Friday 16 September 2011

Greek Debt Crisis Reading List

Some interesting articles or opinion pieces from the international press published recently provide a good picture of the current situation in Greece.

George Soros, Reuters: September 14, 2011

This opinion piece explores the link between the 2008 banking / mortgage collapse and the 2010 sovereign debt crisis. It contrasts the US approach to crisis management, where the US Treasury Department, the national and regional Federal Reserves, and the banks acted fairly quickly to provide emergency liquidity assistance and restore faith in the banking system. The article is excellent in pointing out the missing link in the Euro: the lack of a common treasury, and the contrasting roles played by the European Central Bank and the European Financial Stability Fund. It also correctly places this in the political context, which is critical to understanding part of the failure of policy. An interesting quote from the piece:

In 2008 the U.S. financial authorities that were needed to respond to the crisis were in place; at present in the eurozone one of these authorities, the common treasury, has yet to be brought into existence. This requires a political process involving a number of sovereign states. That is what has made the problem so severe. The political will to create a common European treasury was absent in the first place; and since the time when the euro was created the political cohesion of the European Union has greatly deteriorated. As a result there is no clearly visible solution to the euro crisis. In its absence the authorities have been trying to buy time.
In an ordinary financial crisis this tactic works: with the passage of time the panic subsides and confidence returns. But in this case time has been working against the authorities. Since the political will is missing, the problems continue to grow larger while the politics are also becoming more poisonous.

Jeffrey Sachs. Financial Times (registration required)

One of the first opinion pieces pushing back against the comments by FDP leader and Minister for Economics Philipp Roesler and CSU leader and governor of Bavaria Horst Seehofer, who’s comments last week did so much to destabilise the Euro and the markets. It also confirms comments made in my earlier post, that Greece’s missing its fiscal targets so far this year is relatively modest given the scale of reforms made to date.

Peter Spiegel. Financial Times (registration required): September 5, 2011

An interview with former German Chancellor Gerhard Schroeder, in which he presses for a more reasonable approach to the Greek reform programme timeline, and links the domestic political pressures in Germany which lead to “Greece bashing”.

 “What we expect of Greece right now, the question is can that really be achieved? The Greek government is trying to introduce austerity programmes that are unprecedented,” he said, warning social unrest was a “great possibility” given the country’s continued economic contraction.

“Europeans in general should not stop expecting reforms from Greece, but Greece should get more time to introduce them.” …

Ms Merkel inappropriately played on German resentment towards Greece, he said, a mistake that now prevents her from winning public support for measures he believes are necessary to solving the crisis, including the creation of bonds backed by all 17 eurozone countries.

Mr Schröder specifically singled out Ms Merkel’s widely reported assertion that Greeks worked less hard and took more holidays than Germans, a claim he said was wrong and was “a huge mistake” politically.

“In the first months of the Greek crisis, Merkel looked too much at public opinion and she participated in this bashing of Greece,” he said. “Her position has definitely changed but it is now very difficult for her to introduce that kind of thing in her own party.”

Wolfgang Muenchau. Financial Times (registration required): September 5, 2011

A superlative article on why the structure of Eurozone institutions are preventing a rapid resolution to the crisis. Again, contrast this with the US Federal Reserve and its operations following the September-October 2008 crisis in the United States.

This policy paralysis, together with domestic political considerations, the demographic change in Europe, and declining competitiveness at the microeconomic level are the main reasons I am so negative about the future. It is hard to see how the entire western structure of “social partnership” can be maintained in the world we currently live in, without radical reform. This comments is not ideological comment, but quantitative, based on what I’m seeing in companies and sectors on a daily basis.

Der Spiegel International: September 13, 2011

A review of German press and its analysis of political comments made in the last two weeks on the debt crisis. In English. 

Peter Spiegel & Karin Hope. Financial Times: September 12, 2011

An excellent and timely analysis of the structure and challenges facing the second Greek bail-out. These factors, together with some other ones, were the reasoning behind my blog post: Continued Risks in the Greek Reform Programme (August 22, 2011). Yet unless this second package is passed, and quickly, there is almost no hope that the Greek debt crisis will be resolved without a real, “hard” default.

© Philip Ammerman, 2011

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