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The Greek Parliament passed a property tax levy, the latest austerity measure imposed by Greece’s creditors as a condition for receiving the next installment of funding from the Euro bailout mechanism. Of course, a large part of Greece’s deficit problem is poor tax collection, so I don’t see how new taxes will ameliorate the situation; hiring more tax collectors would make too much sense.
The next big vote for Europe comes in Germany on Thursday, with Angela Merkel desperate for passage of an expansion of the Euro bailout fund, the EFSF. Note the undercutting of the premise in this excerpt from the NYT:
Angela Merkel, Germany’s chancellor, finds herself once again in the politically perilous position of balancing the future of Europe and its common currency against a German public that is unhappy at the price the country will have to pay. And, as before, as the euro crisis has unfolded, she finds herself fighting for measures that most experts have already dismissed as inadequate.
Mrs. Merkel needs parliamentary support to carry out decisions made more than two months ago in Brussels, and to bolster her case she met with the Greek prime minister, George A. Papandreou, on Tuesday evening in Berlin. It was a kind of morality play, intended to show to skeptical German voters how the Greek government intends to keep its promises to continue cutting public spending and services to meet stiff deficit requirements, despite increasing political opposition.
Mr. Papandreou spoke again of the “great will for change” in Greece, while Mrs. Merkel talked once more of her “confidence” that her wavering parliamentary coalition would vote on Thursday for an expansion of the European bailout fund, which was agreed to more than two months ago in Brussels.
The cynicism is pretty transparent.
The German vote is a precursor to any new plan, which using leverage still to be defined could boost the EFSF from $600 billion to $2-3 trillion, ringfence Spain and Italy and allow a debt restructuring (read: partial default) for Greece. But the German Finance Minister Wolfgang Schauble “ruled out an increase in the size of the euro zone bailout fund,” even though that’s a key to the entire plan. And you get the sense that the Times’ Stephen Erlanger has had it with the morality play that European leaders are playing out:
The German analysis, shared by the Dutch and others in prosperous northern Europe, like the Finns, sees as the main problem the indiscipline and profligacy of others, especially in the south, like Greece, Portugal, Italy and Spain, which have run up high debts or fiscal deficits.
To rebuild confidence, this analysis says, the sinners must repent, restructure their economies and fix themselves. The road to redemption requires hard work, discipline, sacrifice and pain, even punishment for previous misbehavior [...]
The problem with the German analysis, notes Simon Tilford, chief economist for the Center for European Reform in London, is that it is not simply self-righteous, ignoring the bad loans German banks made to the troubled nations, but arguably wrong. It is “probably incompatible,” he added, with the survival of the euro zone, which all leaders insist is their aim.
Growth is the key, the counter-argument goes, not austerity.
Europe has two choices, and continent-wide austerity leading to recession is not one of them. They can either undergo a greater fiscal integration or they can break up. This half-step policy that relies on morality rather than reality and that keeps using a German anti-inflationary monetary policy for countries that need to massively devalue their currency to get out of their troubles, is destined for complete failure.
Now some member nations of the Eurozone want banks to take a bigger haircut on Greek debt. France is resisting because its banks are the most exposed, along with the European Central Bank, which is just fronting for its clients.
The infighting precludes the stronger unification option, and most member states don’t want the loss of sovereignty that would follow. And a euro breakup is seen as out of the question. So policymakers are making the wrong choice again.
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Merkel, Schaeuble, etc., are having to message the German voters who won’t tolerate progress paid by their own dime. The official harshness of late may be for show to soothe the trolls rather than a take on what’s really going on, no?
The worst enemies of Brussels may be voters in the more prosperous countries there.
great reporting on the critical economic issue of the day
i’ve seen stories floated about greater europe zone integration but i find it hard to believe it is politically possible
which leaves greek default, eu breakup, and the end of the euro
why the markets and the u.s. are pretending otherwise eludes me
All the shorts have not been placed yet.
yeah, but who is buying? that’s the question
something fishy going on, i suspect
In my experience, when people announce in determined tones that “X is not an option,” X is pretty much what’s going to happen.
No doubt. Impossible to know from the outside, which is why I don’t bother to try.
In the case of the commodities bubble, it is the way futures markets work. (Wray doesn’t get to the heart of the matter until about 8 paragraphs from the end.)
On edit: Forgot link http://www.nakedcapitalism.com/2011/09/randy-wray-the-biggest-bubble-of-all-time-%E2%80%93%C2%A0commodities-market-speculation.html
spot on
I noted that http://my.firedoglake.com/papau/2011/09/27/germany-must-save-its-economy-via-a-controlled-greek-default/ was the likely plan given the success of the pretend morality of killing US Banks over housing so the hedge funds could pick them up cheaply – the EU morality play of no Greek bailout because they over bought German goods just screws Germany and the EU economy.
The hedge funds have stopped guessing how the market will move and are now in the business of playing with public opinion so as to make their shorts work.
The analysts may be fed up but the highest judge in Germany just put the kibosh on Merkel moving forward. It’s time to cut up the slacker brother-in-law’s credit card.
http://www.telegraph.co.uk/finance/financialcrisis/8790785/German-turmoil-over-EU-bail-outs-as-top-judge-calls-for-referendum.html
The best answer would have been to stop the banks (PIGS pols) from stupidly lending (borrowing) too much in the first place. Having passed up that chance, Euro “leaders” now find themselves rather fucked.
Yes, but the slacker brother-in-law has expenses (unfunded pensions, et. al.)
Too bad. Those pensions are going to have to be reduced.
Iceland did default, ensured accountability to people who are responsible for it and they are slowly working their way out of the ditch they drove into. Iceland can be now sure their future policy makers will not make the mistake again.
Why all this patchwork for Greece so that crisis keeps on popping up. Default is the obvious solution when Greece people are not willing to put with the patchwork stuff.
The “problem” with many of these stories is that they are from the corporate media, OR biased by it, ie. corporate media or corporate-controlled government.
What do the German people want? Who knows, this ain’t about them. It’s about the monied men pushing their goals.
Same for France.
Same for any of these countries, including Greece and us.
Do I care if the banksters take a haircut? Do I care if they start jumping of buildings? Not one whit. “Jump you Fers”.
That was the good thing about capitalism when it really was capitalism, ie. you take risks and you suffer the consequences. In the first depression, how many banksters jumped? There should be a national holiday commemorating that.
But even they learned. Now in this depression, they just bought politicians that put all the risk and consequences on the people.
Same for Germany, France, Greece, and here. It’s all being dumped on the people. And the corporate-controlled media and corporate-controlled governments are pushing this nonsense so that their masters don’t have to face the consequences of their actions.
This is not the people speaking. All of this is just more corporate propaganda.
The “solution” has been obvious all along, but that would not protect the banksters, which is the only thing that matters. After all, banksters’ contracts are sacrosanct; labor contracts not so much.
i’ve read that the u.s. fed is propping up the european banks w some after-hours smoke and mirrors
looks like another timmeh special coming down the tracks
better run for your life
that’s right, i think
all the gnashing and histrionics is designed to spare the banksters
the plutocrats are trying to figure out how to use european middle class wealth and public property to pay the banksters debts
will they get away with it?
we’ll see
Before mass communications and the Interstate system those rip off artists on Wall Street came from shorter distances to Wall Street and basically they fleeced their hometown and most all the people that lived there .
Choice, face the music at home or take a short cut out the window. Remember the week before the SHTF they were living large kinda like when it got chilly on the Titanic.
“It’s looking like a morality play, in which creditors feel morally justified in punishing debtors.”
They haven’t read the parable of the unmerciful debtor, who is forgiven all his debt (when the banks were failing, and were bailed out in 2008), but then goes out and finds those that owe him much less, and pursues them without mercy. Genuine morality is very much against these merciless creditors …
The Fountain of Democracy
We’re all familiar with the Greek invention of democracy. What is not so well known is that Athenian democracy was invented as a way to keep the debtors from slaughtering the creditors. They had had money for not more than a generation, and within that brief time had still managed to develope a nasty debt crisis. The compromise that kept the debtors from getting rid of their debt by the simple and direct expedient of just getting rid of the creditors, was the adoption of democracy as a guarantee against future dishonest creditor behavior.
Oh, the other part of the deal was a seisakhthea, a “shaking off of burdens”, a general debt foregiveness and reset to zero. Democracy has gotten all sorts of good press and promotion down through the ages, because the creditors have found that they can buy off democracy. But no one has heard of seisakhthea, the twin and stronger partner of democracy. We could use a bit of seisakhthea right about now. Time for Greece to show us the way again.
From wiki:
“the pre-existing legal status, according to the account of the Constitution of the Athenians attributed to Aristotle, debtors unable to repay their creditors would surrender their land to them, then becoming hektemoroi, i.e. serfs who cultivated what used to be their own land and gave one sixth of produce to their creditors. Should the debt exceed the perceived value of debtor’s total assets, then the debtor and his family would become the creditor’s slaves as well. The same would result if a man defaulted on a debt whose collateral was the debtor’s personal freedom. The seisachtheia laws immediately cancelled all outstanding debts, retroactively emancipated all previously enslaved debtors, reinstated all confiscated serf property to the hektemoroi, and forbade the use of personal freedom as collateral in all future debts. The laws instituted a ceiling to maximum property size – regardless of the legality of its acquisition (i.e. by marriage), meant to prevent excessive accumulation of land by powerful families.”
In 2700 years we seem to have gone straight down hill – one wonders how the world would have been if the Greeks had defeated the Romans – or 1600 years later, defeated the Turks.
But at least we have the Germans to lead us.
What are odds of a “hektemoroi” ban on excessive property (wealth) size – I suspect it would not get by “American Exceptional-ism” and indeed not get by German virtue and hard work ethics.
It is difficult to stop people, companies, or countries from taking money that is offered. It is better to let the banks that made the loans to TAKE THE LOSS:
http://www.ritholtz.com/blog/2011/09/take-the-loss/
This is not going to “let people, companies or countries” “off the hook”, they will have defaulted and have to go through some form of BK, but it will not let those who knowingly made fraudulent or corrupt loans “off the hook” either, they will perhaps also go BK, or quit making stupid loans and quit expecting the taxpayer (you and I) to bail out their toxic debt.
Greece enacting a property tax? Really? Greece, where tax evasion is considered both a game and a birthright, trying to collect taxes? Who’d a thunk it?
(Read recently where some Greek newspaper hired a plane and flew over Athens taking pictures of homes with swimming pools, which are supposed to be reported to the government and raise your property tax bill. When the finished counting there was a slight discrepancy: something like 29 pools listed on the property tax rolls and north of 16,000 actual pools.)
Austerity is the wrong tactic for the debt crisis, but at some point Greece is also going to have to develop a way to enforce its tax laws and collect, you know, actual revenue with which to finance government.
So 16,000 pools minus the 29 reported to tax authorities comes to 15,971 rogue pools off the books. I take that as an underground economy at work.
Surely the folks in charge could not have been unaware all along, and there must be lots of other similar situations ongoing.
Those excess pools, many of which would have been unaffordable had they been taxed?, did stimulate the pool construction niche in Greece. And that money subsequently recycled toward somewhere else.
However, the pool spending must have diverted economic activity from arguably more valuable purposes, including gov’t revenue taking a portion — that’s just my intuitive hunch.
So what are the real costs of an underground economy? Or is it actually a wash? At this point I wonder why anyone in Greece bothers to even vote.