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I think there should be a TV series called "Europe's Got Talent!" in which all of the finance ministers and prime ministers/chancellors could appear and could explain why their public sector deficits are turning to shit and what they are going to do about it (with the exception of Germany, which would say that, sorry, it can't foergive any debts, because if it did, its voters would probably try to bring back the Fascists, or Communists, or whatever).
Then Simon Cowell, in association with fellow judges Paul Volker and Warren Buffett, could vote on who was talking the most crap.
I assume that Greece would be neck and neck with the UK at the moment. The markets took a tumble today, not because Simon Cowell said that Greek debt was worth less than his cousin's second hand car, but because Standard & Poor's said so. Yes, a eurozone's country's debt is now officially at junk status, having been downgraded by two notches.
It's a bit odd that the markets reacted so strongly, because the bad news came yesterday. That was when Greek debt went up to 13.55% - two points higher than that of Venezuela, a country where the President tends to nationalize anything that moves.
But even that 13.55% was academic, because the market in Greek debt was non-existent. The markets got fed up wwaiting for the EU to get its act together and do something, and went on strike. Greece needs to raise €9bn by May 19th, and no-one will lend it any money.
The EU likes to do things at its own pace. Brussels is full of people who like meetings, consultations, working parties and draft reports. Even the people, the insiders, who say that they HATE the bureaucracy, well, they love it really. But now the markets have shown the Brussels boys that free enterprise does not work as slowly as politics. Not only that, the old rule that "you can't fight the market" has been shown to be even more true. You can't blame the banks for creating a crisis because they lent too riskily, and then criticize them for refusing to lend because the lending would be too risky. The politicians have, indeed, been hoist by their own petard.
So where does the money have to come from? Well, now it becomes even more farcical. because it isn't just Germany that has to bail out Greece. Every country in the Eurozone has to contribute, including Spain, Portugal and Ireland -- which have a few deficit problems of their own, I recall. In a sense, this could create an economic domino effect (S&P certainly thinks that it might when it comes to Portugal).
However, the major point here is that S&P has, in effect, confirmed what I wrote a year ago, that the rescuing of the banks by transferring the debt to governments has led to government debt being downgraded. Politicians are not economists. This was shown by Papandreou's statement that it was all so unfair, because all that Greece was asking was to borrow at the same rate as the US and Germany does. Yeah, right.
Greece will restructure its debt; the rest of us (the UK less than the Eurozone, non-Europe less than the UK) will have to take a haircut on the debt. Per capita, it will not be a large amount (suppose it turns out to be €90bn in total, half Greece's actual debt -- that would come to about €800 for every economically active person in the Eurozone). But, it's not money to be sniffed at.
And the problem comes when some of the economically active people can't or won't pay. After all, Irish workers have probably got to find an extra couple of grand just to solve their own problems. An extra €500 might push them over the edge. If that happened, then the debt gets larger for other producers, enough perhaps to push them over the edge... and, well you can see where it leads.
Once again, the final question will come down to "can the political system take the strain of the pain that will have to be inflicted?" The more mature the political system, the more people are willing to accept any load of shit with a grumble rather than with a bomb, then the more likely it is that the political system will manage to muddle through. I doubt that there will be tanks in the streets in Norway or Sweden. But what about France? We've all seen what French farmers and truck drivers and transport workers are capable of the second their own pockets are threatened. For the past decade or more, the French government has treated with this problem with the canny strategy of caving in. But in future, well, the French government might not be ABLE to cave in, because that sword of "downgraded government debt" is no longer a hypothetical possibility. It just became real.
________
Then Simon Cowell, in association with fellow judges Paul Volker and Warren Buffett, could vote on who was talking the most crap.
I assume that Greece would be neck and neck with the UK at the moment. The markets took a tumble today, not because Simon Cowell said that Greek debt was worth less than his cousin's second hand car, but because Standard & Poor's said so. Yes, a eurozone's country's debt is now officially at junk status, having been downgraded by two notches.
It's a bit odd that the markets reacted so strongly, because the bad news came yesterday. That was when Greek debt went up to 13.55% - two points higher than that of Venezuela, a country where the President tends to nationalize anything that moves.
But even that 13.55% was academic, because the market in Greek debt was non-existent. The markets got fed up wwaiting for the EU to get its act together and do something, and went on strike. Greece needs to raise €9bn by May 19th, and no-one will lend it any money.
The EU likes to do things at its own pace. Brussels is full of people who like meetings, consultations, working parties and draft reports. Even the people, the insiders, who say that they HATE the bureaucracy, well, they love it really. But now the markets have shown the Brussels boys that free enterprise does not work as slowly as politics. Not only that, the old rule that "you can't fight the market" has been shown to be even more true. You can't blame the banks for creating a crisis because they lent too riskily, and then criticize them for refusing to lend because the lending would be too risky. The politicians have, indeed, been hoist by their own petard.
So where does the money have to come from? Well, now it becomes even more farcical. because it isn't just Germany that has to bail out Greece. Every country in the Eurozone has to contribute, including Spain, Portugal and Ireland -- which have a few deficit problems of their own, I recall. In a sense, this could create an economic domino effect (S&P certainly thinks that it might when it comes to Portugal).
However, the major point here is that S&P has, in effect, confirmed what I wrote a year ago, that the rescuing of the banks by transferring the debt to governments has led to government debt being downgraded. Politicians are not economists. This was shown by Papandreou's statement that it was all so unfair, because all that Greece was asking was to borrow at the same rate as the US and Germany does. Yeah, right.
Greece will restructure its debt; the rest of us (the UK less than the Eurozone, non-Europe less than the UK) will have to take a haircut on the debt. Per capita, it will not be a large amount (suppose it turns out to be €90bn in total, half Greece's actual debt -- that would come to about €800 for every economically active person in the Eurozone). But, it's not money to be sniffed at.
And the problem comes when some of the economically active people can't or won't pay. After all, Irish workers have probably got to find an extra couple of grand just to solve their own problems. An extra €500 might push them over the edge. If that happened, then the debt gets larger for other producers, enough perhaps to push them over the edge... and, well you can see where it leads.
Once again, the final question will come down to "can the political system take the strain of the pain that will have to be inflicted?" The more mature the political system, the more people are willing to accept any load of shit with a grumble rather than with a bomb, then the more likely it is that the political system will manage to muddle through. I doubt that there will be tanks in the streets in Norway or Sweden. But what about France? We've all seen what French farmers and truck drivers and transport workers are capable of the second their own pockets are threatened. For the past decade or more, the French government has treated with this problem with the canny strategy of caving in. But in future, well, the French government might not be ABLE to cave in, because that sword of "downgraded government debt" is no longer a hypothetical possibility. It just became real.
________
