But it is not too late. And the crisis is, as I say, entirely capable of being solved. This is because the eurozone’s overall fiscal position is quite healthy, and certainly much healthier than Britain or America.
Though France has just unveiled an austerity package, including a 3% tax levy on high earners, and Germany’s Ifo index points to weaker growth ahead, the eurozone does not have a big deficit problem.
OECD figures show that the eurozone’s overall budget deficit last year, 6% of gross domestic product, was significantly smaller than that of Britain, 10.3%, and America, 10.6%. By next year, according to the OECD, the eurozone deficit will be down to 3% of GDP, compared with 7.1% for Britain and 9.1% for America.
The eurozone picture is even better when its underlying fiscal position, adjusted for the cycle and excluding debt interest, is taken into account.
While Britain had a deficit of 5.7% of GDP last year on this basis and America 7%, the eurozone’s was just 1.1%. By next year, according to the OECD, the eurozone will have an underlying budget surplus of 0.9% of GDP, compared with deficits of 3% for Britain and 5.8% for America...
The task for the eurozone is to harness the overall health of its public finances. If it could do so, the eurozone sovereign debt crisis could be solved.
I love love love the FT calling Merkel and Sarkozy "Merkozy" like "Brangelina" . Anyhoo Greece and Portugal should just default, the EU should start issuing its own bonds, and the EU should demand more control over fiscal policy going forward.
delmoi: "If the EU issues bonds, who gets the money?"
this is a little weird though. Part of why the EU's current fiscal position is in better shape is because the largest economies have chosen fiscal restraint as a solution to their economic downturn. If you are even remotely Keynesian you would reject this policy out of hand. If you actually had a unified, rational fiscal policy, you would intentionally be in worse shape that these numbers imply
The same EU institution which receives payments from member states? It's not like the EU having money is a new invention.
This ruling by the German Constitutional Court does allow the EFSF to operate as planned. Most commentators have focused on this. However, the language of the decision means there can be no eurobonds and no "supra-national" fiscal agent because these are in violation of the German constitution.
fucking NYTimes should know better. That's gross, Net is what matters. That number is magnitudes smaller.
Germany’s EU commissioner Günther Oettinger said Europe should send blue helmets to take control of Greek tax collection and liquidate state assets. They had better be well armed. The headlines in the Greek press have been "Unconditional Capitulation", and "Terrorization of Greeks", and even “Fourth Reich”.
Cynics will say that many Greeks just won’t pay [higher taxes] at all. One of them is Germany’s representative on the European Commission, Guenther Oettinger, who proposes that the European Union relieve Greek tax officials of their duties and replace them with Northern European accountants and enforcers.
Has anyone seen any articles (or care to comment personally) about what life will be like in Greece for ordinary people after a default? I have a lot of family over there (including my parents who are there the next two months) and all I can I remember is how bad it got in Argentina when they dropped their peg to the dollar. I'm really quite worried about them.
If and when Greece defaults, Greek quality of life will plummet even further. This is why Greece hasn't just left the € and devalued already: doing that simply isn't enough because even after the devaluation Greece will still be left with an economy that doesn't to earn sufficient foreign currency to pay for it's imports & no-one will be lending it anything in the short term.
delmoi: The problem is that Greek runs a large deficit to keep government spending going. Every day, it spends more money than it takes in taxes.
If the Greek government defaults, it can't borrow in the short term. So overnight, it can't afford to run the government.
For a large organization, it's very difficult to instantly cut spending. Even if you fire a bunch of people, you have to get their redundancy payments from somewhere.
In the short term, default means going from super-austerity to hyper-austerity. It's not going to be pretty.
Greece needs to privatize their tax collection.
Never understood why governments would choose to keep poorly risk-managed banks afloat instead of letting them fail and simply starting new ones with the capital they might have used to bail out the old ones.
You're missing the fact that even if they default on 100% of their debt, Greek taxes don't cover current expenditure (or at least they didn't last time I checked). So in the absence of EU bailout money, even if they default their standard of living is going to fall even further
I suppose that's why the coupons on Irish bonds are at only 8.5%.
But apparently there's no need to take responsibility for the debts you run up - just declare it's a brand new day and boom, financial stability is restored. How dare those irresponsible bastards lend us money and then insult us further by asking us to pay it back! The very idea!
Unfortunately, Greek debt to GDP figures were essentially fictional: the Greek government had hidden huge liabilities "off-balance sheet" via opaque derivative transactions with various investment banks
Eurogroup chief Jean-Claude Juncker said Friday that Greece's financial woes were well known among top EU officials but kept quiet until the crisis erupted last year.
"It was quite obvious that one day Greece would have to face this kind of problem, and we knew that this problem would occur," Juncker told a forum on the sidelines of the International Monetary Fund and World Bank meetings in Washington.
Juncker said German and French officials along with European Central Bank chief Jean-Claude Trichet had for some time been discussing "the perspectives of what was not at that time known as so-called Greek crisis."
"I could not go public with the knowledge that I had," he added.
"The Greek crisis could have been avoided, but not starting last year, starting two or three decades ago," the European finance ministers chief said.
Juncker said he tried at one point to seek a solution to the problems with an unnamed Greek prime minister who told him: "I am governing a country of corruption.
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