The Great Debate UK
from The Great Debate:
The news that Greek-style yogurt maker Chobani is looking to sell a minority stake that would value the company at around $2.5 billion should in theory be a big boost for Greece’s beleaguered dairy industry.
But instead, the main beneficiary will be Chobani’s Turkish founder, who operates the company in upstate New York, and who has proved to be innovative in a way that Greek dairy farmers are not. In fact, they are so stuck in their traditional ways that it’s actually illegal in Greece to call low-fat yogurt “yogurt.” Any variant that contains additives of any sort must be labeled “dessert of yogurt,” which is akin to waving a warning flag at consumers.
That sort of rigid regulation is the norm in Greece, and not just in agriculture. Examples abound. There’s a rule dating back to the 1970s that prohibits producers of apple vinegar from packaging it in anything other than one liter bottles. Another set of regulations, this time from the 1980s, outlaws bulk sales of mayonnaise and the import of some types of cloves. Supermarkets are prohibited from selling aspirin. Fresh milk is required by law to have a shelf life of just five days. As for olive oil, one of the staples of the Mediterranean diet and an important source of revenue for the Greek economy, producers are strictly forbidden from blending it with vegetable oil for domestic consumption. The rationale: olive oil is at the core of the Greek diet, and the health of the population is at stake.
These rules are among the hundreds of restrictive business practices in Greece that a team from the Organisation of Economic Cooperation and Development identified last year, as part of an 11-month investigation commissioned by the Greek government. In its report the OECD made 329 recommendations for rules that should be changed to open up competition and give a much-needed boost to the economy.
from The Great Debate:
Driven by its bailout loan terms, the Greek Parliament recently voted to lay off 25,000 more public employees. The public has responded with demonstrations while striking public sector workers try to disrupt air and rail travel, law enforcement and medical care.
How did Greece get to this point, where creditors dictate what jobs the government should cut as a condition for continued bailout loans, and where its outraged citizens take to the streets? What are the chances that Conservative Prime Minister Antonis Samaras’ newest plans to fire or cut salaries of thousands of government employees will work?
from Nicholas Wapshott:
In the nearly five years since the worst financial crash since the Great Depression, the remedy for the world’s economic doldrums has swung from full-on Keynesianism to unforgiving austerity and back.
–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–
You will often have heard it said that the euro zone cannot ultimately survive without fiscal union. This is complete nonsense. The truth is that, even with a full fiscal union, it cannot survive – at least, not with any form of fiscal union that one can imagine all the members signing up to.
By Laurence Copeland. The opinions expressed are his own.
Whenever the question of the future of the euro zone comes up, you can always rely on someone (often a German) to say something like “Yes, of course the Germans don’t like having to foot the bill for the weaklings… but at the same time, they do get enormous benefits from having a fixed exchange rate. I mean, just look at their trade surplus. All those Mercs and BMW’s you see in Milan and Athens and…”
This argument is utter nonsense, and the economists especially ought to know better.
from The Great Debate:
Financial conditions in the euro zone have significantly improved since the summer, when euro zone risks peaked because of German policymakers’ open consideration of a Greek exit, and the sovereign spreads of Italy and Spain reached new heights. The day before European Central Bank President Mario Draghi’s famous speech in London in which he announced that the ECB would do “whatever it takes” to save the euro, bond yields in Spain and Italy were at 7.75 percent and 6.75 percent, respectively, and rising. When the ECB announced its outright monetary transactions (OMT) bond-buying program, the euro zone was at risk of a collapse.
Since then, risks have abated significantly, thanks to a number of factors:
The ECB’s OMT has been incredibly successful in reducing the risks of breakup, redenomination and a liquidity/rollover crisis in the public debt markets of Spain and Italy. Although the ECB has yet to spend a single additional euro to buy the bonds of Spain and Italy, both short-term and longer-term sovereign spreads against German bonds have fallen substantially.
Following a number of political and legal hurdles, the successful operational start of the European Stability Mechanism (ESM) rescue fund provides the euro zone with another €500 billion of official resources to backstop banks and sovereigns in the euro zone periphery, on top of the leftover funds of its predecessor, the European Financial Stability Facility (EFSF).
Realizing that a monetary union is not viable without deeper integration, euro zone leaders have proposed a banking union, a fiscal union, an economic union and, eventually, a political union. The last is necessary to resolve any issue of democratic legitimacy that might result from national states transferring power from national governments to EU- or euro zone-wide institutions. This transfer of power also would have to involve the creation of such institutions to ensure solidarity and risk-sharing are developed in the banking, fiscal and economic unions.
The open talk in the summer by some German authorities about an exit option for Greece has turned into a tentative willingness to prevent and postpone such an exit. There are several reasons for this. First, Greece has done some austerity and reforms in spite of a deepening recession, and the current coalition is holding up. Second, an orderly exit of Greece is impossible until Spain and Italy are successfully isolated. Such an exit would lead to massive contagion, which would hurt not only the euro zone periphery but also the core, given extensive trade and financial links. Third, an economic disaster in Greece would be damaging to the CDU Party’s chances of winning the German elections. Thus, even when Greece inevitably underperforms on its policy commitments, Germany and the troika (the IMF, EU and ECB) will hold their noses and keep the funds flowing as long as the current coalition holds up.
Given these developments, the risk of a Greek exit in 2013 has been significantly reduced, even if the risk of an eventual Greek exit from the euro zone is still high, close to 50 percent by my estimation. Meanwhile, the narrowing of Spanish and Italian sovereign spreads has significantly diminished the risk that either country will fully lose market access and be forced to undergo a full troika bailout like Greece, Portugal and Ireland. Both Spain and Italy may in 2013 opt for a memorandum of understanding (MoU) that opens the taps of ESM and OMT support, but such official financing would inspire confidence as it would not be associated with rising, unsustainable spreads and a loss of market access.
from Hugo Dixon:
Investors have been obsessed with the notion of “Grexit” - Greece’s exit from the euro. But “Brexit” - Britain’s exit from the European Union - is as likely if not more so. The country has never been at ease with its EU membership. It refused to join its predecessor, the European Economic Community, in 1957; it was then blocked twice from becoming a member by France’s Charles De Gaulle in 1960s; and shortly after it finally entered in 1973, it had a referendum on whether to stay.
The euro crisis has put further pressure on this difficult relationship. David Cameron’s Conservative Party, the governing coalition’s dominant group, delights in pointing out the flaws in the single currency. The party’s eurosceptics feel vindicated because they have long believed that monetary union was only possible with political union.
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.
The upcoming elections in Greece have gained added significance in recent weeks. It’s not just the Greek people choosing their next leader; it is also being presented as a referendum on euro membership. Either vote for a pro-bailout party and stay in the euro zone or vote anti-austerity and you’re out. But is the outcome of the vote really that clear cut? Although three quarters of Greeks want to remain in the euro zone, 80 percent want the terms of their second bailout to be re-negotiated. The elections might not be such a foregone conclusion after all.
It’s worth looking at the two potential “choices” currently being presented to the Greek people. If they choose a “pro-bailout” party that doesn’t mean that champagne corks will be popped in Berlin. Those in power in Athens need to answer to the electorate who will have given them a mandate to challenge Germany and its insistence on tough fiscal reform in return for bailout cash. So if Europe’s authorities think that the election of New Democracy (one of the parties who pledged to stick to fiscal reform post the election) is enough to keep Greece on the fiscal straight and narrow, think again.
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.