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.
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.
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 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.
Amid all the doom and gloom about Greece in the last few weeks, it is easy to overlook an important piece of good news: the debt exchange offer published by Greece on Friday with endorsement by its main private and official creditors. If implemented, this would be a major achievement and an important step toward overcoming the euro zone crisis, almost regardless of what happens next.
from Ian Bremmer:
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.
from Edward Hadas:
Debt is a moral matter. While most economic activity is concerned with the “is” of how things are (investment, consumption and so forth), debts are always entwined with an “ought” – to repay. In discussing controversial debts--for example government borrowing in the euro zone and the U.S.--the moral question should be addressed directly: should these debts be paid off in full, or is some forgiveness justified?
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.
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?