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US Set to Restage Greek Tragedy

November 9, 2012 by F. Peter Brown Leave a Comment

The US has finally voted and the dark visions of America’s future broadcast on television screens across the country — and most intensively in battleground states — have come to an end. Supporters of both Barack Obama and Mitt Romney had developed doomsday scenarios for what would happen if their candidate’s opponent were to win. Four more years of Obama, the ads warned, would result in pure socialism. A Romney presidency would see the middle and lower classes brutally exploited.

But following Obama’s re-election, Americans are now facing a different, much more real horror scenario: In just a few weeks time, thousands of children could be denied vaccinations, federally funded school programs could screech to a halt, adults may be forced to forego HIV tests and subsidized housing vouchers would dry up. Even the work of air-traffic controllers, the FBI, border officials and the military could be drastically curtailed.
That and more is looming just over the horizon according to the White House if the country is allowed to plunge off the “fiscal cliff” at the beginning of next year. Coined by Federal Reserve head Ben Bernanke, it refers to the vast array of cuts and tax increases which will automatically go into effect if Republicans and Democrats can’t agree on measures to slash the US budget deficit.

In total, the cuts add up to $1.2 trillion over the next nine years, with half coming from the military and half from other government programs, and with $65 billion coming in the first year alone. They were enshrined in law with the Budget Control Act of 2011, which also increased the debt ceiling. And though a deadline of Jan. 2, 2013 was set, they were never meant to come into effect. The plan for deep across-the-board cuts was intended as a way to prod Democrats and Republicans into reaching agreement on a long-term plan to reduce America’s vast budget deficit.

Read More at spiegel.de . By David Bocking.

Filed Under: News Tagged With: Greece

UK’s deficit ‘could be bigger than Greece’s’

September 25, 2012 by F. Peter Brown Leave a Comment

Economists at the investment bank calculated that Britain’s budget deficit could total £126bn, or 7.8pc, of gross domestic product in 2013-14.

That would make Britain’s the highest projected European deficit, with Morgan Stanley predicting that Greece’s would stand at 6.3pc and Spain’s at just under 6pc. The Office for Budget Responsibility currently predicts that Britain’s budget deficit could be £98bn next year, or 5.9pc of GDP.

Morgan Stanley’s forecasts underline the pressure on Chancellor George Osborne efforts to cut the deficit, as official figures last week showed that government borrowing for the first five months of the financial year was running at more than 25pc over target.

In the five months to August, and excluding the one-off savings created by the Royal Mail pension fund and the Bank of England’s Special Liquidity Scheme, the Government borrowed £61.3bn – 26.7pc more than in the same period last year. The official borrowing target for the year is a rise of just 0.5pc.

Economists predicted that the bleak picture on borrowing threatened to undermine the Chancellor’s cast-iron fiscal rules. Howard Archer of IHS Global Insight said: “It is likely in his autumn statement that he will either have to acknowledge that he will be unable to start bringing down debt as a percentage of GDP by 2015/16.”

Read More at telegraph.co.uk . By Rachel Cooper.

Filed Under: News Tagged With: Greece, United Kingdom

For These Four Nations, 2012 Is Worse Than the Great Recession

September 17, 2012 by F. Peter Brown Leave a Comment

The Great Recession of 2008/09 delivered the worst blow to the global economy since the 1930s. But in a few nations, 2012 is turning out to be worse than 2009 in terms of economic growth. Europe’s debt crisis, the general slowing of the world economy, and domestic political troubles have played a role in undercutting 2012 growth for one or more of these four nations. Can you guess who they are?

It’s no surprise that 2012 has turned out worse for Greece. It didn’t escape the 2009 downturn, the economy contracted by half a percentage point. But unlike most of the rest of the world, which rebounded the following year, Greece has continued to shrink — 5.4 percent last year and an estimated 5.2 percent this year, according to projections from the Organization for Economic Co-operation and Development (OECD).

In many ways, Greece is the poster child for the debt crisis that has gripped the European Union and a solemn warning to other nations stuck with rising government debt. An unsustainable debt load has caused interest rates on Greece’s sovereign debt to soar and forced it to seek a bailout and a debt restructuring. In return for the help, the European Union, the International Monetary Fund (IMF), and the European Central Bank have forced successive Greek governments to make huge and unpopular spending cuts, the latest one announced Aug. 1, 2012, for 11.5 billion euros ($14.1 billion). Even with the spending cuts and debt restructuring, Greece’s public coffers are nearly exhausted, its industries are uncompetitive, and its economy continues on a downward spiral.

“When the market takes a dim view of your prospects, that sends you down that spiral,” says Tu Packard, senior economist with Moody’s Analytics. “It’s punishing, really.”

The situation is so untenable that many analysts believe Greece will have to abandon the euro in the next year or two, create a new currency, and then immediately depreciate it to allow its workers to become competitive. But in the process, living standards of the Greek people would plunge.

Markets tumble after Fitch cuts Spain’s ratings

May 28, 2010 by F. Peter Brown Leave a Comment

Fitch Ratings cut Spain’s credit ratings to AA+ from AAA on Friday, saying its economic recovery would be more muted than the government forecast, pushing world equities and the euro lower.

The downgrade follows a cut by another agency Standard and Poor’s last month and heaps more pressure on the government, battling to reassure markets its fiscal, political and social woes will not end up in a Greek-style debt crisis.

Fitch said Spain’s deleveraging of record-high levels of household and corporate debt and growing levels of government debt would drag on economic growth.

“The downgrade reflects Fitch’s assessment that the process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium-term,” Fitch’s analyst Brian Coulton said in a statement.

Pimco: Greece, Others Can’t ‘Grow’ Their Way Out of Debt Woes

May 26, 2010 by F. Peter Brown Leave a Comment

Governments struggling with huge debt loads and now embarking on fiscal austerity measures, such as Greece, may be unable to grow their way out of trouble, the manager of the world’s biggest bond fund wrote on Wednesday.

Bill Gross, the co-chief investment officer of Pimco and manager of the firm’s Total Return fund, said in his monthly note to investors that higher market interest rate levels will impede full repayment.

A surge in the London Interbank Offer Rate (Libor) is dimming hopes for a sustained global economic recovery because an increase in banks’ borrowing costs can spark higher interest rates for borrowers on everything from mortgages to corporate loans.

“At the now restrictive yields of Libor plus 300-350 basis points being imposed by the EU and the IMF alike, there is no reasonable scenario which would allow Greece to ‘grow’ its way out” of debt, Gross wrote. Pacific Investment Management Co. oversees more than $1 trillion in assets.

Libor is indicative of the different prices at which a panel of banks in London estimate they could obtain funds in the interbank market.

Greece’s early retirement rules breed resentment

May 18, 2010 by F. Peter Brown Leave a Comment

In Greece, trombone players and pastry chefs get to retire as early as 50 on grounds their work causes them late-career breathing problems. Hairdressers enjoy the same perk thanks to the dyes and other chemicals they rub into people’s hair.

Then there are masseurs at steam baths: They get an early out because prolonged exposure to all that heat and steam is deemed unhealthy.

Until the Greek debt crisis, northern Europeans looked at Greek early retirement with an amused roll of the eyes. But more such loopholes are angering them: They bristle at being asked to pay for their laggard southern neighbors’ early retirement.

When Germany’s top-selling newspaper Bild asked readers in that fiscally prudent nation how they felt about coughing up hard-earned money for this kind of luxury, the daily’s website lit up with comment.

In a bloc with a shared currency but no power to enforce budgetary restraint and keep members from spending themselves into messes like Greece’s, the retirement quirk illustrates another fault line that crept to the surface with the debt crisis that began in Athens and is threatening to spread across the eurozone.

The Trillion-Dollar Treatment

May 14, 2010 by F. Peter Brown Leave a Comment

European leaders still don’t understand what caused the Aegean Contagion that swept through the eurozone in late April and early May. Swedish Finance Minister Anders Borg blamed “wolf-pack behavior” by speculators. Others have railed against clueless rating agencies, feckless debtors, and unreasonable creditors. Then there are those who ask if there’s an inherent flaw in the bond markets that made them cascade, turning vague worries into scary, self-fulfilling prophecies.

You can’t defeat an enemy you don’t understand, and unless Europe gets a better grasp on what went wrong, it will be vulnerable to more turmoil, even with the nearly $1 trillion backstop lending authority that calmed markets. “I still think it’s a very fragile situation,” says Gary Gorton, a Yale University economist.

The reality isn’t all that complicated. Europe was vulnerable to contagion, and remains so, because its governance and its financial system are weak. It was lax fiscal oversight that allowed nations such as Greece to violate European Union rules on the size of their budget deficits in the first place. Overleveraged investors made matters worse: When the value of their Greek debt fell, they were forced to reduce the size and risk of their portfolio by selling other assets—the debt of Portugal and Spain, for example.

Read More: – By Peter Coy, Businessweek

Filed Under: News Tagged With: Anders Borg, Debt, Europe, financial system, Gary Gorton, Greece, Portugal, Spain

Snow Says Euro Faces ‘Tough’ Survival Without Budget

May 13, 2010 by F. Peter Brown Leave a Comment

Former U.S. Treasury Secretary John Snow suggested the euro may not survive unless member nations agree to merge policies from budgets to labor markets.

“I hope it works, I believe in it,” Snow said in an interview late yesterday at the University of Oxford’s Said Business School in Oxford, England. “But the economist in me says that it’s going to be tough without accommodations.”

The common currency has weakened against the dollar this year amid investor concern on how indebted nations will cut budget deficits and access aid if needed. European Union officials agreed to a $1 trillion bailout this week to keep Greece from defaulting and stem a rout in government debt that jeopardized the ability of Spain and Portugal to borrow.

“For the euro to be able to survive long term, fiscal consolidation of some kind — tax policy consolidation, fiscal policy consolidation — is probably necessary,” he said. “But that’s not enough, you really need one labor market, one capital market. Europe is going to face hard choices in the future to make this thing work.”

Read More: – By Jennifer Ryan, Bloomberg

Filed Under: News Tagged With: budgets, former U.S. Treasury Secretary John Snow, Greece, Oxford, Portugal, Spain, the Euro

Spanish union calls civil servant strike

May 13, 2010 by F. Peter Brown Leave a Comment

Spain’s leading labor union has called a civil servants strike next month to protest government plans to cut salaries as part of a plan to reduce the deficit.

The General Workers Union said Thursday the stoppage would be staged June 2.

Prime Minister Jose Luis Rodriguez Zapatero on Wednesday announced a 5 percent wage cut for civil servants as part of a deficit-reduction plan to ease worries the country will slide into a debt crisis like that of Greece.

Germany reveals 40-billion-euro tax hole

May 6, 2010 by F. Peter Brown Leave a Comment

Germany forecast a massive fiscal hole on Thursday, highlighting the parlous state of its public finances and giving Chancellor Angela Merkel precious little room to deliver on promised tax cuts.

Figures from the finance ministry showed that tax receipts over the period 2011 to 2013 would be around 39 billion euros (50 billion dollars) less than predicted last year.

Germany, quick to lecture Greece over its debt crisis, has considerable fiscal problems of its own that were exacerbated by its biggest recession since World War II last year when output shrank five percent.

Europe’s biggest economy, now pressing for tougher European Union rules on deficits in light of the Greek turmoil, expects to borrow around 80 billion euros this year and to spend far more than it earns.

The country, which recently lost to China its crown as the world’s biggest exporter, is also faced with an ageing population, which squeezes government income while at the same time expanding its spending needs.

US Set to Restage Greek Tragedy

UK’s deficit ‘could be bigger than Greece’s’

For These Four Nations, 2012 Is Worse Than the Great Recession

Markets tumble after Fitch cuts Spain’s ratings

Pimco: Greece, Others Can’t ‘Grow’ Their Way Out of Debt Woes

Greece’s early retirement rules breed resentment

The Trillion-Dollar Treatment

Snow Says Euro Faces ‘Tough’ Survival Without Budget

Spanish union calls civil servant strike

Germany reveals 40-billion-euro tax hole

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