The Great Debate UK
The emergency numbers are ringing. Greek 10-year debt yields are ballooning to well over 8 percent. The country cannot sustainably finance itself. The debt of other troubled euro zone countries -- Portugal, Spain, Ireland and Italy -- is vulnerable to contagion. Help for Greece from the International Monetary Fund and European Union can't come too soon. But the probable rescue must be a spur not a salve, in Greece and outside it.
Germany is reluctant but the EU's hand is being forced by the markets. The much-discussed help must surely come. The IMF will begin supervising Greek economic policy. But the task of making the country solvent looks immense.
The Eurostat statistical office has just revised up Greece's 2009 fiscal deficit to 13.6 percent of GDP. The deficit before interest payments, the so-called primary deficit, was 8.5 percent of GDP. The primary position must move to a substantial surplus of, say, 4 percent of GDP to prevent the debt burden, already 115 percent of GDP, from spiralling further.
A 12 percentage point of GDP improvement in the government's finances is almost unthinkably big. It doesn't help that Greece can't devalue to help its exports and tourism, nor that Greece is already troubled by protests against austerity. The market may doubt Greece can make it, even with help. The fear of default, high yields and contagion risk may all persist.
- Andrew Wileman is a independent business consultant and writer, most recently writing about cost management in the private and public sectors in “Driving Down Cost” (Brealey Publishing). The opinions expressed are his own. –
“We only need to cut cost because of the credit-crunch crisis.”
No, there is a deep structural problem that was there before the crunch. The public sector has been driving up its share of GDP for decades, in the UK, the U.S. and almost all advanced western economies. Its momentum will be painful to slow down, let alone reverse. This underlying trend was concealed in the nineties and noughties (when the talk was of “the end of big government”) by a debt-bubble-fuelled growth in the private sector. In the UK, we are already over a 50 percent state share of GDP.
from Global News Journal:
The 16 countries that share the euro single currency have agreed they will help Greece out if it needs. So far so good. But only now is the nitty-gritty of how member states will go about paying for their contributions being hammered out. And suddenly things are getting a little complicated.
Italy announced on Tuesday it would have to issue government bonds -- known as BTPs -- to raise funds for its part in any Greek assistance.
By Rob Cox and Agnes T. Crane
Greece may be enviable as the ancient cradle of democracy -- but no country wants to emulate its contemporary fiscal troubles.
Markets are exacting a heavy price for the Hellenic Republic's budget woes. Yet the Mediterranean archipelago is hardly the only country that would fall into crisis if creditors lost faith. Indeed, the government of the United States is running a deficit of Greek proportions, although its total debt load is much less frightening.
A week ago we ran a post on MacroScope noting, in part, that Britons have a strange relationship with the euro, sometimes bordering on disbelief that it exists at all. Some new numbers from the monthly Bank of America Merrill Lynch fund managers poll underline the extent of UK scepticism compared with that of others.
For two months, BofA Merrill has asked fund managers around the world what they think will eventually happen as a result of the Greek debt crisis. Four choices are on offer:
from Global News Journal:
So there's no question Greece has work to do to improve its bookkeeping.
Not only must it get spending in check, but it needs to be a bit more honest about where its finances stand in the first place. After all, it's not often an EU country says one month that its budget deficit is a little over three percent of GDP and admits a few weeks later that, oh dear, it's actually nearer 13 percent.
Yet it's hard not to have a little sympathy for Greece at the same time.
Its government bonds have been hammered and the price it has to pay to finance its debt has soared as financial markets have relentlessly taken it to task over the past six weeks for its profligacy.
- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -
As the G20 ministers gather for their meeting this week, there should be no doubt about the item at the top of the agenda: the re-entry problem. At what point should the expansionary monetary and fiscal policy of the past year be reversed? And, if the answer is “not yet”, how soon does the re-entry plan need to be announced?
In a perfect world, we would simply ban leveraged buyouts. The vast majority of these debt-laden corporate takeovers are no less predatory and value-destroying to a company than a loan shark who charges usurious rates of interest.
Realistically, a prohibition on private equity deals will never happen, given the big dollars involved in these transactions and the sizeable campaign contributions that private equity chieftains shower on politicians from both parties.
Last month, the mining group disposed of its stake in Africa’s largest aluminium processor, Hulamin for a total of $150 million.
Tuesday, May 12 was just another day in the twilight zone that is the market for bank debt and preference shares. As usual, that day’s dividends were paid on time, including the one due on Lloyds Banking Group 6.0884 percent preference shares.