Tag Archives: ECB

Greece

If Grexit comes, Greece will have wasted five years in depression

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oxi

Photo credit to Orestis Panagiotou / EPA.

If you think the past nine days have been tense, just wait.Greece Flag Icon

For all the uncertainty and mistrust that have characterized Greek-EU relations since Greek prime minister Alexis Tsipras suddenly announced a snap referendum last Friday, the week ahead promises to reach ever dizzying heights of suspense after Greek voters delivered a strong endorsement to Tsipras by rejecting the terms of the most recent deal on offer from the Eurogroup — over 61% of the electorate voted no (or ‘oxi’). The result, whether Tsipras admits it or not, essentially begins the process by which Greece will eventually leave the eurozone.

There are no winners here.

Tsipras and the far-left SYRIZA (Συνασπισμός Ριζοσπαστικής Αριστεράς, the Coalition of the Radical Left) took power after January’s parliamentary elections on the mutually incompatible pledge of keeping Greece in the eurozone while demanding more lenient conditions from the country’s creditors. In so doing, Tspiras miscalculated European goodwill. It wasn’t unreasonable for Tsipras and finance minister Yanis Varoufakis to argue that Greece’s debt load is unsustainable. Moreover, even plenty of orthodox economists, including many at the International Monetary Fund, one of Greece’s creditors, admit that years of austerity have exacerbated economic conditions — GDP contraction of nearly 30% since 2008, a 26% unemployment rate and a nearly 50% youth unemployment rate. But the erratic and amateurish approach of the Greek government, capped by Tsipras’s 11th-hour decision to call the July 5th referendum, destroyed what little goodwill remained for his government.

There’s still time — even now — for Greece and the rest of Europe to reach a deal. But the complete lack of trust between Tsipras’s government and the entirety of the rest of the eurozone’s leadership makes it much less likely to happen. The complete breakdown in trust between Tsipras and even sympathetic European leaders must certainly rank among the most troubling casualties of the past nine days. Continue reading If Grexit comes, Greece will have wasted five years in depression →

Greece

Greek referendum — the right step at a dangerously wrong time

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greferendum

For the past 48 hours, the rest of Europe and, indeed, the rest of the world have watched Greece come unhinged. Greece Flag Icon

In a speech shortly after midnight Friday night, prime minister Alexis Tspiras announced that instead of continuing negotiations between the Greek government and the Eurogroup of eurozone finance ministers, he would call off talks to hold a referendum next Sunday, July 5, thereby putting the question to the Greek people — will they accept the terms of the latest deal with Greece’s creditor institutions or will they reject it?

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RELATED: Seven lessons from the Greek election results
RELATED: Meet Greece’s new economic policymakers
RELATED: As Schäuble sneers, Greeks agree four-month debt deal
RELATED:  What are the chances of snap elections (again) in Greece?

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Never mind that the creditors’ offer could be moot by next Sunday.

Never mind that Greece faces, at best, a technical default on Tuesday.

Never mind that the referendum caught everyone else in Europe off guard, eliminating what little goodwill Greece had left.

Never mind that Greece’s constitution seems to forbid direct referenda on fiscal matters.

Never mind that it seems to be accelerating a financial crisis now mandating extraordinary measures in Athens.
Continue reading Greek referendum — the right step at a dangerously wrong time →

European Union, Germany, Greece

As Schäuble sneers, Greeks agree four-month debt deal

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schaublePhoto credit to Bloomberg News.

If you want to know which side ‘thinks it won’ in today’s temporary deal between Greece and the Eurogroup, you need look no further than the extraordinary statement from German finance minister Wolfgang Schäuble, who essentially spiked the ball in Greece’s face after winning a key concession from its new anti-austerity government that it would honor existing Greek commitments to its creditors in exchange for a four-month extension of its bailout program:Greece Flag Icon

“Being in government is a date with reality, and reality is often not as nice as a dream,” the conservative veteran said, stressing Athens would get no aid payments until its bailout program was properly completed. “The Greeks certainly will have a difficult time to explain the deal to their voters.”

Even if you think the Greek government had little leverage to force the Eurogroup to accept its demands and even if you think today’s temporary deal is at least a step on the path to a stronger Greece within the eurozone, I can’t think of a statement from any European leader more at odds with reality and basic political acumen since the out-of-touch musings of former French president Valéry Giscard d’Estaing in 2004 and 2005, when he was in charge of the process to enact a constitution for the European Union, a process that died when France itself rejected the constitution in a referendum.

It’s as if Schäuble (pictured above with Greek finance minister Yanis Varoufakis) actively wants to feed the notion that Germany dominates European policymaking. His comments might play well in Munich or Stuttgart, but they’ll be poisonous in Madrid and Athens, and cause some amount of indignation in capitals like Paris and Dublin. 

Imagine a different response, whereby German chancellor Angela Merkel delivered a statement that, even while holding steady against concessions to the Greek government, acknowledged Greece’s economic suffering and acknowledged that the Berlin-led bailouts have caused more harm than anticipated — an admission, by the way, that the International Monetary Fund was already making years ago.

A German Europe, and a divided Europe

Greece is in a depression that’s now lasted six years and runs deeper than the Great Depression of the 1930s in either Europe or the United States. Unemployment is rife in Spain, so much so that an untested anti-austerity group, Podemos, now leads polls for the general election later this year. Italy, for now, has placed its trust in its young Tuscan prime minister Matteo Renzi, who seems to have far more commitment to reform than ability to carry it out. Romania and Bulgaria, despite responsible budget policies, are being hollowed out by depopulation and migration to wealthier EU countries.

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RELATED: What a Eurogroup-brokered deal with Greece might look like

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Europe’s best and brightest are leaving economically depressed regions and countries, and they’re heading to London. To Amsterdam. To Frankfurt. That’s left national governments responsible for fiscal commitments to social welfare, education and health care. While its most ambitious citizens look abroad for careers, these national governments find their revenues shrinking and their obligations increasing. Continue reading As Schäuble sneers, Greeks agree four-month debt deal →

Greece

EU should give Tsipras a chance to govern

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tsipraswins

With his sweeping victory today in Greece, Alexis Tspiras has led the far left to its only victory since his country’s return to democratic rule in 1974.Greece Flag Icon

In so doing, Tsipras (pictured above) and the socialist SYRIZA (the Coalition of the Radical Left, Συνασπισμός Ριζοσπαστικής Αριστεράς) have upended the political order in a country that, for more than four decades, shifted between the rule of political elites on both the center-right and the center-left, often hailing from two or three dozen well-connected families. Tsipras’s victory today is as much the defeat of that Greek political elite on both the left and right, which cumulatively share responsibility for irresponsible budget policies and widespread corruption in government.

More recently, they have also shared responsibility for the Greek bailout that ceded significant control over Greek fiscal policy to the ‘troika’ of the International Monetary Fund, the European Central Bank and the European Commission. Center-left prime minister George Papandreou (himself the son of a prime minister) accepted the first bailout in his term, between 2009 and 2011. Since 2012, a grand coalition headed by center-right prime minister Antonis Samaras and center-left deputy prime minister Evangelos Venizelos, have also accepted the increasingly onerous demands of the troika in exchange for the funding that has floated Greece’s treasury since the eurozone crisis of 2010.

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RELATED: What to expect from Greece’s January 25 snap elections

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Tsipras, at age 40, emerged in the lead-up to the 2012 parliamentary elections, by consolidating support on the Greek left in his denunciations of the grinding course of austerity that accompanied Greece’s humiliating bailout. Then, Greece was only in its third consecutive year of recession and, remarkably, the unemployment rate was actually lower then (24.8%) than it is today (25.8%), with the country nominally back on the path to GDP growth.

But for all the smoke of the election campaign, and for all Tsipras’s fiery rhetoric, the reality is that Tsipras and SYRIZA have spent the past three years moderating their positions and preparing for the day when Tspiras would lead the next Greek government, which may prove more ‘pragmatic left’ than ‘radical left.’

In 2012, Tspiras was ambivalent (at best) about Greece’s eurozone membership. Today, however, Tspiras is adamant, along with a wide majority of the Greek electorate, that Greece must retain the single currency. Whereas SYRIZA once mused about defaulting on greek debt and ripping up the ‘memorandum’ of stipulations that governs the country’s two bailouts, which totals €240 billion, the party now pledges to renegotiate Greece’s debt burden with EU leaders in an orderly manner. Though Tspiras and other SYRIZA leaders are committed to reversing the grinding austerity of the past six years, they will seek to do so in the context of a balanced budget (as opposed to the 4% to 5% surplus that outgoing prime minister Antonis Samaras hoped to achieve).

Tsipras, in short, will govern more like a social democrat than a democratic socialist. As prime minister, with the full weight on government on his shoulders, Tspiras will be hard-pressed to deliver appreciable relief from six years of austerity, recession and unemployment. To devote more funding for public services and boost growth will require a very different skill set than the campaign oratory of the past three years.  Continue reading EU should give Tsipras a chance to govern →

European Union, Switzerland

How the ECB forced Switzerland’s hand

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SNB

Almost as soon as it happened last Thursday, nearly every economist in the world started asking — just why, after three years of maintaining a currency floor for the Swiss franc, did the Swiss National Bank suddenly declare that it would no longer intervene in currency markets to keep the franc‘s value artificially low?
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The truth is that we won’t fully know until Thursday, when the European Central Bank is expected to announce a bond-buying scheme that ECB president Mario Draghi has been pushing for months — according to reports, a €550 billion program that amounts to Europe’s first major attempt at introducing quantitative easing into its monetary policy as the threat of deflation creeps across the eurozone. But it’s becoming clearer that the two events are related.

Draghi’s announcement that Europe will join the Bank of England, the US Federal Reserve and the Bank of Japan by dipping its toes into the waters of quantitative easing almost certainly forced the SNB’s hand last week. The looming ECB decision set into motion a set of domino actions throughout the world, starting with the SNB’s decision last week, which in turn caused a mini-crisis in Poland, where nearly half of the country’s mortgages are denominated in francs. It’s essentially the first major political challenge for Poland’s new prime minister Ewa Kopacz, who succeeded Donald Tusk last year when he became the president of the European Council.  Kopacz faces a tough election hurdle in elections that must be held this year before October.

Meanwhile, Denmark is now under pressure, too, with its central bank forced to lower interest rates in the face of speculation that, like Switzerland, it might be forced to abandon its permanent policy of pegging the Danish krone to the euro, under which the krone trades within a 2.25% band of a rate of 7.46 krone to the euro.

Suffice it to say we’ll know a lot more in 24 hours. For now, we’ve had almost a week to piece together our best understanding of the Swiss bombshell. Continue reading How the ECB forced Switzerland’s hand →

Italy

A guide to Italy’s post-Napolitano presidential puzzle

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Renzi NapolitanoPhoto credit to Roberto Monaldo / LaPresse.

Italy’s presidential election functions more like a papal conclave than a direct election or even like a party-line legislative vote like the recent failed attempts to elect a new Greek president.Italy Flag Icon

The long-awaited decision today by Italian president Giorgio Napolitano to resign after nine years in office is not likely to result immediately in snap elections in Italy, as it did recently in Greece. Nevertheless, the resulting attempt to select Napolitano’s successor presents Italian prime minister Matteo Renzi with perhaps the most treacherous political task since taking office last February.

Napolitano’s legacy

Napolitano, at age 89, was anxious to step down after Italy relinquishes its six-month rotating European presidency this week. Elected president in 2006, Napolitano (pictured above, left, with Renzi), a former moderate figure within Italy’s former Communist Party, is Italy’s longest serving president, reelected to an unprecedented second seven-year term in 2013 when the divided Italian political scene couldn’t agree on anyone else after five prior ballots.

Critics refer to Napolitano as ‘Re Giorgio‘ (King George), but there’s little doubt that he was consequential during Italy’s financial markets crisis in late 2011 by nudging Silvio Berlusconi, who first came to power in 1994, out of office — seemingly once and for all. Napolitano’s behind-the-scenes maneuvering may have prevented Italy from the humiliating step of seeking a bailout from European authorities though his detractors argue that he circumvented the democratic process by engineering Berlusconi’s ouster and appointing former European commissioner Mario Monti as prime minister. Monti, who stepped down after 2013 national elections, largely failed to push through major economic reforms that many investors believe Italy needs to become more competitive, and that Renzi now promises to enact.

Napolitano, who will remain a ‘senator for life’ in the upper chamber of the Italian parliament, steps down with generally high regard from most Italians, who believe that he, in particular, has been a stabilizing force throughout the country’s worst postwar economic recession.

An opaque process to select a president

The process to appoint his successor involves an electoral assembly that comprises members of both houses of the Italian parliament, plus 58 additional electors from the country’s 20 regions — a total of 1,009 electors. Within 15 days, the group must hold its first vote, though it may only hold a maximum of two voter per day. For the first three ballots, a presidential candidate must win a two-thirds majority. On the fourth and successive ballots, however, a simple majority of 505 votes is sufficient. Continue reading A guide to Italy’s post-Napolitano presidential puzzle →

Germany, Greece

Merkel’s incredibly stupid New Year Grexit bluff

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It’s understandable why German chancellor Angela Merkel doesn’t want to cut any deals with Greece — no matter who wins the snap elections later this month.Greece Flag IconGermany Flag Icon

Making concessions, especially to a far-left, anti-austerity figure like potential prime minister Alexis Tspiras, could embolden every recession-weary country from Portugal to Romania to demand relief from Brussels and Berlin, and it could give substantive figures on the European left, including Italian prime minister Matteo Renzi, French president François Hollande and even German social democrats in Merkel’s own grand coalition, a platform to doubt the Berlin-dominated approach to fiscal policy throughout the eurozone.

According to Merkel (pictured above, right, with incumbent Greek prime minister Antonis Samaras) and much of the German electorate, the troika of the European Commission, the European Central Bank and the International Monetary Fund has already been too soft on Greece, lowering the interest on over €240 million in bailout funds and extending the repayment schedule.

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RELATED: What to expect from Greece’s January 25 snap elections

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Nevertheless, it’s incredible that Merkel and her aides take such a cavalier attitude to a potential Greek eurozone exit, which they apparently haven’t ruled out in the event that Tsipras’s leftist SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς) wins national elections in 18 days. Three years after ECB president Mario Draghi promised to do ‘whatever it takes’ to save the eurozone, Merkel now believes that Greece is expendable, that the eurozone is no longer subject to the domino theory that would make a ‘Grexit’ calamitous and that the eurozone is now governed by a chain theory that suggests a Greece-less eurozone will be rid of its weakest link.

tspiras

It may be smart domestic politics in Germany, where the anti-euro Alternative für Deutschland (Alternative for Germany) is gaining support on Merkel’s right flank in both state and federal politics, but it’s an incredibly tin-eared intrusion three weeks before Greeks vote. It certainly won’t help the beleaguered coalition government of center-right, pro-bailout prime minister Antonis Samaras, whose New Democracy (Νέα Δημοκρατία) narrowly trails SYRIZA in most polls. Greeks already realize that a vote for Tsipras (pictured above) brings with it greater uncertainty, so Samaras has some hope that the electorate will have doubts about handing power to SYRIZA. He certainly doesn’t need Merkel to make that point for him.  Continue reading Merkel’s incredibly stupid New Year Grexit bluff →

Germany

Photo of the day: Helmut Kohl at Brandenburg Gate

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amazingPhoto credit to Andreas Mühe/VG Bild-Kunst Bonn for BILD.

This is perhaps the most haunting photo in world politics in 2014.Germany Flag Icon

Helmut Kohl, who was first elected chancellor of West Germany in 1982 and who left office in 1998 following his final term as the chancellor of a reunified Germany, is today long out of frontline politics and, since a 2008 stroke, has been confined to a wheelchair. He sits alone in this photo for Bild at night in the glow of the Brandenburg Gate, one of many points that divided East Berlin from West Berlin for the better part of 28 years.

It’s astonishing that, with Sunday’s 25th anniversary of the fall of the Berlin Wall, which ultimately resulted in the reunification of Germany and became a harbinger of the collapse of the Soviet Union, we’ve almost reached the point where the Berlin Wall has been down longer than it initially stood.

Even as Mikhail Gorbachev, still around as an icon of the revolutionary change of that era (and despised, to this day, in Russia), is warning that Ukraine could spur a new 21st century cold war, Sunday was an opportunity to celebrate the universal desire for freedom. That was as true in 1989 as it is in 2014, when many walls still remain, from Gaza to China’s ‘great firewall.’

For Germany, the reunification of East and West has been very successful in some ways, others not. It’s almost comical today to imagine British prime minister Margaret Thatcher telephoning Gorbachev, frantically and practically begging him to stop German reunification. But when we think about the chiefly German-led European Union of 2014, with its emphasis on tight budgets (instead of GDP and jobs growth) and its peculiarly German reticence as regards debt and inflation (even in the face of growing deflationary pressure), there may have been something to Thatcher’s warnings, after all. Ulrich Beck captures the peculiar problem of German Europe in a new short book, translated earlier this summer into English.

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RELATED: Has the first Ossi chancellor been good or bad
for the former East Germany?

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German reunification is itself something of a cautionary tale about the perils of implementing a currency union in what, in 1990, was most certainly not an optimal currency zone. Though the past 25 years haven’t been horrific for the six eastern German states that once constituted the German Democratic Republic, it’s hard to say that the former GDR has done better than Poland or other former ‘Iron Curtain’ countries. That, in part, may have been due to the effects of conversion of East German currency on a 1:1 ratio with the West German deutsche mark.

Continue reading Photo of the day: Helmut Kohl at Brandenburg Gate →

Uncategorized

ECB’s Draghi on raising inflation in Europe: ‘We will do exactly that.’

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Italy’s Mario Draghi, the president of the European Central Bank, joined Stanley Fischer, the vice chair of the Federal Reserve, in an hour-long program at the Brookings Institution earlier today.European_Union

Draghi addressed at length both the ECB’s steps to confront deflation and the need for EU countries to enact bolder economic reforms in his remarks and in his discussion with Fischer, the former president of Israel’s central bank and a former professor at the University of Chicago who once taught Draghi.

Deflation as Europe’s chief economic threat

DSC00853Draghi stressed that he understands the biggest risk to European Union’s economic recovery is deflation. He noted that the ECB is transitioning from a more passive approach to a much more active ‘QE-style’ approach to the bank’s balance sheet — in part by moving last month to purchase private-sector bonds and asset-backed securities. Even if Draghi’s efforts still fall short of the kind of quantitative easing (e.g., outright asset purchases) that the Federal Reserve introduced to US monetary policy five years ago, Draghi committed himself to lifting the eurozone’s inflation from ‘its excessively low level’:

We will do exactly that.

It’s not exactly ‘whatever it takes,’ but it’s a sign that Draghi realizes the dangers that deflation presents, with the eurozone inflation rate falling to just 0.3%, the lowest level since the height of the eurozone’s existential sovereign debt crisis:

Euroarea-Inflation1

Draghi has been one of the leading voices for a more active ECB approach to boosting inflation to 2% within the next two years, though Germany’s powerful central bank, the Bundesbank, and its president Jens Weidmann (also a member of the ECB’s 24-person governing council), remains skeptical of full-throated quantitative easing.  Continue reading ECB’s Draghi on raising inflation in Europe: ‘We will do exactly that.’ →

European Union, Germany, Greece

An interview with Greek-German MEP Jorgo Chatzimarkakis

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Chatzimarkakis

If there’s anyone in European politics who straddles the line between the two cultural realities of Europe today, it’s Jorgo Chatzimarkakis.European_UnionGermany Flag IconGreece Flag Icon

Born in 1966 to Greek migrants in the Ruhr Valley, in what was then West Germany, Chatzimarkakis has served for the past 10 years as a member of the European Parliament from Germany’s liberal Freie Demokratische Partei (FDP, Free Democratic Party). 

Over the course of the past five years, that’s put Chatzimarkakis in one of the most unique roles of any European policymaker. As a German MEP, he belonged to a party that was one of the most outspoken critics of using German funds for what seemed, at the heart of the eurozone’s sovereign debt crisis, like an endless number of bailouts for troubled European economies, including Greece’s.

But as an MEP of Greek descent,  Chatzimarkakis also understood the emotional and social toll of the economic crisis from the other perspective, in light of the pain Greece continues to suffer due to the bailout — often referred to in Greece simply as the ‘memorandum,’ in reference to the Memorandum of Understanding that sets out the terms of the Greek bailout with the ‘troika’ of the European Central Bank, the European Commission and the International Monetary Fund.

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RELATED: In-Depth: European parliamentary elections

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Though the bailout program has kept Greece inside the eurozone, it’s come at a huge cost. The conditions Greece accepted in exchange for the loan program required tough budget cuts, tax increases, and reduced state salaries and pensions, exacerbating an economic downturn that, for Greece, has now developed into a full-blown depression. Unemployment is still nearly 27%, youth unemployment is even higher, and the Greek economy has contracted for six consecutive years:

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Cuts to education, health care and other programs have strained the Greek social fabric, civil strife and strikes are seemingly endless, and politician violence has increased. The neo-fascist Golden Dawn (Χρυσή Αυγή) is now the third-largest party in the Hellenic Parliament, despite the efforts of the current national government to prosecute many of its leaders. Though Greece’s economy may expand this year, for the first time since 2007, it’s clear that the effects of the downturn will reverberate for years to come.

In the 2014 European elections, Chatzimarkakis is running for the European Parliament in Greece, having formed a new political party, the Hellenic European Citizens (Έλληνες Ευρωπαίοι Πολίτες).  Continue reading An interview with Greek-German MEP Jorgo Chatzimarkakis →

European Union

In Depth: European Parliament

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(43) EU parliamentary chamber

On the last full weekend of May, European voters in 28 member-states with a population of over 500 million will determine all 751 members of the European Parliament.European_Union

The political context of the 2014 parliamentary elections

Since the last elections in June 2009, the European Union has been through a lot of ups and downs, though mostly just downs. After the 2008-09 financial crisis, the eurozone went through its own financial crisis, as bond yields spiked in troubled Mediterranean countries like Greece, Spain, Italy and Portugal with outsized public debt, sclerotic government sectors and economies operating near zero-growth. Eastern European countries, facing sharp downturns themselves, and a corresponding drop in revenues, implemented tough budget cuts and tax increases to mollify bond markets. Ireland, which nationalized its banking sector, faced similar austerity measures. European Central Bank president Mario Draghi’s promise in the summer of 2012 to do ‘whatever it takes’ to maintain the eurozone marked the turning point, ending over two years of speculation that Greece and other countries might have to exit the eurozone. Many countries, however, are still mired in high unemployment and sluggish growth prospects.

One new member-state joined the European Union, Croatia, in July 2013, bringing the total number to 28, though Iceland, Serbia and Montenegro all became official candidates for future EU membership:

eu-members-2013

Politically speaking, since the 2009 elections, only two of the leaders in the six largest EU countries are still in power (Polish prime minister Donald Tusk, a centrist, and German chancellor Angela Merkel, a Christian democrat) reflecting a climate that’s been tough on incumbent governments. Spain and the United Kingdom took turns to the political right, and France and Italy took turns to the political left, but none of those governments seems especially popular today — and each of them will face a tough battle in the voting later this month.

Of course, that’s only if voters even bother to turn out. Since the European Parliament’s first elections in 1979, turnout has declined in each subsequent election — to just 43.23% in the latest 2009 elections:

EU turnoutAt the European level, the Treaty of Lisbon, a successor to the ill-fated attempt to legislate a European constitution in the mid-2000s, took effect in December 2009, scrambling the relationships among the seven institutions.

 The elections, which will unfold over four days between May 22 and May 25, are actually about much, much more than just electing the legislators of the European Union’s parliamentary body, which comprises just one of three lawmaking bodies within the European Union. Continue reading In Depth: European Parliament →

Greece

Despite bond sale, Greece is still pretty far from normal

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On Wednesday, a bomb exploded outside the Bank of Greece.Greece Flag Icon

Though it injured no one, it was a stark reminder that, despite today’s apparently successful bond sale, Greece is pretty fucking far from okay, to steal a phrase from Pulp Fiction.

Astonishing just about everyone, Greece held its first bond sale for the first time in four years, raising  €3 billion ($4.2 billion) at a freakishly low yield of 4.95% for a five-year issue. But demand for the bonds was more in the range of €20 billion ($27.8 billion), which is over 10% of current Greek GDP:

The order book includes €1.3bn of orders from the arranging banks, but is a striking confirmation of the ravenous appetite for eurozone periphery debt. One person close to the deal said there had been more than 550 different investor accounts placing orders.

€3 billion is not a lot of financing compared to the €240 billion that Greece has received through two bailouts funded by the ‘troika’ of the International Monetary Fund, the European Commission and the European Central Bank. For Greek prime minister Antonis Samaras and his coalition government, the sale was more a symbolic success than anything else — it’s a signal that Greece is once again open for business in the international bond market and emerging from the worst of its debt crisis:

“The international markets have expressed in the clearest possible manner their trust in the Greek economy, their trust in Greece’s future,” he said. “They have shown trust in the country’s ability to exit the crisis, and sooner than many had expected.”….

Deputy Prime Minister Evangelos Venizelos also hailed the country’s return to the markets, arguing that it was a “major achievement that Greece did not turn into Argentina or Venezuela.” He also launched a strongly worded attack on SYRIZA, which objected to the bond issue, accusing the leftists of being “political parasites that live off the [EU-IMF] memorandum.”

“They should be ashamed of themselves,” he said. “Instead of appreciating this moment of joy for the Greek economy and society, they are miserable.”

Despite the government’s victory lap, Greece is still a mess, it remains stuck in a depression with a political system under duress.

Continue reading Despite bond sale, Greece is still pretty far from normal →

Israel, United States

Why Stanley Fischer is such an inspired choice as US Fed vice chair

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stanleyfischer

It’s really quite incredible that there’s been more ink spilled over the decision of the American Studies Association, a US-based academic group, to boycott Israel than the potential nomination of Stanley Fischer, the former governor of the Bank of Israel, to become the next vice chair of the US Federal Reserve.ISrel Flag IconUSflag

It’s somewhat ironic that at a time when many critics are attacking the ASA’s decision (is it morally right to boycott the exchange of ideas, academic debate and discussion?), Fischer’s transition from Israeli central banker to US central banker would be a spectacular opportunity — for Fischer, for the Fed, for Israel, for the United States and, if the initial reaction holds, world markets, too.  Reuters reported late last week that Fischer was offered the spot, though there’s not been an official announcement.

Janet Yellen, the current Fed vice chair, is US president Barack Obama’s nominee to chair the Fed after Ben Bernanke completes his second term on January 31, 2014, and she is expected to be confirmed as the new Fed chair by the US Senate in a vote later this week.

Fischer, as the number-two official at the Fed, would bring with him eight years of experience setting monetary policy for Israel and the rock-star status of one of the world’s most accomplished economists.  As a longtime professor at the Massachusetts Institute of Technology, he not only served as thesis supervisor to Bernanke, the current Fed chair, but also Mario Draghi, the chair of the European Central Bank.

As The Financial Times reported last week, Fischer has a ‘dream resumé’ for the position, topped off by an eight-year stint as Israel’s central bank governor that is universally acclaimed:

Some clues to how Mr Fischer thinks about monetary policy come from his tenure as governor of the Bank of Israel. He was one of the country’s most respected public figures; when he announced he would be stepping down earlier this year, one commentator said the country was losing its last ”responsible adult”.

His eight years as governor coincided with fast economic growth, low unemployment – currently 6 per cent – and low inflation. Israel survived the financial crisis in 2008-9 without seeing a single bank collapse.  Unlike his predecessor Jacob Frenkel, who had a tight focus on fighting inflation, Mr Fischer is credited with broadening the Bank of Israel’s remit to influence growth and employment. His decisions were marked by pragmatism: he slashed interest rates in the wake of the financial crisis, then abandoned economic dogma to try to hold down Israel’s currency, before raising rates as the economy recovered.

Fischer was so successful in stabilizing Israel’s economy that the Bank of Israel was already raising interest rates by September 2009 — if it hadn’t been for his age (he’s 70 today), he would have been a strong candidate to succeed Dominique Strauss-Kahn as managing director of the International Monetary Fund in 2011.

Born in what is today Zambia, Fischer spent his childhood there and in what is today Zimbabwe (and what was then the colonial apartheid state of southern Rhodesia).  Fischer first came to the United States in 1966 for his Ph.D in economics at MIT, and he remained there as a professor through 1988, when he took a position as the World Bank’s chief economist for two years.  From 1994 to 2001, he served as the first deputy managing director of the IMF during the Asian currency crisis of the late 1990s and other financial crises from Mexico to Argentina to Russia.  After a brief stint in the private sector with Citigroup, he was appointed governor of the Bank of Israel in 2005 by then-prime minister Ariel Sharon — and recommended by the finance minister at the time, Benjamin Netanyahu.  He holds dual Israeli and US citizenship, and he would have been as credible a candidate to lead the Fed as either Yellen or former treasury secretary Lawrence Summers.

As Dylan Matthews wrote earlier this year for The Washington Post, Netanyahu and Sharon took a big chance on Fischer, who wasn’t an Israeli citizen at the time of his nomination:

No matter — Fischer’s results were more than enough to assuage any doubts. No Western country weathered the 2008-09 financial crisis better. For only one quarter — the second of 2009 — did the Israeli economy shrink, by a puny annual rate of 0.2 percent. That same period, the U.S. economy shrank by an annual rate of 4.6 percent. Many countries, including Britain and Germany, fared even worse.

So what would his appointment mean for the Fed?  Continue reading Why Stanley Fischer is such an inspired choice as US Fed vice chair →

Austria

Meet Austrian chancellor Werner Faymann, Europe’s Superman of Keynesian economics

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Austrians go to the polls on September 29, and just as with Germany’s election last weekend, voters seem inclined to reward a government that has largely kept Austria’s economy strong through a time of recession and unemployment throughout much of the rest of Europe.austria flag

But German chancellor Angela Merkel has steered a largely moderate, pragmatic course over the past eight years in Germany, and it’s arguable that Germany’s economic success owes much to its position as Europe’s largest economy and its role as a leading global high-tech manufacturer than to any Merkel-era economic policies — if anything, Merkel’s center-left predecessor Gerhard Schröder pushed through the policies (including the Hartz IV labor and welfare reforms) that steeled Germany for the economic storm of the late 2000s and early 2010s.

In Austria, however, it’s been an even more sanguine story.

The country has a 4.8% unemployment rate, according to Eurostat, the lowest among all 27 countries in the European Union.  Its GDP dropped just 3.8% in 2008 (a narrower drop than in Germany), and it returned to growth thereafter — even in 2012, it managed to record GDP growth of 0.8% while most of the eurozone was mired in recession.

So what has Austrian chancellor Werner Faymann and his government done over the past five years in order to steer Austria out of the straits of the eurozone morass?  As it turns out, a lot.

While several European countries have served as battlegrounds for harsh transatlantic battles among economists over economic policy (the usual suspects, but also places like Iceland, Latvia and Estonia), you would think that neo-Keynesian economists would be shouting from the rooftops about Austria’s economic stewardship.  Don’t confuse Austria’s economic policy today with Austrian economics, as such, which is something very much the opposite.

Since his election in September 2008, Faymann has led a grand coalition between his own center-left Sozialdemokratische Partei Österreichs (SPÖ, Social Democratic Party of Austria) and the center-right Österreichische Volkspartei (ÖVP, Austrian People’s Party), and it’s about as anti-austerity a government as Europe has seen.

Given the strength of the Austrian labor movement, Austria immediately pursued the kind of work-sharing policies that Germany also adopted in the aftermath of the crisis when aggregate demand tumbled — the idea that shorter working hours for everyone would be a way to disperse the slack in the economy, thereby avoiding the wave of layoffs that we saw in the United States.

But Faymann also pushed through job training legislation that massively empowered Austria’s Arbeitsmarktservice (AMS, Austrian Employment Service), including strong benefits for the unemployed and the guarantee of a paid training internship for young Austrians in the marketplace.  Austria’s labor market has performed exactly the opposite of that in the United States — unemployment rose in Austria because more workers were seeking jobs, while the US unemployment rate has dropped partly because so many American workers have given up on finding employment.

Faymann also allowed Austria’s public debt to rise from around 60% in 2008 to 75% today in order to finance the jobs legislation and other stimulative measures to shore up Austria’s economy.  His government also took the lead in convincing the European Union and the International Monetary Fund to provide up to €125 billion to stabilize banks in the Central European and South Eastern European (CESEE) region, a strategy that worked to reassure global investors.  A financial panic in CESEE region countries, such as Hungary, would have led to massive losses for Austrian banks as well.  The idea is that a credible commitment from government at the outset of a financial crisis will stave off a larger financial panic.  Contrast the far less proactive European response to the wider sovereign debt crisis — it was only in July 2012, the eurozone crisis’s third year, that European Central Bank president Mario Draghi said he would do ‘whatever it takes’ to save the euro.

Faymann is campaigning on a platform of instituting a wealth tax on millionaires and institutionalizing a levy on the assets of large banks, both of which Faymann hopes will keep income inequality relatively low in a society that already has one of the world’s lowest Gini coefficients.

With a record like that, why isn’t Paul Krugman cheerleading for Faymann from the op-ed pages of The New York Times?  Here’s a European leader who has pursued as close to a Krugmanite economic policy as anyone.

For one, you could easily argue that Austria’s just been lucky.   Continue reading Meet Austrian chancellor Werner Faymann, Europe’s Superman of Keynesian economics →

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What Iceland’s election tells us about post-crisis European politics

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Iceland was supposed to be different.Iceland Flag IconEuropean_Union

In allowing its banks to fail, neo-Keynesian economists have argued, Iceland avoided the fate of Ireland, which nationalized its banks and now faces a future with a very large public debt.  By devaluing its currency, the krónur, Iceland avoided the fate of countries like Estonia and others in southern Europe trapped in the eurozone and a one-size-fits all monetary policy, allowing for a rapid return to economic growth and rapidly falling unemployment.  Neoclassical economists counter that Iceland’s currency controls mean that it’s still essentially shut out from foreign investment, and the accompanying inflation has eroded many of the gains of Iceland’s return to GDP growth and, besides, Iceland’s households are still struggling under mortgage and other debt instruments that are linked to inflation or denominated in foreign currencies.

But Iceland’s weekend parliamentary election shows that both schools of economic thought are right.

Elections are rarely won on the slogan, ‘it could have been worse.’ Just ask U.S. president Barack Obama, whose efforts to implement $800 billion in stimulus programs in his first term in office went barely mentioned in his 2012 reelection campaign.

Iceland, as it turns out, is hardly so different at all — and it’s now virtually a case study in an electoral pattern that’s become increasingly pronounced in Europe that began when the 2008 global financial crisis took hold, through the 2010 sovereign debt crisis in the eurozone and through the current European-wide recession that’s seen unemployment rise to the sharpest levels in decades.

Call it the European three-step.

In the first step, a center-right government, like the one led by Sjálfstæðisflokkurinn (Independence Party) in Iceland in 2008, took the blame for the initial crisis.

In the second step, a center-left government, like the one led by Jóhanna Sigurðardóttir and the Samfylkingin (Social Democratic Alliance) in Iceland, replaced it, only to find that it would be forced to implement harsh austerity measures, including budget cuts, tax increases and, in Iceland’s case, even more extreme measures, such as currency controls and inflation-inducing devaluations.  That leads to further voter disenchantment, now with the center-left.

The third step is the return of the initial center-right party (or parties) to power, as the Independence Party and their traditional allies, the Framsóknarflokkurinn (Progressive Party) will do following Iceland’s latest election, at the expense of the more newly discredited center-left.  In addition, with both the mainstream center-left and center-right now associated with economic pain, there’s increasing support for new parties, some of them merely protest vehicles and others sometimes more radical, on both the left and the right.  In Iceland, that means that two new parties, Björt framtíð (Bright Future) and the Píratar (Pirate Party of Iceland) will now hold one-seventh of the seats in Iceland’s Alþingi.

This is essentially what happened last year in Greece, too.  Greece Flag IconIn the first step, Kostas Karamanlis and the center-right New Democracy (Νέα Δημοκρατία) initially took the blame for the initial financial crisis.  In the second step, George Papandreou and the center-left PASOK (Panhellenic Socialist Movement – Πανελλήνιο Σοσιαλιστικό Κίνημα) overwhelming won the October 2009 elections, only to find itself forced to accept a bailout deal with the European Commission, the European Central Bank and the International Monetary Fund.  In the third step, after two grueling rounds of election, Antonis Samaras and New Democracy returned to power in June 2012.

By that time, however, PASOK was so compromised that it was essentially forced into a minor subsidiary role supporting Samaras’s center-right, pro-bailout government.  A more radical leftist force, SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς), led by the young, charismatic Alexis Tsipras, now vies for the lead routinely in polls, and on the far right, the noxious neo-nazi Golden Dawn (Χρυσή Αυγή) now attracts a small, but significant enough portion of the Greek electorate to put it in third place.

The process seems well under way in other countries, too.  In France, for examFrance Flag Iconple, center-right president Nicolas Sarkozy lost reelection in May 2012 amid great hopes for the incoming Parti socialiste (PS, Socialist Party) administration of François Hollande, but his popularity is sinking to ever lower levels as France trudges through its own austerity, and polls show Sarkozy would now lead Hollande if another presidential election were held today.

It’s not just right-left-right, though. The European three-step comes in a different flavor, too: left-right-left, and you can spot the trend in country after country across Europe — richer and poorer, western and eastern, northern and southern. Continue reading What Iceland’s election tells us about post-crisis European politics →