The Great Debate UK
from Anatole Kaletsky:
This week’s theatrical resignation threat by Manuel Valls, the French prime minister, combined with deep European anxiety about deflation, suggest that the euro crisis may be coming back. But a crisis is often an opportunity, and this is the hope now beginning to excite markets in the eurozone.
Investors and business leaders are asking themselves three questions: Will European governments and the European Central Bank recognize the unexpected weakness of the eurozone economy as an opportunity to change course? If they do, will they know how to grasp it? And will they be allowed to do what is necessary by the true economic sovereign of Europe, German Chancellor Angela Merkel?
First, the opportunity. Europe still has a chance to save itself from a Japanese-style lost decade of stagnation and deflation. And this may well be a last chance, because a lost decade in Europe could produce some very un-Japanese social rebellions and political upheavals. Europe, after all, lacks Japan’s social consensus, national unity and financial cohesion. It is far from clear that Europe could survive 10 years of recession without up the eurozone breaking up and even perhaps the European Union.
Second, what must Europe do to save itself from stagnation and disintegration? The obvious answer is to follow something similar to the “three arrows” program popularised (though not genuinely implemented) by Japan’s prime minister, Shinzo Abe. Abe’s “three arrows” were: aggressive monetary stimulus; fiscal easing requiring suspension of deficit and debt targets, and structural reforms to correct long-term weaknesses in both supply and demand.
–Darren Williams is Senior European Economist at AllianceBernstein. The opinions expressed are his own.–
Disappointing April data suggest that the European Central Bank is set to cut the refinancing rate at Thursday’s Council meeting. This is likely to have limited economic impact but could encourage expectations of more creative policy action later, helping to take some upward pressure off the euro.
from The Great Debate:
(The views expressed by former British prime minister Gordon Brown are the author's own and not those of Reuters)
The good news is that Europe is no longer going the way of Greece. The sad news is that it is threatening to go the way of Japan.
from The Great Debate:
The European crisis is no longer a European crisis. It is now everyone's. Unless Monday’s G20 summit in Mexico coordinates a concerted global action plan right now, we face a global slowdown that will also have a deep impact on the U.S. presidential election and even on China’s transition to a new leadership. This is the last chance.
The standard, but often empty, language of summit communiqués will simply not do when the euro area is finally approaching its own day of reckoning. Whichever way the Greeks vote in Sunday's election, a chaotic exit from the euro is becoming more likely: Its tax revenues are collapsing, not rising as promised. Unable to regain access to markets, Portugal and Ireland will soon have to ask for their second IMF programs. Sadly Italy – and potentially even France – may soon follow Spain in needing finance as the European recession deepens. Even German banks, which are some of the most highly leveraged, are not immune from needing more capital.
So we’ve got the fresh Greek elections we expected and markets, despite the inevitability that we would get here, have reacted with some alarm. European stocks have shed around 1 percent, and the harbour of German Bunds is pushing their futures price up in early trade. The Greeks will try to form a caretaker government today to see them through to elections expected on June 17.
The key question is whether the mainstream parties can mount a convincing campaign second time around, playing on the glaring contradiction in SYRIZA’s position (no to bailout, yes to the euro) and essentially turning the vote into a referendum on euro membership, which the overwhelming majority of Greeks still support. Don’t count on that. SYRIZA remains ahead in the polls.
To be able to pull it off, PASOK and New Democracy will need some help from Europe. There have already been hints from Brussels that if a pro-bailout government is formed, Athens could be given some leeway on its debt-cutting terms. But equally other voices are saying there is no more room for manoeuvre.
from Lawrence Summers:
By Lawrence H. Summers
The views expressed are his own.
In his celebrated essay “The Stalemate Myth and the Quagmire Machine,” Daniel Ellsberg drew out the lesson regarding the Vietnam War that came out of the 8000 pages of the Pentagon Papers. It was simply this: Policymakers acted without illusion. At every juncture they made the minimum commitments necessary to avoid imminent disaster—offering optimistic rhetoric but never taking steps that even they believed offered the prospect of decisive victory. They were tragically caught in a kind of no man’s land—unable to reverse a course to which they had committed so much but also unable to generate the political will to take forward steps that gave any realistic prospect of success. Ultimately, after years of needless suffering, their policy collapsed around them.
Much the same process has played out in Europe over the last two years. At every stage from the first signs of trouble in Greece to the spread of problems to Portugal and Ireland, to the recognition of Greece’s inability to pay its debts in full, to the rise of debt spreads in Spain and Italy, the authorities have played out the quagmire machine. They have done just enough beyond euro-orthodoxy to avoid an imminent collapse, but never enough to establish a sound foundation for a resumption of confidence. Perhaps inevitably, the gaps between emergency summits grow shorter and shorter.
By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The Greek crisis is fast descending into farce. The position of Germany, the euro zone’s main lender, is increasingly absurd. It is adamant that there will be no restructuring of Greek debt -- at least, until 2013. And yet it is equally insistent that Athens' private-sector creditors should contribute up to 30 billion euros to a new, 120 billion euro bailout. That would effectively amount to a half-cocked restructuring.
-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.-
Looking through the minutes of the Bank of England’s policy meetings for the past year, there are a couple of patterns that you see emerge. Firstly, that rates are on hold, and secondly, that the UK’s elevated inflation rate is temporary. Now the European Central Bank has joined the chorus. ECB President Trichet recently sounded confident that prices will moderate, even though consumer prices rose above the ECB’s target rate of 2 per cent in December.
-Jane Foley is research director at Forex.com. The opinions expressed are her own.-
The budget crisis facing the Greek government has drawn an array of comments and responses from various parts of the European Central Bank, the European Commission, the International Monetary Fund and the financial markets.
Juergen Stark , Germany's ECB executive board member, is well known as a true believer in tight fiscal discipline, so his reported comments in Italy's Il Sole 24 Ore about not bailing Greece out of its financial difficulties are not out of character. But the market reaction must have at least given pause for thought to EU leaders wondering how far to go in coddling their wayward child.
Within moments of Stark's reported musings that markets were "deluding themselves" if they thought member states would "put their hands in their wallets to save Greece", hitting the foreign exchange rooms, the euro was on a tumble. It hit a low of $1.4285 from a day's high of $1.4371 -- which doesn't sound like a lot, but is, especially over a very short period of time.