clamoring for clarity amidst what Bank of England Governor Mervyn King called a “black cloud” over the world economy, Europe’s chiefs are preparing for their fourth make-or-break summit in a year.





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A supporter of Alexis Tsipras, leader of Greece's Syriza party. international economy since the 2009 recession. A victory by Syriza, the party that promises to renege on Greece’s end of the bailout deal, could speed the nation’s exit from the euro. Photographer: Chris Ratcliffe/Bloomberg
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“They need to signal and make difficult decisions as to what they want the composition and functioning of the euro zone to look like,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., told Bloomberg Television June 15. “The current form doesn’t work. There’s too many flaws.”

Before descending on Brussels June 28, leaders first need to overcome differences on politics and policy. French President Francois Hollande hosted members of Germany’s opposition last week as he pushes plans, which German Chancellor Angela Merkel rejects, to jointly guarantee debt and provide stimulus to counter recession in the 17-nation bloc. Spain’s foreign minister said June 14 that Germany helped trigger the crisis.

“Investors outside Europe lack confidence -- we feel this every day -- in Europe and the euro area,” Merkel said in a June 15 speech in Berlin. “But there’s also a lack of trust among the different actors. That trust must be restored.”

Merkel at G-20

Merkel, whose role as leader of Europe’s biggest economy gives her an effective veto on crisis-fighting policy, gets down to business at the summit of leaders from the Group of 20 nations beginning tomorrow in Los Cabos, Mexico. Global leaders will probably press her to give ground on her austerity-first policy, as they did at the G-8 summit last month.

Merkel then meets in Rome on June 22 with Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy, seeking to find common ground before the EU and euro-area summits at the end of the next week.

“More important than the summit is the gathering of the big four,” said El-Erian. “They hold the key.”

The anticipation echoes the expectations that preceded gatherings last July 21, when a second bailout agreement for Greece was outlined; October 26, when bondholders accepted a Greek writedown and the euro rescue fund was beefed up; and Dec. 9, when new budget rules were adopted. None of those steps arrested the crisis.

Greek Gridlock

Today’s Greek elections carry the latest threat of stoking the turmoil, as polls show the anti-bailout Syriza party running neck-and-neck with New Democracy, which says a vote for Syriza risks a Greek euro exit. Polls also suggest no clear majority, bringing the prospect of further political gridlock.

The election is a week after Spain said it would seek a 100 billion-euro rescue for its banks, prompting concern Italy would be next to succumb.

“I don’t think the election results will determine the future of Europe, because I see scope for compromise from both sides,” Martin Blum, co-head of asset management at Ithuba Capital in Vienna, said in an e-mail. “I do think that contagion from Spain to Italy and the quality of the policy response at the EU summit will, however, be important in determining the future of Europe.”

The German chancellor gave a pair of speeches last week laying out her priorities for the Mexico summit that signaled she was staying the course.

‘Quick Solutions’

“Germany will not be persuaded of all those quick solutions such as euro bonds, stability bonds, a European deposit-insurance fund,” Merkel told small-business leaders in Berlin on June 15 to applause.

Since his election on May 6, Hollande has advocated moving toward euro bonds, echoing a position backed by Merkel’s domestic opposition and EU officials in Brussels.

“In the financial circles, few doubt that it makes economic sense to create a deep, liquid and stable market for government bonds with the joint issuance of public debt,” EU Economic and Monetary Affairs Commissioner Olli Rehn said June 15, according to the text of a speech prepared for a Goldman Sachs Group Inc. conference in Brussels that was closed to the press.

Monti has joined Hollande in calling for greater emphasis on policies that promote economic growth. On June 13, Monti said the summit needs to adopt a “credible package of growth measures” to reduce Italy’s borrowing costs.

Italy’s 10-year bonds yield reached 6.342 percent this week, the highest in almost five months, ending the week at 5.926 percent, 449 basis points more than comparable German debt.

Fiscal Union

The euro’s guardians will also debate a blueprint being devised that may chart the way out of the crisis and toward the full union that Merkel envisions. Drawn up by EU President Herman Van Rompuy, European Commission President Jose Barroso, Luxembourg Prime Minister Jean-Claude Juncker and European Central Bank President Mario Draghi, the plan may echo the euro’s 1989 roadmap set out by a panel led by then-European Commission President Jacques Delors.

“The important thing as far as we are concerned today is that this report in a sense spelled out a methodology,” Draghi told reporters June 6. “There was a road with dates, deadlines and conditions to be satisfied. I think that is part of the efforts that our leaders and we, ourselves have to draw up today.”

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