What happens if Hollande wins?
His political allies wrote him off as a lightweight, “a pedal-boat captain in a storm” as one memorably put it. European leaders, including Germany’s Angela Merkel, have gone out of their way to avoid him, and the markets have been unimpressed by his declaration, to the City of London, that “I am not dangerous.”
Yet with opinion polls in France unanimously predicting that François Hollande will be elected president on Sunday, this is a good time to be asking just how bad his presidency really would be for France, for Europe and for the markets.
If he does win, will he be able to inspire confidence and rebuild and renovate the fragile economy, with its heavy debt, stagnant growth and rising unemployment? Or will he preside over its rapid descent into Greek- or Spanish-style chaos, as Nicolas Sarkozy, the incumbent at the Elysée Palace, keeps warning?
Hollande’s track record gives few clues. He spent years as a Socialist Party apparatchik, serving as party leader during an extended period of infighting and presiding over two stinging election defeats. He’s only where he is today because he was in the right place when Dominique Strauss-Kahn shot himself in the groin.
Yet, unlike the last Socialist Party candidate who was elected president, François Mitterrand, Hollande would take office without heavy ideological baggage. Mitterrand in 1981 nationalized French banks and experimented with a full-scale reflation of the economy before being forced to change course two years later when the French franc collapsed. Hollande admires Mitterrand but lived through the U-turn. He has identified the world of finance as his true enemy, but his proposals are more Glass-Steagall than Lenin: His main plan for French banks calls for a separation of their trading and commercial operations. He calls for a new European emphasis on growth, but his solutions are mild: bigger investment by a French government development bank and a promise to persuade European leaders to launch Eurobonds – a non-starter for Germany’s Merkel.
His program is classic tax-and-spend, of the pre-Clinton, pre-Blair era. There are expensive commitments to row back on Sarkozy’s pension reform, to hire tens of thousands of new teachers and to raise the minimum wage. France already comes near the top of Europe’s league tables for the size of its government spending in relation to its overall economy – more than 55 percent – but this spending will be financed by big tax increases totaling 44 billion euros. They include higher payroll taxes on business and a new marginal income tax rate of 45 percent for those earning more than 150 000 euros. (His full program is detailed, in French, here.) These and other measures will push taxes and social charges up to almost 47 percent of GDP; that’s about 10 points more than in Germany or the UK and 20 points more than in the United States.
Yet this is 2012, and there’s a debt crisis raging, so deficit reduction is on the agenda, too. Hollande is promising that the 90 billion-euro deficit, about 5.2 percent of GDP, will drop to zero in 2017. Look a little closer, and that forecast is premised on economic growth averaging between 2 percent and 2.5 percent for three of the next five years. By French standards, that’s a lot; there hasn’t been a sustained growth spurt that strong since the late 1990s, when global conditions were very different and taxes were going down, not up.
from MacroScope:
The Law of Diminishing Greeks
The Law of Diminishing Returns states that a continuing push towards a given goal tends to decline in effectiveness after a certain amount of effort has been expended. If this weren't the case, Usain Bolt would be able to run the mile in less than 2-1/2 minutes.
From an economic standpoint, this law now seems to be fully in force in Greece. The latest jobs figures from the twice-bailed out euro zone country paint a bleak numerical picture of the impact of unrelenting austerity in ordinary Greeks, regardless of whether it was self-inflicted or not. To wit:
More than one in five Greeks is unemployed.
There are more young people without a job than with one.
The record 1.08 million people without work in January was a 47 percent tumble in a year.
Putting aside for the moment the question of what such a condition means for political dissent, there is now the issue of whether any of this austerity-fueled pain is actually helping the Greek economy.
Austerity mixed with the inability of euro-tied Greece to devalue its currency means Greece is now in its fifth year of recession. As for job-creating small and medium -sized businesses, the latest projections are that more than a net 130,000 of them will have shut down over two years by the time 2012 is over.
The biggest example of the Law of Diminishing returns, however, is the impact all this is having on what ails Greece in the first place -- its budget.
Unemployed people offer no revenue to the government in terms of income tax and far less in sales tax than they would if they were working.
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.
from Bethany McLean:
The euro zone’s self-inflicted killer
By Bethany McLean The opinions expressed are her own.
There were a lot of things that were supposed to save Europe from potential financial Armageddon. Chief among them is the EFSF, or European Financial Stability Facility.
In the spring of 2010, European finance ministers announced the facility’s formation with great fanfare. In its inaugural report, Standard & Poor's described the EFSF as the “cornerstone of the EU’s strategy to restore financial stability to the euro zone sovereign debt market.” The facility itself said in an October 2011 date presentation that its mission is to “safeguard financial stability in Europe.”
That of course hasn’t happened. And the evidence suggests that the EFSF may have only exacerbated the problems.
In theory, the facility is supposed to provide a way for a country that the market perceives as weak to still borrow money on good terms. The initial idea was that instead of the financially troubled country itself trying to sell its debt to live another day, the EFSF would be the one to raise the money and lend it to the country in question. The logic was simple: country X might be shaky, but the EFSF deserved a triple-A rating.
For all of its would-be financial firepower, the EFSF isn’t much to see—it’s just an office in Luxembourg with a German-born economist CEO named Klaus Regling, who oversees a staff of about 20. Its power—and that rating—is derived from the assumption that any debt it issues is guaranteed by the members of the euro zone. Initially, each member pledged unconditionally to repay up to 120% of its share of any debt the EFSF issued. (A country’s share is determined by the amount of capital it has in the European Central Bank.)
On paper, it all sounded great. The reality is that the EFSF wasn’t meant to be an active institution; it was supposed to be a fire extinguisher behind glass: never to be used. “The EFSF has been designed to bolster investor confidence and thus contain financing costs for euro zone member states,” wrote Standard & Poors in its initial report granting the triple A rating. “ If its establishment achieves this aim, we would not expect EFSF to issue a bond itself.” Moody’s, for its part, wrote that the EFSF “reflects the political commitment of the euro zone member states to the preservation of the euro and the European Monetary Union.” That show of commitment alone was supposed to be enough to reassure the market.
A triple-A rating is awarded to a country if it pays back timely 100 cents on a dollar for a loan. The U.S. has paid back loans but with a weaker dollar. So the Euro country can use the same method: printing more money. The only problem is how the new currency should be divided among all the member countries.
from Ian Bremmer:
Europe’s necessary creative destruction
By Ian Bremmer The opinions expressed are his own.
What we’re seeing in Europe -- in rising Italian borrowing costs and the felling of two prime ministers -- is the growing impatience of the markets for a resolution to the euro zone crisis. To put a finer point on it, the hive mind of the markets has decided it is not going to give Europe enough time to get its act together. The big institutions that drive the world’s economies are sitting on huge amounts of cash -- enough to solve many of these problems overnight. But they have lost confidence in the ability of the European political system to deliver solutions that will work.
In a G-Zero world, where there is no strong global leader to direct the course of events, no one is interested in taking a flier on helping the Europeans get out of their mess. As the abortive G-20 conference showed last week, there is no backstop for any country or institution that makes an error in today’s environment, whether it’s tiny MF Global or the Chinese sovereign debt fund. In the postwar era, the Marshall Plan was the very definition of global security -- it was a huge commitment by the U.S. to rebuild Europe into the economic force (and not incidentally, trading partner) that the world needed. Today, there is no Marshall plan for Europe, from within or without.
That’s the high-level view of the Europe situation. The question everyone wants answered is this: what happens next? Start with Greece: the best possible outcome for that country has happened with Papandreou’s resignation and the selection of economist Lucas Papademos as Prime Minister of an emergency government. Papademos is committed to remaining in the euro and accepting the terms of the Greek bailout package. Despite the roller coaster ride Papandreou took his country and the euro zone on, Greece has now moved closer to the Spanish and Portuguese models for avoiding the debt crisis drama. In Greece, a resolution is starting to be reached. It’s not the beginning of the end, but maybe this is the end of the beginning.
The same can’t be said for Italy as the situation changes by the day. The decisive Senate approval of a package of austerity measures (by a margin of 156 to 12) was one small step for Italy in the eyes of the markets— and a big step toward Silvio Berlusconi resigning his mandate. It’s a wonder that Berlusconi held on to power for so long; he burned up his political capital years ago with scandals of all stripes. His stepping down is good news for Italy in the long run, but the handover of power to likely frontrunner Mario Monti is a delicate process that will have to be handled with tremendous care. Unfortunately for Italy, political drama has insured it will face a higher and longer level of scrutiny.
Markets will continue to demand extensive and enforceable changes in spending levels throughout the peripheral states. When Italy and Greece look more like Spain and Portugal, the bond markets will treat them more like Spain and Portugal. But that alone won’t solve the problem: investors are going to demand to know what happens next time any euro zone periphery country is on the brink of collapse. Euro zone institutions and politics have to be reshaped to prevent this type of crisis from ever happening again. Until this risk is mitigated, lending costs will stay high for a long time to come.
Case in point: I talked with about 200 international financial executives at a conference two weeks ago. 92 percent thought a “Lehman event” could easily happen once again somewhere in the world. Because we all thought the economy had been getting better over the last few years, we took our eye off the ball when it came to shoring up the global financial system and making the necessary structural fixes. In the U.S., President Obama took up health care. A weak Dodd-Frank bill passed. In the global financial system, Basel III has gone nowhere. And so every time the markets are rattled, we stare down the financial abyss, again and again.
“Greece: the best possible outcome for that country has happened with Papandreou’s resignation and the selection of economist Lucas Papademos as Prime Minister”
How is more neo-liberalism and more debt a “solution” to anything.
Just like underwater mortgages in the US with no prospect or ever being payable, the time has come for massive write-offs and restructuring the banking system from TBTF to a regulated public utility model.
Enough neoliberal baloney.
Italy’s fundamentals aren’t worse than usual
By James Macdonald The views expressed are his own.
The markets have come to the conclusion that Italy’s debts are unsustainable in the long term. They are therefore demanding a higher risk premium to compensate for the risk that they might not be repaid in full. So runs the conventional wisdom. However, the situation is not that simple.
In the first place it is not at all clear that Italy’s situation is especially worse than it was ten or fifteen years ago. The country’s debt first hit 120% of GDP in 1993, after the spending spree of the 1980s when budget deficits were regularly higher than 10% of GDP. In 1992 the deficit was 9.5% of GDP; and with interest rates on the debt of 10% or more, the country’s interest bill represented 12% of GDP. Throw in a discredited and dysfunctional political system, and the situation looked bleaker than it is today. Yet the country did not default. The old political parties were blown away, and a series of governments, both technocratic under Ciampi and Dini, and party-based under Berlusconi and Prodi, oversaw a period of fiscal retrenchment which brought the deficit to under 3% of GDP by 1997. Part of the improvement came through a fiscal squeeze which brought the primary balance from a deficit of 2% of GDP in 1990 to a 5% surplus by 2000. The rest was the result of lower interest rates. By the late 1990s Italy was able to borrow at around 6% — a rate that no one then considered unaffordable.
Over the past fifteen years Italy’s budget deficit has averaged 3.5% of GDP. It is currently 4.5%. Before the financial crisis erupted, its public debt had fallen to 105% of GDP. It has now risen to 120% of GDP again. Under normal circumstances a reduction of its budget deficit to 3% of GDP would be sufficient to stabilize the situation – a far smaller adjustment than was necessary in the 1990s.
So why has the market suddenly decided that the country’s position is untenable? It cannot be simply that Italy lacks a stable and convincing government. That has been the case for the majority of the postwar decades, and was certainly so in the early 1990s. Yet the country has shown that it can jettison discredited politicians when necessary, as it did in 1992, and as it is doing now.
A more compelling reason may be that the international climate is less benign than before. Italy’s growth rate has been sclerotic for years. But until recently the world economy was growing at a decent clip so that it could be hoped that “a rising tide lifts all boats.” Now, the future of uncompetitive economies looks bleaker.
However, the current climate is as much as anything else a case of self-fulfilling prophecy. One of the reasons that Italy’s position is looking worse than before is the rise in its borrowing costs. With public debt at 120% of GDP, a 4% rise in interest rates, which is what Italy has faced over the past year, will more than double its prospective budget deficit. A further negative feedback loop is provided by increasing margin requirements on its bonds as their prices drop and as trading volatility increases, thus making them less attractive to hold.
The perils of protectionism
By Gordon Brown The views expressed are his own.
Next week’s 2011 G20 meeting has the power to write a new chapter in the response to the economic downturn. But every day, as nations announce currency controls, capital controls, new tariffs and other protectionist measures, the G2O’s room for maneuver is being significantly narrowed. Already the cumulative impact of a wave of mercantilist measures is threatening to turn decades of globalization into reverse, returning us to the economic history of the 1930s, and condemning at least the western parts of the world to a decade of low growth and high unemployment.
Three years ago when the financial crisis first hit, the G2O communiqués were explicit in warning of the dangers of a new protectionism. Led by the head of the World Trade Organization (WTO), Pascal Lamy, we embarked on a forlorn attempt to use the crisis to deliver a world trade deal — and were frustrated by an irresoluble dispute on agricultural imports between two countries, India and the USA. But now, in the absence of any co-ordinated global action, member countries have been retreating into their national silos — and the trickle of protectionist announcements threatens to become a flood. Switzerland led costly action to protect its overvalued currency and has been followed by currency interventions in Japan (with perhaps more to come), India, Indonesia, and South Korea. Brazil, which had itself warned of currency wars, then imposed direct tariffs on manufactured imports — a hefty car tax designed to protect its own native auto industry against emerging market imports. Other countries are now considering mimicking them. Capital controls are also now in vogue, and of course the U.S. Senate has just voted to label China a “currency manipulator.”
The 2011 WTO report, just published, warns of divergences in regulatory frameworks in preferential trade agreements. And in the next few days the WTO will release its submission to the G20. It will note a rise in trade-restrictive measures and describe the outlook ahead as “less restraint in the adoption of new trade-restrictive measures and less determination to dismantle existing ones.” Perhaps as worrying is the growing resort to what I call “home country bias.” Today French banks are selling off their foreign assets and focusing their large portfolios on France itself. French banks have 8 trillion euros in total assets and if the plan is to run them down at 5 percent a year, then by 2014 we will see a 1.2 trillion-euro reduction in investments outside France. European bank liabilities are on the order of 32 trillion euros and when, as we can expect, the same mercantilist approaches to liquidating assets spreads to Germany, the Netherlands, and beyond, growth will be put at risk.
When in 2008 the financial crisis first hit us, money started to flow out of Eastern Europe, whose banking system is dominated by French, German, Italian, and Austrian banks. To soften the impact, we put in place a European Union/IMF guarantee that was sufficiently robust to prevent a massive outflow of bank funds. No similar guarantee is now available and, faced with capital flight, growth forecasts for Eastern Europe in 2012 are now half what they were.
The process of deleveraging with a home country bias is not restricted to European banks. Many American banks are now deserting Europe and, as the home bias becomes more pronounced, we risk a further round of tit-for-tat actions. This protectionism is the undesirable but inevitable result of a failure of countries to co-ordinate economic policies out of the crisis. Since a high point of cooperation in 2009, we have failed to secure not only a trade agreement but both a climate change agreement and the implementation of G20 decisions to create global financial standards, including a much needed global early warning system.
The new protectionism will make people question whether an era marked by open global flows of capital and the global sourcing of goods is sustainable and whether the very idea of a “global village” of irreversible economic interdependence and integration is now at risk. The biographer of Keynes, Robert Skidelsky, has written in apocryphal terms of “a disorderly, acrimonious retreat from globalization [that] is bound to overshoot its mark, reviving the economics and the politics of the 1930s; but leading in an era of nuclear proliferation, to consequences even more terrifying.”
Europe should avoid eating its seed corn
By Thomas Cooley The views expressed are his own.
The European debt crisis has put the banking system in peril and is threatening to end the grand European experiment. It is a test of whether European governments can find enough political common ground to find a solution to the problems created by sovereign fiscal policies in the periphery countries. Severe as the fiscal issues are, there are other problems that are likely to divide Europe into prosperous and stagnant zones for a very long time to come. The periphery countries have underinvested in human capital since the Euro was created and this will continue to exacerbate the economic division of Europe. Persistent inequality cannot be good for the stability of the union.
For all of the Eurozone countries faced with unsustainable fiscal policies the solution will involve considerable pain in the form of budget cuts, shrinking public sectors and increases in tax collections. Because draconian fiscal remedies impose a substantial drag on the economies concerned there is now the worry that Europe will become a two-speed continent with the healthier economies like German, France, and the Nordic countries experiencing strong growth and the periphery countries like Portugal, Greece, Italy and Spain growing more slowly.
Fiscal drag is not the only problem facing the periphery economies. These countries struggled to get their inflation rates in line before joining the EMU but when they did they surrendered the ability to alter the terms of trade for their exports. In many of these countries it meant surrendering a weak currency for a strong one.
For some countries this was a deathblow for domestic industry. A good example is the textile industry in Portugal. In 2001 it was the largest industrial sector accounting for nearly 25 percent of manufacturing employment and 19 percent of exports. But the strength of the Euro made Portuguese textiles uncompetitive and those jobs left for lower wage countries never to return. Similar transitions took place in Greece (the maritime industry), Spain and Italy. It may be that those jobs would have left in any event, but the ability to adjust exchange rates might have dampened the rate at which they left.
The usual solution for countries faced with the loss of lower-wage, lower-skilled jobs is to move up the value-added chain. That is, to replace lower skilled employment with jobs requiring more human capital. This is what Japan did in the post WWII era, what South Korea has done and what China is doing now.
The key to being able to make this transition is to have the necessary human capital. The challenge for many countries (including the U.S.) is to have the foresight and make the commitment to invest in that human capital. Unfortunately, the more typical reaction in the face of budgetary stress caused by a loss of competitiveness is to cut spending where it is easiest to do so and that all too often means cutting education spending. This is like a farmer eating his seed corn.
The elephant in the room that he’s ignoring is the fact that there’s enough wealth to solve the problem if the rich were proportionately taxed. Individual wealth inequality is the root of the problem – the other things mentioned here are periphery to this
How Europe can stave off a crisis
By Gordon Brown The views expressed are his own.
It was said of European monarchs of a century ago that they learned nothing and forgot nothing. For three years, as a Greek debt problem has morphed into a full blown euro area crisis, European leaders have been behind the curve, consistently repeating the same mistake of doing too little too late. But when they meet on Sunday, the time for small measures is over. As the G20 found when it met in London at the height of the 2009 crisis, only a demonstration of policy intent that shows irresistible force will persuade the markets that leaders will do what it takes. An announcement on a new Greek package will not be enough. Nor will it be sufficient to recapitalize the banks. European leaders will have to announce a comprehensive — around 2 trillion euro — finance facility; set out a plan to fundamentally reform the euro; and work with the G20 to agree on a coordinated plan for growth.
For three years it has suited leaders across Europe to disguise Europe’s banking problems and, citing the blatant profligacy of Greece, they have defined the European problem as simply a public sector debt problem. And it has suited Europe’s leaders to call for austerity (and if that fails, more austerity) and forget how the inflexibility of the euro is itself dampening prospects for growth, keeping unemployment unacceptably high and weakening Europe’s competitive position in the world today. Indeed, Europe’s share of world output has now fallen to just 18 percent. And it is a measure of how it is losing out in the growth markets of the future that just 7.5 percent of Europe’s exports go to the emerging markets that are responsible for 70 percent of the world’s growth.
When I attended the first ever meeting of the euro group of leaders in October 2008 there was astonishment when I reported that Europe’s banks had bought half America’s subprime mortgages and there was incredulity when I said that European banks were far more at risk than U.S. banks because they were far more highly leveraged. Since 2008, as American banks have tackled their toxic assets, they have written off 4 percent of their loans and raised the equivalent of another 4 percent in new equity. But euro area banks have written off just 1 percent of their loans, and have raised their capital base by only 0.7 percent, leaving them highly vulnerable even before their exposure to sovereign debt has become a central issue. Their vulnerability is increased because they have always been far more dependent for their funding on the short term and confidence-dependent wholesale markets, and countries within the euro zone are able to do far less in the face of capital flight than, say, Britain.
Of course in 2008, governments could fund the rescue of indebted banks; in 2011, indebted governments are finding that more difficult. For they know that even after they recapitalize the banks, they have still to deal with the even bigger financial problem of funding the borrowing needs of the most at-risk countries: Greece, Ireland, Spain Portugal and Italy, which could cost as much as $2 trillion in the years to 2014.
It is thus clear that the 400 billion euro rescue fund, the European stability fund, is wholly inadequate to address this profound failure across the European financial system, and that without a mechanism for fiscal coordination the euro cannot easily survive. A few days ago, U.S. Treasury Secretary Tim Geithner said that “the critical imperative is to ensure that the governments and the financial systems under pressure have access to a more powerful financial backstop.”
I believe that only an impenetrable firewall will show the determination of European leaders to head off the crisis and save Europe from a new recession. I know of all the doubts about a new but temporary role for the ECB, but it is unlikely that any other organization has the resources for quick action. But the IMF should back them up, funding their contribution through loans from the oil states and China. It may now be impossible to avoid hundreds of billions in bank de-leveraging and liquidations, but a coordinated approach with the support of the international community could provide the breathing space for what matters — the reform of the euro.
at last some clear analysis…bvious, but yet clear and sophisticated…nevertheless problems of trust and adjustment work against co-ordination…we need a psycologival recognition in the west that the balance of power is rapidly shifting. such a recognition needs to be on all sides to develop the trust necessary….and there is the problem. If I was China, I would not trust.
Europe’s Lehman moment
By Jeffry A. Frieden The opinions expressed are his own.
Europe is in the midst of its variant of the great debt crisis that hit the United States in 2008. Fears abound that if things go wrong, the continent will face its own “Lehman moment” – a recurrence of the sheer panic that hit American and world markets after the collapse of Lehman Brothers in October 2008. How did Europe arrive at this dire strait? What are its options? What is likely to happen?
Europe is retracing steps Americans took a couple of years ago. Between 2001 and 2007 the United States went on a consumption spree, and financed it by borrowing trillions of dollars from abroad. Some of the money went to cover a Federal fiscal deficit that developed after the Bush tax cuts of 2001 and 2003; much of it went to fund a boom in the country’s housing market. Eventually the boom became a bubble and the bubble burst; when it did, it brought down the nation’s major financial institutions – and very nearly the rest of the world economy. The United States is now left to pick up the pieces in the aftermath of its own debt crisis.
Europe’s debtors went through much the same kind of borrowing cycle. For a decade, a group of countries on the edge of the Euro zone borrowed massively from Northern European banks and investors. In Spain, Portugal, and Ireland, most of the borrowed money flooded into the overheated housing market. “At the height of the building boom,” Menzie Chinn and I write in our new book, Lost Decades: The Making of America’s Debt Crisis and the Long Recovery:
One Spanish worker of every seven was employed in housing construction. Half a million new homes were being built every year—roughly equal to all the new homes in Italy, France, and Germany combined—in a country with about 16 million households. The amount of housing loans outstanding skyrocketed from $180 billion in 2000 to $860 billion in 2007. Over the ten years to 2007, housing prices tripled,second only to Ireland among developed countries; by then, the average house in Madrid cost an unheard-of $400,000. (pp. 49-50)
Greece was a different story. It borrowed, as we write, “mostly to finance a continual budget deficit and an American-style consumption boom.”
Greek borrowing went beyond the sensible: at its peak, in one year Greece borrowed an amount equal to nearly 15 percent of GDP, so that more than one euro in seven spent locally was borrowed from abroad. By 2009, the country’s eleven million people owed more than $500 billion to foreigners, more than the foreign debts of Argentina, Brazil, and Mexico combined (with thirty times the number of people and ten times the economic output of Greece). (pp. 186-187)
For RussAbbott, the Spanish (and other non-Greek) fiscal deficits are very different from the Greek ones. They are the *result* of the crisis, not the cause. The Spanish government (like the Irish) went into substantial deficits as a result of the difficulties of the country’s financial system, and more generally due to the recession and the large increase in unemployment. This is one reason that the focus on large fiscal deficits is a little misplaced: the *origin* of the deficits varies greatly from country to country. There’s a big difference between running Greek-style deficits (and lying about them) in the runup to the crisis, on the one hand; and being forced into big deficits by the need to backstop the financial system and provide unemployment benefits, on the other.
But what happens if and when crisis comes?
– Peter Gumbel
“If”? “When”?
This sounds like a ploy. As the crisis continues, Peter Gumbel and others in the financial world will blame the Socialists – again.
Just be honest with the public, Peter. When you make such an outrageous statement, everything else you write is suspect. The very reason Sarkosy lost – more than Hollande wwwon – is because the “crisi” has been here for three years.