The Greek Parliament has just passed more austerity measures, including layoffs and salary reductions for civil servants. Somewhere, Paul Krugman is screaming into a pillow.
As we all know, insanity is doing the same thing over and over and expecting a different result.
“This is what passes for good economic news in Europe: Spain just added 265 jobs.”
“Down So Long, It looks Like Up to the Euro Zone,” Jack Ewing, NYT
In case you’re wondering, there are almost 5 million unemployed people in Spain.
Aside from Bill, Barry has another BFF, Mario.
The head of the European Central Bank, Mario Draghi, announced today that the bank will buy lots and lots of bonds from struggling euro zone countries to help reduce their borrowing costs, especially Italy and Spain. Draghi in effect drew a line in the sand, saying “The euro is irreversible.”
One country voted against the bond-buying plan. That’s right — Germany.
Do I think this will save the euro? No. But it means there won’t be a big panic between now and our election.
It also seems as if Israel won’t attack Iran between now and November 6, although Bibi is not exactly another BFF.
Looks as if Barry has everything under control. He just has to get through the debates without checking his watch or sighing and rolling his eyes.
From “Money For Nothing,” Paul Krugman, NYT:
“For years, allegedly serious people have been issuing dire warnings about the consequences of large budget deficits — deficits that are overwhelmingly the result of our ongoing economic crisis.
“But a funny thing happened on the way to the predicted fiscal crisis: instead of soaring, U. S. borrowing costs have fallen to their lowest level in the nation’s history. And it’s not just America. At this point, every advanced country that borrows in its own currency is able to borrow very cheaply.
“The failure of deficits to produce the predicted rise in interest rates is telling us something important about the nature of our economic troubles (and the wisdom, or lack thereof, of the self-appointed guardians of our fiscal virtue).
“Oh, and pay no attention to the warnings any day now we’ll turn into Greece, Greece I tell you. Countries like Greece, and for that matter Spain, are suffering from their ill-advised decision to give up their own currencies for the euro, which has left them vulnerable in a way that America just isn’t.
“So what is going on? The main answer is that this is what happens when you have a ‘deleveraging shock,’ in which everyone is trying to pay down debt at the same time.
“But it’s simply crazy to be laying off schoolteachers and canceling infrastructure projects at a time when investors are offering zero- or negative-interest financing.
“You don’t even have to make a Keynesian argument about jobs to see that. All you have to do is note that when money is cheap, that’s a good time to invest.
“That said, you should be a Keynesian, too. The experience of the past few years — above all, the spectacular failure of austerity policies in Europe — has been dramatic demonstration of Keynes’s basic point: slashing spending in a depressed economy depresses that economy further.”
At the European Summit, Italy, France, and Spain did their best to gang up on Germany, but didn’t get much in return. Merkel is still vehemently opposed to euro bonds, and I don’t see that changing, no matter what.
Italy and Spain will find it easier to get aid from the European bailout fund (the European Stability Mechanism or ESM), but the ESM didn’t get any more money. Its maximum is still about $633 billion, when Italy and Spain owe about five times that amount.
The ESM will put money directly into Spanish banks rather than using the Spanish government as a pass-through. And private bondholders of Spanish banks won’t be subordinate to government bond holders.
Such tiny steps have failed to satisfy the markets in the past.
By refusing to “go big,” Europe’s leaders are setting up the euro zone to go bust.
Eduardo Porter has a well-written and rational story up at the NYT, “Germany Will Pay Up To Save Euro.” He writes convincingly about how letting the euro zone fall apart will be much more expensive and painful for Germany than saving it. So he concludes that after holding out for the best terms she can, Merkel will cave.
Porter is intellectually focused on labor costs and export prices, but the Germans viscerally don’t want to bail out a bunch of foreigners whom they see as lazy and corrupt. He’s arguing numbers on an issue that will be decided by emotion. The Germans see themselves as the pig who built his house of bricks, and those who hurriedly built their houses of straw and twigs so they could party deserve to get eaten by the wolf.
If countries always did what made sense, we wouldn’t have had our housing crash, the government would have bailed out the sub-prime market and kept housing prices from imploding. We’ve lost a helluva lot more national wealth than a housing fix would have cost. And that was the American government refusing to help Americans, not Germany refusing to help a bunch of racially inferior foreigners with their crappy non-Aryan genes.
A right winger now has the job nobody in their right mind would want. New Democracy’s Antonis Samaras was sworn in as Greece’s prime minister today, after forming a coalition with Socialist PASOK and the tiny Democratic Left party.
Samaras went to Harvard Business School, just like Mittens. He is from a wealthy family, just like Mittens.
Either New Democracy or PASOK has run Greece for the last four decades, so they represent the establishment. To show you how cliquish Greece is, Samaras was roommates at Amherst College with George Papandreou, who led one of the PASOK governments.
Leftist Syriza, and its young anti-austerity leader Alexis Tspiras, which finished behind New Democracy by less than 3% in this weekend’s voting, is waiting in the wings for this coalition to fail. And it will. I’ll be shocked if it lasts six months.
From “One Wall Street Seer Says The Greek Tragedy Is Near,” Andrew Ross Sorkin, NYT:
“If you want to be scared, truly terrified, listen to Mark J. Grant. He might be right.
“For the last two years, Mr. Grant, a managing director at a regional investment bank in Florida, has been predicting the bankruptcy of Greece and a cascade of chaos across the global economy.
“‘Greece will default because there is no other choice regardless of anyone’s politics.’
“Mr. Grant in a Jan. 13, 2010 report forecast that Greece would default on its government debts, one of the first to publish such a prognostication.
“The January 2010 report, written two years before Greece did indeed default, has made him the go-to forecaster for some of the world’s largest investors.
“Sadly, Mr. Grant is not predicting the default of just Greece, he’s already on to Spain (he reached that conclusion before many others, too).
“He has convinced himself that Germany, the only country in a position to help, will not come to the rescue. ‘You can bank on one thing if nothing else; the Germans will not allow their cost of funding to rise or their standard of living to decline to help the nation that have gotten themselves in trouble. You can count on this!’
“[W]e are headed for a bad recession with lots ‘of shocks to the system.’ He says this will likely happen in the next four months or ‘it could come sooner.’” Emphasis added.
In Chicago, they’re hoping to keep the sick men of Europe alive till the second week of November; in Boston, they want to remove life support ASAP.
If the far-left Syriza party had won in Greece, they were going to tell Angela Merkel where she could stick the harsh terms of her bailout. The conservative New Democracy party, which will form a coalition with the Socialist PASOK for 162 seats in the 300-member Parliament, will tell Merkel they support the bailout, but ask “pretty please” if she can just ease the terms.
Different approaches, but the same result. Merkel isn’t going to save Greece.
Greeks hope the election results can lead to further negotiation because they fear the unknown of leaving the euro. Bad as things are, they fear making them worse, although worse seems unavoidable. But trying to negotiate with Merkel fiscally is like trying to negotiate with Hitler militarily. The only way Merkel will help is if Greece completely cedes its fiscal sovereignty to the EU Germany.
It seems inevitable that at some point soon Syriza will take power. It finished a close second to New Democracy with 27% of the vote, having won only 12% in the May election. New Democray and PASOK, the “mainstream” parties, have brought Greece to her knees and five years of recession.
The Greek election reminds me of the cartoons where a character falls off a cliff, and at first falls very slowly and gently, like a leaf in a breeze, but then gravity catches up with him, and he lands with a thud. Greece is falling in slow motion, but it will land with a thud. A thud we will hear in this country.
The question, if you’re the White House/Chicago, is how long will it take? I’m reading predictions of three to six months. The shorter time frame is a disaster for Obama, the longer time frame gets him past the election.
Merkel ultimately isn’t going to save Greece, but she could certainly slow things down. If you’re the German Chancellor, it’s not a bad thing to make the President of the United States your bitch. So she can help Obama stay in the Oval Office — or she can help Mitt get there.
I know we’re all focused on the Koch Brothers and Sheldon Adelson, but probably the single individual with the most power over this election is Angela Merkel. And you thought we won WWI and WWII.
Embattled Farmers 