Posts Tagged ‘European Commission’

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Beware of the TROIKA bearing gifts. The TROIKA is the collection of letters we use to describe the IMF, ECB and EU Commission and the organisations that, have clubbed together to provide money to Greece.

And everyone, with the exception of people living on Mars and members of the TROIKA, knows that the conditions imposed on Greece in return for providing more loans have caused the country to suffer economic depression. The IMF has already broken ranks, and said the TROIKA should have realised that Greek debt was not sustainable much sooner than it did, and should have agreed a haircut, in the process greatly alleviating Greek pain, at around a year earlier than it did.

Now a trio of economists – Dimitri Papadimitriou, Gennaro Zezza, and Michalis Nikiforos – have produced a model based on stock flow analysis, which suggests that Greek unemployment might rise from the horrendous 27.4 per cent level it is currently at, to 34 per cent by the end of 2016.

The lexicon is bare. Words fail. If 27.4 per cent is horrendous what is 34 per cent unemployment?

The three economists say Greece needs a kind of latter day Marshall Plan. They are right. Austerity in some sectors of the Greek economy, in particular the public sector, has to be tempered with equally significant levels of investment.

If Greece was Germany, global leaders would not agree to such austerity because they would fear the political repercussions. But this is little Greece. It may have been a superpower 2,500 year ago, but Alexander is dead, Sparta defeated, and the TROIKA vents its fury like the Titans escaped from Hades. For more see: A New Stock-Flow Model for Greece Shows the Worst is Yet to come 

© Investment & Business News 2013

The EU’s financiers responsible for the Greek rescue scheme in 2008 have reacted strongly to accusations from the IMF that serious errors were made in the initial bail-out of Greece. Maybe it is time that these deniers started being a little more honest with themselves and us.

Haircuts can be good things. Sampson may not have agreed with such a sentiment, but, on the other hand, we tend to feel better afterwards. It can be like that with sovereign debt too, but in 2010, the so-called TROIKA – that’s the organisation made up of the IMF, EU commission and ECB – thought the very idea of a haircut of Greek debt was about as sensible as turning the Acropolis into a new apartment block.

Plenty of people warned that it was dangerous, and over and over again we were told that the harsh terms imposed on Greece were not necessary. Now the IMF is saying it was all a terrible mistake.

In a report published yesterday the IMF said: “Not tackling the public debt problem decisively at the outset or early in the programme created uncertainty about the euro area’s capacity to resolve the crisis and likely aggravated the contraction in output.”

Of course this is the IMF. It is not going to wear a hair shirt, or be too vocal in slating its partners for that matter.

It said that after the initial bail-out Greek public debt “remained too high and eventually had to be restructured, with collateral damage for bank balance sheets that were also weakened by the recession. Competitiveness improved somewhat on the back of falling wages, but structural reforms stalled and productivity gains proved elusive.”

And, it continued: “There are…political economy lessons to be learned. Greece’s recent experience demonstrates the importance of spreading the burden of adjustment across different strata of society in order to build support for a program. The obstacles encountered in implementing reforms also illustrate the critical importance of ownership of a program, a lesson that is common to the findings of many previous EPEs. To read the report, go to Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arrangement 

A spokesman for the EU commission said: “We fundamentally disagree… With hindsight we can go back and say in an ideal world what should have been done differently. The circumstances were what they were. I think the commission did its best in an unprecedented situation.”

ECB President Mario Draghi has entered the debate too, saying: “We tend to judge things that happened yesterday with today’s eyes. We tend to forget that when the discussions were taking place the situation was much, much worse.”

Hindsight bias is indeed a real phenomenon, and maybe we are all too keen to claim wisdom after an event. Psychologists can even cite studies to show that we have a distorted view of our own history, claiming, or even believing we predicted certain events when in fact we did no such thing.

But on this occasion citing hindsight bias as an excuse is not good enough.

Plenty of media, including, but not only, this publication warned at the time that the TROIKA was failing to see reality, that it was punishing Greece unnecessarily and that debt has to be cut via write-downs.

The TROIKA ignored what was obvious to outsiders. To now claim it had no way of knowing; that we are applying hindsight bias shows it has not learned anything. It is, frankly, arrogantly ignoring what is happening around it, stuck as it is in an ivory tower, or wherever it is that these financiers live.

There is a lesson today. Still the TROIKA, EU Commission and grandees of the Eurozone claim that the worst is over; that the troubled economies of indebted Europe are on the road to recovery, and by doing so they continue to make fatal mistakes.

What will happen in two years’ time, when the IMF says that too much austerity in 2013 led to unnecessary human hardship? Will the TROIKA accuse the IMF of hindsight bias, and say it had no way of knowing this at the time?

Rather than denying errors, perhaps the TROIKA et al, should tuck into some humble pie, and then, just maybe they will notice they are repeating this mistake.

© Investment & Business News 2013

China is not happy with the EU, the EU is not happy with China, and the British Solar Trade Association seems to side with China.

The EU has imposed anti-dumping duties on China’s solar panel exports. China has responded with tariffs on Europe’s wine exports.
Actually, this is the EU compromising. It is phasing in the tariffs much more slowly than originally intended, and they will, in any case, be at a much lower rate.

The EU says China is using subsidies to sell its panels on the cheap, and reckons they should be some 88 per cent more expensive.
On the other hand, the solar industry has received large subsidies in Europe, too.

Ray Noble, PV Specialist at Solar Trade Association (STA), reckons that the real problem for the EU is that the European industry has not invested as much as it should have. It has taken the money from subsidies, and, as it were, run. China has invested far more and consequently enjoys greater scale. That is why it can sell panels for less money than European companies.

STA CEO Paul Barwell recently said, “If duties are imposed, panel prices will rise across the board, and consumers and installers alike will lose out. It makes no sense to safeguard 8,000 manufacturing jobs by sacrificing up to 200,000 jobs in the wider industry.”

Mr Noble said, “I suggest David Cameron and Angela Merkel work together to sort out these absurd rules and remove this lingering market uncertainty, so that industry can get on with installing low cost, clean and affordable solar energy.”

© Investment & Business News 2013

Where were you? Where were you when you heard about the death of Diana? Where were you when you heard about the release of Mandela? If you are more advanced in years, where were you when Kennedy was assassinated? There are certain things we never forget. If you are Cypriot, here is another question of that ilk. Where were you when you heard about plans to force all depositors in Cypriot banks to pay a levy to meet the costs of bailing out the economy?

Okay, the plan got revised to something not quite as unpleasant, but still pretty awful. All that happened three weeks or so ago now. Cyprus was left reeling, but its bad luck got largely forgotten by the media, and all that was left was a nasty taste, and renewed fears that the Eurozone is on a one way route to somewhere not very pleasant.

The European Commission did not forget, however. Its economists sat down and got on with the important task of revising their projections for Cypriot growth. Then the penny dropped. Because Cyprus has to contribute seven billion euros to its 17 billion euro bail-out, the economy will suffer. It revised projections for 2013 growth downwards from minus 3.5 to minus 8.8 per cent, and 2014 growth from minus 1.3 per cent to minus 3.9 per cent. These are nasty numbers – although some economists reckon its forecasts are too optimistic. Alas, if Cypriot GDP is going to be lower than previously expected, it will need a bigger bail-out. In fact the commission has worked out that Cyprus now needs six billion more than was previously thought, or 23 billion euros.

The European Stability Mechanism (ESM) and IMF had already agreed to contribute 10 billion euros to the original bail-out. Would they add to their funding? Errr no: they are staying put.

So that means Cyprus has to raise 13 billion euros, instead of the seven it was originally required to raise.

Do you see where this is going? If Cyprus has had so much difficulty working out how it will lay its hands on seven billion euros, and the resulting costs will cause GDP to slump even more than previously feared, how on earth is it going to rustle up 13 billion euros? And then what effect will that have on the economy, and how much will GDP contract as a result, and how much more money will Cyprus have to raise, and how much will GDP then contract as a result, and how much money will Cyprus then have to raise, and now much will GDP contract as a result, and then how much more money will Cyprus have to raise and…(shame the author is not being paid by the word, this example could carry on forever).

©2013 Investment and Business News.

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The European commission is not happy. It turned out that the latest cuts it enforced on Portugal were not legal – according to the Portuguese Constitutional Court. Really Portugal, you must try harder than that.

Back in May 2011 Portugal asked for help. The European Commission, ECB and IMF, collectively known as the TROIKA, agreed a 78 billion euros bail-out, but only if in turn Portugal implemented some pretty severe cuts.

Of five billion euros worth of cuts agreed by Portugal’s government, the Constitutional Court has rejected around a fifth. The court didn’t much like the idea of cutting the pay and pensions of public sector workers, and rejected plans to tax unemployment subsidies.

Portugal’s Prime Minister Pedro Passos Coelho has said it’s a national emergency.

Portugal’s harsh Dickensian masters, The European Commission, said: “Any departure from the programme’s objectives, or their re-negotiation, would in fact neutralise the efforts already made and achieved by the Portuguese citizens.”

So what is Mr Coelho to do? He said that the money must he be found from elsewhere, probably meaning public sector cuts, less money spent on education, health and social security.
But how can Portugal cutting spending on education be good for the country in the long run?
It just goes to show that the belief held by the markets that the Eurozone crisis was near its end was based on some pretty some pretty optimistic readings of the data.

Actually forget about the data; there is more to it than that. There are people at the other end of Eurozone austerity, and right now the seeds for all kinds of social unrest are being sown.

Austerity can work when applied in isolation. But when it is applies across more than one continent, it looks like economic suicide.

©2013 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here