We hope that you’ll look around the entire blog, but here are all the AFOE posts of Edward Hugh. One suggestion to the NYT editors — an extra comma is needed to ensure that people don’t think there’s a blog called A Fistful of Euros Global Economy Matters.
UPDATE: The NYT article now includes the necessary comma and a link (which may have taken the site down for a brief period).
Here’s the concluding statement of the most recent IMF visit to Lithuania. As with the Spain statement of a few days ago, it is noteworthy for its bluntness — these things read much less like bland compromise statements than they used to. A basic indication of how troubled things are –
with real GDP only recovering its pre-crisis levels in 2014/15
And even that doesn’t take account of population growth. So in terms of levels, this is going be at least a 6 year slump.
The Irish parliament is during today and tomorrow rushing through the legislation that allows the highly indebted country to make an apparently profitable loan to Greece as part of the Eurozone rescue package. Here is the actual Irish legislation which is just one page; the main action is in the attached schedule which is the Intercreditor Agreement signed between the Eurozone countries excluding Greece that governs the overall loan. Here’s a little irony –
This Agreement and any non-contractual obligations arising out of or in connection with it shall be governed by and shall be construed in accordance with English law.
Thus, as with the day-to-day operating language of the Eurozone, when it came time to need a legal architecture for an agreement among the countries, it is supplied by its most prominent non-member.
From the outside looking in, someone trying to figure out exactly why Standard and Poor’s downgraded Greece and Spain — the former to below investment grade — has only the press releases to go on. And from each, it seems clear that the downgrades are driven by the forecasts for GDP, nominal and real.
Greece — Under our revised assumptions (see below), we expect real GDP to be nearly flat over 2009-2016, while the level of nominal GDP may not regain the 2008 level until 2017.
Spain — Standard & Poor’s credit analyst Marko Mrsnik said .. ”We now project that real GDP growth will average 0.7% annually in 2010-2016, versus our previous expectations of above 1% annually over this period.” We have also revised our views on the GDP deflator, so that we now expect nominal GDP to regain the 2008 level by 2015; previously, we had assumed that nominal GDP would exceed the 2008 level in 2013.
Writing in Sunday’s New York Times, Robert Kaplan writes one of those geopolitical big-think pieces capable of launching a thousand blog posts. He argues that Greece’s current predicament, and by extension that of Italy, Portugal, and Spain lies in its position on the Mediterranean and in the type of land in contrast to northwestern Europe which was less conducive to oligarchical land-owning patterns. Religion then formed a crucial overlay on geography –
It is not only the division between north and south that bedevils Europe. In the fourth century, the Roman Empire split into western and eastern halves, with dueling capitals at Rome and Constantinople. Rome’s western empire gave way to Charlemagne’s kingdom and the Vatican: Western Europe, that is. The eastern empire, Byzantium, was populated mainly by Greek-speaking Orthodox Christians, and then by Muslims after the Ottoman capture of Constantinople in 1453.
Now if you’re into a philosophy of history that sees it all as tectonic plates of deeply-rooted influences, this will seem logical. And perhaps because Kaplan doesn’t want to sound like too much of pessimist, he ends on this note –
Are the two crises alike? Consider the similarities. In each, an unexpected event in a forgotten part of the system ends up having global ramifications. The unexpected event occurs in a system that needs constant motion for its effective operation: as long as the securities/passengers can be moved on to the next stage, the system keeps functioning. When one part of it stops working, the rest quickly breaks down. But there’s more.
News item – In the village of Gorzno, in northern Poland, the streets were largely empty as people stayed home to watch television.
“It is very symbolic that they were flying to pay homage to so many murdered Poles,” said resident Waleria Gess, 73.
“I worry because so many clever and decent people were killed,” said high school student Pawel Kwas, 17. “I am afraid we may have problems in the future to find equally talented politicians.”
The much over-used word “irony” doesn’t capture the link between a Katyn forest commemoration and the deaths of so many people from today’s government of Poland. God bless Poland.
Greek Prime Minister, George Papandreou, on BBC 1′s The Andrew Marr Show –
ANDREW MARR: It has been reported that you’d appealed to the Chinese and indeed possibly also to the Russians for financial support, that you wanted to sell bonds to those countries.
GEORGE PAPANDREOU: Well actually …
ANDREW MARR: Can you clear that up?
GEORGE PAPANDREOU: Yes. Well actually we haven’t, but we are of course open to diversify our portfolio.
ANDREW MARR: So you wouldn’t rule out Chinese or Russian …
GEORGE PAPANDREOU: I wouldn’t rule out different sovereign funds being interested in our bonds. Also we would like to diversify and will do so if that’s possible.
From the Abu Dhabi newspaper The National, quoting a person familiar with the Dubai World debt restructuring talks –
The Abu Dhabi Government intervened in the Dubai World situation last December with an injection of $10bn of bonds that enabled Nakheel to pay a $4.1bn bill for a sukuk Islamic bond. Some $4.9bn of that total sum has been spent, the person said, with the balance still available for the DFSF. “The $10bn will be enough because it has to be enough,” he said.
“It is akin to Greece. If the EU just bailed out Greece, it would be like throwing good money after bad.”
Two things to note. The Greek PM did not restrict himself to Russia or China in the specification of possibly interested sovereign funds vis-a-vis Greek government debt. Gulf funds would be an obvious alternative. But The National’s probably well-connected source makes it sound like Abu Dhabi might be viewing Greece and Dubai as similar situations and thus sees its portfolio weight already as high as it wants for such circumstances. And that’s despite their differences. Dubai World is a state-owned but commercial company already in debt restucturing negotiations while Greece clearly has some fiscal restructuring to do, but not debt. But still. If they’re hoping to sell bonds in the Gulf, they may have some marketing to do first.
From the European Commission assessment and recommendations for Greece’s stability and growth plan –
Over the last several years, the external accounts of the Greek economy have deteriorated significantly, with the high and persistent external imbalances mirroring to a large extent, the marked deterioration of the country’s fiscal position. The net international position has markedly worsened since 2004. The negative net international investment position already exceeds 115% of GDP in 2009. Consequently, the government sector is not only absorbing the main part of the available external financing, but also crowding out private-sector access to financing (p19).
That’s one way to look at it. The government has done all the borrowing from abroad in recent years. The other way is to ask: what if that same public borrowing had to be done domestically? Then you’re into the simple Keynesian mechanics whereby the only way to achieve domestic lending to the government is to compress economic activity so much that the private sector becomes a net saver. Current account correction through expenditure reduction. That’s Ireland. And note: even on the revised figures, Greece will have had an extremely mild recession in 2009 and 2010 by global standards. Yes there are structural problems. This highlights one key thing. The hawks who compare Greece to, say, Ireland, present the matter as coming down to the willingness to take on the public sector. But it’s also about the willingness to pull the rug from under your GDP. You’re only crowding out your private sector when there’s a private sector generating enough activity to be crowded out.
To anyone who wasn’t immersed in the finer details of the Treaty of Lisbon, January was a confusing month. Lisbon was supposed to put an end to that rotating presidency of the European Union by establishing a permanent Council presidency headed by Herman Van Rompuy and a high representative for foreign policy, in which case Henry Kissinger’s famous question — if I want to phone Europe, who do I call? — seemed to have been reduced to a fairly small number of people.