from Lawrence Summers:
It’s time for the IMF to step up in Europe
By Lawrence Summers The opinions expressed are his own.
European leaders will meet today for yet another “historic” summit at which the fate of Europe is said to hang in the balance. Yet it is clear that this will not be the last convened to deal with the financial crisis.
If public previews from France and Germany are a guide, there will be commitments to assuring fiscal discipline in Europe and establishing common crisis resolution mechanisms. There will also be much celebration of commitments made by Italy, and a strong political reaffirmation of the permanence of the monetary union. All of this is necessary and desirable, but the world economy will remain on edge.
Given that Europe is the largest single component of the global economy, the rest of the world has a stake in helping to avoid major financial accidents. It also has a stake in aiding continued growth in Europe and ensuring that the European financial system supports investment around the world – particularly as cross-border European bank lending dwarfs that of banks from any other region.
Now is also a historic juncture for the International Monetary Fund. The focus of the policy response to the crisis must now shift from Brussels and Frankfurt to the IMF’s boardroom.
From the problems of the UK and Italy in the 1970s, through the Latin American debt crisis of the 1980s, the Mexican, Asian and Russian financial crises of the 1990s, the IMF has operated by twinning the provision of liquidity with strong requirements that those involved do what is necessary to restore their financial positions to sustainability. There is ample room for debate about the precise policy choices the fund has made in the past. But, the IMF has consistently stood for the proposition that the laws of economics do not and will not give way to political considerations. At key points the IMF has offered prescriptions, not just for countries in need of borrowed funds, but also for those whose success is systemically important for the global economy.
Christine Lagarde, the head of the IMF, highlighted the seriousness of problems in Europe to members of the international financial community assembled in Jackson Hole in August. She pointed to capital shortfalls in the European banking system and the need for adjustment to be carried on in ways that were consistent with continuing growth. Now, the IMF needs to speak and act on several fronts.
The abyss and our last chance
By Carlo De Benedetti The opinions expressed are his own.
In a magnificent book published a few years ago Cormac McCarthy imagines a man and a child, father and son, pushing a shopping cart containing what little they have left, along a back road somewhere in America. Ten years earlier the world was destroyed by a nameless catastrophe that turned it into a dark, cold place without life.
There is no history and there is no future. But there is an objective: to head south toward the sea. Mythical places, only vaguely perceived, where there might be salvation. The father is getting older and is ever more weary. But he has the child with him. And he has his objective. He wants to take him southward to the sea. Toward a future that may still be possible.
Today, is the western economy, in particular the Italian economy, that world destroyed by an Apocalypse? Are we pushing that cart, containing the few things we have left, toward a mythical sea of which we know nothing, or even what it is like or where it is?
Re-reading the book I was tempted to think this. To think that those pages, written in 2006, were in some way a prophesy of what we are living through today. Never before has an entire productive system, our own, been so fundamentally questioned.
I have been convinced for some time now that the huge financial crisis of the last few years is the litmus test of a deeper crisis to do with the universal economic order that has lasted through the centuries, with a shift of the balance of world wealth toward new countries.
I think the way out of the crisis and out of the debt is easy.
LET´S STOP FINANCING F.E.:
- agricultural grants – let´s cut them to the half – or I see, there is France not willing to do that and start working properly,
- environmental issues – billions of euros so far and the result? China, India etc. producing even more, not caring about pollution – and we take there goods as it is of course cheaper then ours.
- minority issues – why do we spend so much money for minorities integration while these minorities are not even greatful to us for improving their lives? Let´s set the same rules for everyone and if someone doesnt want to respect them, let him-her deport immediately.
Let´s just be more selfish Europeans and give a stop pretending that we can save the world. If the rest of the world will not join us, our attempts will go in vain and our civilization will be killed – by ourselves.
Does the euro have a future?
By George Soros The opinions expressed are his own.
The euro crisis is a direct consequence of the crash of 2008. When Lehman Brothers failed, the entire financial system started to collapse and had to be put on artificial life support. This took the form of substituting the sovereign credit of governments for the bank and other credit that had collapsed. At a memorable meeting of European finance ministers in November 2008, they guaranteed that no other financial institutions that are important to the workings of the financial system would be allowed to fail, and their example was followed by the United States.
Angela Merkel then declared that the guarantee should be exercised by each European state individually, not by the European Union or the eurozone acting as a whole. This sowed the seeds of the euro crisis because it revealed and activated a hidden weakness in the construction of the euro: the lack of a common treasury. The crisis itself erupted more than a year later, in 2010.
There is some similarity between the euro crisis and the subprime crisis that caused the crash of 2008. In each case a supposedly riskless asset—collateralized debt obligations (CDOs), based largely on mortgages, in 2008, and European government bonds now—lost some or all of their value.
Unfortunately the euro crisis is more intractable. In 2008 the U.S. financial authorities that were needed to respond to the crisis were in place; at present in the eurozone one of these authorities, the common treasury, has yet to be brought into existence. This requires a political process involving a number of sovereign states. That is what has made the problem so severe. The political will to create a common European treasury was absent in the first place; and since the time when the euro was created the political cohesion of the European Union has greatly deteriorated. As a result there is no clearly visible solution to the euro crisis. In its absence the authorities have been trying to buy time.
In an ordinary financial crisis this tactic works: with the passage of time the panic subsides and confidence returns. But in this case time has been working against the authorities. Since the political will is missing, the problems continue to grow larger while the politics are also becoming more poisonous.
It takes a crisis to make the politically impossible possible. Under the pressure of a financial crisis the authorities take whatever steps are necessary to hold the system together, but they only do the minimum and that is soon perceived by the financial markets as inadequate. That is how one crisis leads to another. So Europe is condemned to a seemingly unending series of crises. Measures that would have worked if they had they been adopted earlier turn out to be inadequate by the time they become politically possible. This is the key to understanding the euro crisis.
I remember a friend many years ago telling me a story and it went like this. He was in a meeting with the Tax Office to discuss his outstanding taxes. He owed millions in taxes due to a failed commercial venture. The public servant tax officer at the meeting said to him “listen mate, you are in a lot of trouble unless you pay your taxes by “such and such a date”" and my client responded “As I see it, I am not the one that is in trouble, YOU are the one in trouble, because I have millions of your tax dollars and you need to get that money from me”.
So whilst Europe and the rest of the world, keeps banging on about Greece and whether it should exit the eurozone or not, the reality is that restructuring and an orderly default is required for there to be any hope for Greece to stay in the eurozone and to avoid the meltdown. Allowing Greece to exit the eurozone, apart of the collapse of the banking system and all that that entails with flow on effects to world markets, will also allow the middle east and Asian countries free to invest their billions of surpluses that are itching to be invested in Europe giving these emerging power house economies a foot hold in Europe and access to markets once dominated by the Germans and French. So Germany really needs to find a practical solution fast to this crisis before its euro kingdom collapses and for this to be done, it needs to allow Greece to have a capacity to repay restructured debts. Or is it the case that the Germans and French through the guise of “austerity” are simply stalling for time hoping to acquire as many Greek state assets as possible as a form of foreclosure of sorts, at fire sale prices before the inevitable default and eurozone exit, leaving less for the middle east and eastern investors to scavenge.
from Ian Bremmer:
Slaughtering the PIIGS
By Ian Bremmer The opinions expressed are his own.
Nobody likes to be called PIIGS. For years, Europe’s so-called peripheral countries -- Portugal, Italy, Ireland, Greece and Spain -- have complained about this acronym, but the euro zone’s sovereign debt problems have only entrenched it further. Yet, it’s time to acknowledge that the PIIGS have a point. They don’t deserve to be lumped together. Their actions and their circumstances have sharply diverged over the past three years.
Some of the PIIGS, let’s call them peripherals, have accepted the need for painful austerity measures. Spain’s government beat its deficit reduction targets last year. That’s a result that should impress outsiders, including powerhouse Germany, where lawmakers have worked hard to persuade voters that profligate countries won’t be bailed out until they have proven they can mend their spendthrift ways. Protests against the belt-tightening have been limited and surprisingly peaceful given Spain 21% unemployment rate.
The conservative People’s Party, which has already pledged its commitment to both austerity and the euro zone, looks headed for a win in Spain’s November elections. That’s in part because Socialist Prime Minister Jose Luis Zapatero has pushed hard to implement so many of the plans called for by Germany and European institutions over the objections of his party’s political base, including a plan to amend Spain’s constitution to legally require both the central government and autonomous communities to meet deficit targets that go beyond the levels set by the EU.
Portugal is also making sacrifices, particularly on pensions, and its discipline has made a difference. Days ago, the IMF released another tranche of its bailout package for the country with a comment that Portugal’s strategy to bring its debt under control allows Portugal to “distinguish itself from other countries with a problem.” Its government has also made solid progress on reforming state-owned companies, collecting taxes, and stabilizing banks.
Germany deserves some credit here. Chancellor Angela Merkel has proven willing to drive a hard bargain for longer than many expected, but Spain and Portugal know that Germany will be there in the end and agreed to take their medicine anyway. Ireland has little in common with the rest of this group, because its need for a rescue package comes from a banking crisis, not a fiscal crisis or an economy that can’t compete. Italy is also a special case, given that the sheer size of its debt -- 1.9 trillion euros – represents a much greater long-term threat to the euro zone’s future.
Then there’s Greece, the only European country in full-on economic meltdown, where austerity measures don’t have broad support, and government and voters are sharply at odds over the country’s present and future. Greece isn’t about to leave the euro zone, but almost everything else is up for grabs. The Papandreou government is a spent political force, and its eventual demise, probably later this year, will leave a weak coalition government to try to manage public outrage and to kickstart an economy stuck in a ditch. Germany and the IMF can refuel the tank, but Greece is an automobile without an engine.
Congratulations Ian for your magnificent, yet concise, political approach to this severe menace to Europe.
This is not as simple as the awful acronym could eventually suggest. This is not the traditional schism between the beautiful south (plus Eire) and the opulent north.
This is a serious threat to european stability as a whole.
A narrow national perspective of this problem (with a central-north european realignment temptation)is so dangerous for the entire region that all should be done to avoid it.
from The Great Debate UK:
German elections too close to call
- Erik Kirschbaum is a Reuters correspondent in Berlin. -
Has this been dullest German election campaign in decades or the most exciting? Has the battle for power in Berlin between Chancellor Angela Merkel and Foreign Minister Frank-Walter Steinmeier that concludes with Sunday's election been a memorable showdown or a forgettably boring contest?
Many journalists, pundits and voters have complained it's all been a merciless bore compared to the high-octane battles of the past with little action and precious few highlights.
But I would argue that in many ways it has been one of the most interesting campaigns in decades. Why? Because the outcome is so uncertain and there are more different government possibilities that could result from it than at any time in Germany's post-war history.
Instead of the usual centre-right or centre-left choice that German voters had for the last 60 years, there are options galore this time -- at least in theory.
There could be a centre-right government, another grand coalition or several three-way coalitions that could include the Free Democrats, the Greens and from a purely mathematical point of view even the Left party that have never been tried before at the federal level.
On top of that, the opinion polls have once again tracked a dramatic narrowing in the lead that Merkel's preferred centre-right coalition (Conservative Christian Democrats and Free Democrats) have over the three other parties -- Social Democrats, Greens and Left party .
from The Great Debate UK:
Ghosts of Germany’s communist past return for election
- Erik Kirschbaum is a Reuters correspondent in Berlin. -
Will the party that traces its roots to Communist East Germany's SED party that built the Berlin Wall soon be in power in a west German state?
Or is the rise of the far-left "Linke" (Left party) in western Germany to the brink of its first role as a coalition partner in a state government with the centre-left Social Democrats (SPD) simply a political fact-of-life now so many years after the Wall fell and the two Germanys were reunited?
Will a "red" government in Saarland scare away investors and doom the state, as its conservative state premier Peter Mueller argues in a desperate fight to his job?
Or will the new leftist alliance in Saarland be able to better tackle state's woes, as the SPD state premier candidate Heiko Maas insists?
Depending on your Weltanschauung, that's what Sunday's election in three German states boils down to -- an emotional debate about whether the ex "Communists" in the form of the Left party should be allowed to be part of the next Saarland government or not.
It doesn't matter that the Left has already been in eastern state governments and will probably also be part of the next state government in the eastern state of Thuringia, which also elects a new state assembly on Sunday.
The results tonight came in as expected with the SPD and Left winning enough to form new leftish governments in Saarland and Thuringia states. http://www.reuters.com/article/worldNews /idUSTRE57T1I020090830
ATTENTION REUTERS
love your site! been reading for years!
HOWEVER if i see one more article by summers im going to take that as a slap in the face. im going to acknowledge that you don’t read your own articles or at the very least read the comments from your own readers.
If you did you would realize that reuters carrying a summers article does nothing but offend your readers.
Please stop posting his dribble and please tell us your not actually paying this idiot
someone please buy summers a clue