Hugo Dixon

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Silvio Berlusconi really must go. It’s no longer about abuse of power and “bunga bunga” sex parties. His continuation as Italy’s prime minister could drive the country into a financial death spiral. His own supporters are shaken and the public is afraid. But the left-wing opposition is behaving responsibly, so there’s some hope.

Italy pulled back from the brink — slightly -– on July 12. After nudging above 6 percent, the yield on 10-year government bonds fell back to a still uncomfortable 5.6 percent. Part of the explanation is that the opposition agreed to a fast-track parliamentary vote on the government’s new austerity program. The multi-year fiscal squeeze of more than  40 billion euros should therefore be approved by the end of the week.

But this is not enough. Berlusconi is in virtual open warfare with Giulio Tremonti, his finance minister. Even though things have been patched up for now, the idea that this dysfunctional government could serve out its term until 2013 is troubling. Italy could lurch from mini-crisis to mini-crisis – with the borrowing cost on its debt, currently at 120 percent of GDP, ratcheting ever higher. The more Rome is perceived by financial markets to have fallen behind the curve, the bigger the fiscal adjustment will have to be to get it back on track.

Italy is too big to bail out. But it is a rich country — which can be bailed out by its people. That also means Italians have a lot at stake if the country goes down the tubes. In the past they have been far too complacent about their country’s political and economic mess. The mini-scare over the last few days is, therefore, salutary. It may help concentrate minds about the need to make some medium-sized sacrifices now -– such as front-loading the austerity program, much of which will only kick in from 2013 — in order to avoid bigger sacrifices in the future.

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.

German Chancellor Angela Merkel’s inconsistencies seem based on her view that a sovereign restructuring won’t happen before 2013 just because she said it won’t. But her conflicting demands are becoming virtually impossible to reconcile. The ratings agencies are threatening to say that Greece has defaulted if there’s so much as a whiff of arm-twisting in the supposed “voluntary” rollover.

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Europe has only itself to blame for the mess created by the ratings agencies. Luminaries including Jose Manuel Barroso, the president of the European Commission, and Wolfgang Schaeuble, Germany’s finance minister, have lambasted Moody’s for downgrading Portugal. But Europe has wasted many chances to neuter the power of credit ratings agencies. Instead they choose to fetishize them. An especially stark instance can be seen in the European Central Bank’s current approach to Greece.

For years it has been apparent that the financial world pays far too much attention to the three big ratings agencies — Moody’s, Standard & Poor’s and Fitch. They should be treated like any other opinion in the market. But their special position allows them to create havoc. It is not just that investors hang on their every word, they are also embedded in the system for regulating banks and other official mechanisms. Yet the agencies are often too slow to spot trouble, with the result that borrowers are able to run up excessive debts. And when they do change their minds, they can help provoke a stampede.

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Dear Greeks,
The anger you feel about your plight is understandable. You are staring at several unpalatable alternatives, all of which will involve big cuts in living standards for years to come. But the options you face are not all equally bad. You must avoid an emotional reaction that leaves you in an even worse state — and you must ostracise those who resort to violence.

One option is to persuade your politicians to say “no” (or “ohi”) to the euro zone/International Monetary Fund austerity plan. The scheme is not perfect. But rejecting it out of hand would be childish. If there is no agreed plan, you will get no money. The consequence isn’t just that the government would default on the loans it took out on your behalf. There would be a run on your banks and an even deeper recession. You would probably also lose your remaining friends in Europe who would consider you spoiled brats.

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON — The European Union is finally working on a plan B in the unlikely case that Greece’s parliament votes against austerity later this week. The priority in such a plan should be swift action by the European Central Bank to protect the rest of Europe’s banking system from mayhem. The EU should also try to give Athens a second chance to reflect on its folly.

The most dangerous immediate consequence of a No vote would be an acceleration of deposit flight from Greek banks. This could sow panic in banks in other peripheral nations. One way of stopping that would be for the ECB to immediately make clear that buckets of liquidity are available for non-Greek banks. Ideally, this shouldn’t just be short-term money, but medium-term money too. Euro zone governments should underwrite any losses the ECB incurred on such emergency support.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Hugo Dixon

Greece is likely to receive another short-term sticking plaster after the euro zone’s leaders stared into the abyss. But a repeat of the drama of recent days is all too possible. The region can, and must, protect itself against Athenian delinquency.

Euro zone finance ministers have postponed a final decision on extending 12 billion euros of emergency loans to Greece. But the country should get the next tranche of its EU/IMF bailout program in early July. Around the same time, the authorities should agree to a new package of perhaps 120 billion euros that sees Greece through until end 2014 –- with private-sector creditors helping by rolling over their debts in some yet-to-be-determined quasi-voluntary manner. Athens still has the capacity to mess things up if it can’t get its parliament to approve the new austerity program. But following Friday’s cabinet reshuffle, the government looks like it will at least survive a no-confidence vote on June 21.

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON — Greece mustn’t waste its second chance. Athens looks like it will receive enough bailout cash to see it through to end-2013. But if it veers off track again, as is all too possible, any third chance might come with such extreme conditions that a messy default and a humiliating exit from the euro wouldn’t be far away.

The euro zone and International Monetary Fund are willing to provide more cash partly because the European Central Bank has scared Athens’ saviours into believing that a Greek default now would trigger a nightmarish set of domino collapses across the continent. In return, Greece has promised to raise the equivalent of 22 percent of GDP through privatisation by 2015, as well as squeezing another 10 percent of GDP from its fiscal deficit. There is also a plan to bail in private-sector creditors, albeit on a “voluntary” basis. That could cut the amount of new bailout money to perhaps 30 billion euros, out of a total funding hole of 65 billion euros.

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON — Moral hazard is the clue to solving the euro crisis. The idea that entities don’t learn lessons unless they feel pain is valid in the euro zone — but only if the blame is shared properly. The mess isn’t just the responsibility of profligate Greeks, but also of foolish banks and hypocritical Germans and French. Each needs to suffer.

One of the main reasons the region’s financial crisis is so intractable — with endless wrangling over what is the best way forward — is because the different players haven’t fessed up to their own sins. There is therefore a tendency to proclaim their own virtue and pin the blame on others. This makes it hard to come up with a fair settlement.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Hugo Dixon

My first visit to China was in 1979. I was a schoolboy. It must have been one of the earliest Western school trips to the mainland. Mao Zedong had died three years before, Deng Xiaoping had launched the country on three decades of supercharged growth and the one-child policy had just been initiated. I hadn’t been back until this March.

Back then, Mao’s image was plastered everywhere and almost everybody wore Mao suits. I even bought one for myself. I also bought a Mao poster and stuck it in my bedroom at school. Nowadays, the posters have virtually vanished, along with the suits.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Hugo Dixon

China’s economy is riddled with vested interests, while free speech is suppressed. This potentially explosive mixture sounds similar to Hosni Mubarak’s Egypt, though Beijing has been much more successful at promoting economic growth than Cairo in recent decades. No wonder the regime is cracking down on dissent — including arresting Ai Weiwei, the internationally renowned artist. But it won’t be easy to maintain the current political model — or to reform it. And failure to do either could knock the economy off its extraordinary trajectory.

The country is officially run by the Chinese Communist Party. But, apart from the suppression of individual rights, it is hard to see much about it that is communist. Inequality is high and rising. The Gini Coefficient, a standard measure of income inequality in a society, is over 0.4 and, by some measures, is close to 0.5 — high figures normally associated with sub-Saharan African countries.