It was bound to happen. As details of a widely anticipated plan to impose severe austerity measures were agreed to in exchange for a massive bailout by the European Union (EU) and the International Monetary Fund (IMF), violent protests broke out in Greece.
The entirety of the three-year IMF-EU package is expected to be announced in Brussels after an emergency Euro-Zone finance ministers' meeting. The aggregate amount is thought to be in the range of the previously reported figures of 120 billion Euros or $160 billion.
It remains unclear whether Sunday's meeting in Brussels will be enough to give final approval for Athens to start receiving the money or whether a summit of Euro-Zone heads of government will be required. In addition, stiff domestic disapproval in Germany and Greece remains a major stumbling block to any deal.
Under the austerity plan, annual holiday bonuses will be limited to 1,000 Euros ($1,330) per year for civil servants and completely eliminated for those with gross monthly salaries over 3,000 Euros ($3,995). Pensioners' bonuses will also be capped at 800 Euros and canceled for those paid more than 2,500 Euros ($3,330). Salary cuts will not extend to the private sector.
Taxes would also be increased, including further hikes on fuel, alcohol and tobacco. The top bracket of sales tax rises from 21% to 23%.
Finance Minister Papaconstantinou said his country's debt would reach 140 % of GDP in 2013 and start falling from 2014, while economic output is projected to contract by 4% in 2010 and by 2.6% in 2011 before it starts recovering slowly beginning in 2012.
MAY DAY protests in Greece turned violent yesterday as youths in gas masks and hoods set fire to vehicles, smashed shop fronts and threw Molotov cocktails and rocks at police in an explosion of fury over austerity measures they claim will hurt only the poor.
The violence came as negotiations were concluding between the socialist government of George Papandreou, the IMF and the EU over the rescue package.
Even greater social unrest is anticipated as resentment simmers among poorer families who are being told to tighten their belts when wealthy Greeks can protect their fortunes by moving their money abroad, some of it into property bargains in London.
Resentment among Greeks as being lazy and corrupt has hardened into outrage at Germany, whose leaders complain that the Mediterranean country should never have been allowed into Europe. Greeks were particularly angered by German suggestions that they sell their islands to pay off the debt.
German Chancellor Angela Merkel insisted on making the International Monetary Fund (IMF) part of any rescue and made German aid contingent on bolder austerity steps from Athens, delaying the rescue and underscoring deep divisions in the bloc.
The time remaining to complete the rescue is running out. Greece has nearly $10 billion in debt due by May 19, or risks default. While a solution is getting closer to being achieved, it is in no way a done deal. And, even if a deal is consummated, there is no way to be certain whether it will prove to be nothing more than a temporary fix.
Marko's Take
Please visit on YouTube at http://www.youtube/markostaketv. Our newest video, entitled "Social In-Security: The Problem will be posted shortly.
Showing posts with label International Monetary Fund. Show all posts
Showing posts with label International Monetary Fund. Show all posts
Sunday, May 2, 2010
Friday, April 30, 2010
The Greek Tweak: Will It Work?
This morning, the newswires were buzzing with reports of an austerity plan for Greece and an expanded loan facility from the International Monetary Fund (IMF). Athens has agreed to the outline of a €24 billion austerity package, including a three-year wage freeze for public sector workers, in return for a multibillion-Euro loan from the Euro-Zone and the IMF.
The austerity package also includes an increase in Greece's Value-Added Tax (VAT), the second this year. Public sector workers will lose their “13th and 14th month” salaries, paid days at Christmas and Easter and see further cuts in allowances. In other words, Greece's government employees will be required to work 14 months for 12 months of pay.
Greece’s abnormally large public sector, which employs about 13% of the workforce, will be gradually reduced through a recruitment freeze, the abolition of short-term contracts and closures of hundreds of outdated state entities. Pension benefits were to be frozen and/or deferred.
Final details of the measures, which were intended to slash the budget deficit by 10-11% of Gross Domestic Product (GDP) over the next three years, are still being worked out. Currently, Greece's budget gap is running at nearly 14% of GDP and is the central cause of the country's threatened insolvency.
Negotiations with officials from the IMF, the European Commission and the European Central Bank are due to be completed at the weekend and the measures will be presented for approval by the Greek parliament next week.
The IMF is looking at raising its share of Greece’s financial rescue package by another €10 billion ($13.2 billion) amid fears that the planned €45 billion bail-out will prove insufficient to curtail the country's sovereign debt crisis. The entire amount deemed necessary to save Greece is now €100-120 billion.
Politicians and economists across Europe have been highly critical of the slowness with which Euro-Zone governments have addressed the Greek crisis, which burst into the open more than six months ago with the disclosure that Greece’s 2009 budget deficit was far higher than previously believed.
The slowness partly reflects the unwillingness of Angela Merkel, Germany’s Chancellor, to commit Berlin to a multibillion-Euro rescue of Greece when German public opinion is against it and there is a risk of a legal challenge to the aid in Germany’s constitutional court.
Will the "Greek Tweak" work? Probably not. The magnitude of the austerity savings are fairly small by comparison to the bail-out needed. In addition, the Greek economy is already spiralling downward and further austerity measures will only deprive the economy of stimulus. In addition, Greek government employee unions will not be an easy sell, regardless of the magnitude of the problem. Finally, until Germany signs on, no deal can possibly be consummated.
The projected cost of the bail-out has nearly tripled in the last two months. Greece has been shut out of the capital markets. There is no reason to believe that all the bad news is on the table. The only real solution is a major restructuring of Greece's debt and a major economic change from the socialist policies which have created the inefficiencies that exist today.
Marko's Take
For Southern California readers interested in a good animal cause, the California Wildlife Center is having a 5K walk in Malibu to raise funds for this wonderful organization. For more information, click here http://www.californiawildlifecenter.org/. Hope to see you there!
The austerity package also includes an increase in Greece's Value-Added Tax (VAT), the second this year. Public sector workers will lose their “13th and 14th month” salaries, paid days at Christmas and Easter and see further cuts in allowances. In other words, Greece's government employees will be required to work 14 months for 12 months of pay.
Greece’s abnormally large public sector, which employs about 13% of the workforce, will be gradually reduced through a recruitment freeze, the abolition of short-term contracts and closures of hundreds of outdated state entities. Pension benefits were to be frozen and/or deferred.
Final details of the measures, which were intended to slash the budget deficit by 10-11% of Gross Domestic Product (GDP) over the next three years, are still being worked out. Currently, Greece's budget gap is running at nearly 14% of GDP and is the central cause of the country's threatened insolvency.
Negotiations with officials from the IMF, the European Commission and the European Central Bank are due to be completed at the weekend and the measures will be presented for approval by the Greek parliament next week.
The IMF is looking at raising its share of Greece’s financial rescue package by another €10 billion ($13.2 billion) amid fears that the planned €45 billion bail-out will prove insufficient to curtail the country's sovereign debt crisis. The entire amount deemed necessary to save Greece is now €100-120 billion.
Politicians and economists across Europe have been highly critical of the slowness with which Euro-Zone governments have addressed the Greek crisis, which burst into the open more than six months ago with the disclosure that Greece’s 2009 budget deficit was far higher than previously believed.
The slowness partly reflects the unwillingness of Angela Merkel, Germany’s Chancellor, to commit Berlin to a multibillion-Euro rescue of Greece when German public opinion is against it and there is a risk of a legal challenge to the aid in Germany’s constitutional court.
Will the "Greek Tweak" work? Probably not. The magnitude of the austerity savings are fairly small by comparison to the bail-out needed. In addition, the Greek economy is already spiralling downward and further austerity measures will only deprive the economy of stimulus. In addition, Greek government employee unions will not be an easy sell, regardless of the magnitude of the problem. Finally, until Germany signs on, no deal can possibly be consummated.
The projected cost of the bail-out has nearly tripled in the last two months. Greece has been shut out of the capital markets. There is no reason to believe that all the bad news is on the table. The only real solution is a major restructuring of Greece's debt and a major economic change from the socialist policies which have created the inefficiencies that exist today.
Marko's Take
For Southern California readers interested in a good animal cause, the California Wildlife Center is having a 5K walk in Malibu to raise funds for this wonderful organization. For more information, click here http://www.californiawildlifecenter.org/. Hope to see you there!
Tuesday, March 23, 2010
Escalating Greek Crisis Threatening Global Financial System
The crisis in Greece is getting serious. It began as a problem with the fiscal credibility of one euro-zone state, but has exposed political and financial fault lines running through the entire European Union. Politicians are becoming increasingly divided on either side of the Greece/Germany debate, increasing the risks that Greece becomes a big problem for the global financial system.
The seriousness of the crisis is somewhat reflected in Greek bond yields — which rose recently to close to 6.5%, for 10 year-maturities. German Bunds are now at 3.06% - their lowest yield in around a year and close to the low of 2.9% hit in the depths of the financial crisis. This reflects 3 separate forces at work: a flight-to-German safety trade, a preference for German fiscal prudence and fears over the possible spill-over damage the Greek crisis could inflict on the euro-zone economy and financial system.
Another sign of the escalation of concern is the response of European Central Bank (ECB) President Jean-Claude Trichet, who has softened the ECB's hard line on Greece and switched to playing diplomat. He said Greece could receive loans from other governments if the euro-zone was threatened.
He further suggested the ECB might yet reconsider its collateral rules to allow Greek government debt to remain eligible beyond the end of this year if further ratings downgrades occur.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that the Greek crisis could affect the U.S. economy, resulting from a broad shock to financial markets that could impact the banking system or lead investors to retreat from sovereign debt.
The Greek economy is in shambles and rapidly deteriorating. Greek unemployment vaulted to an 8-year high of 10.3% in the fourth quarter, up sharply from a 9.3% rate in the third, the National Statistics Service said Thursday.
The data showed unemployment rose across all age groups, impacting young workers between the ages of 15 and 29, who have the highest joblessness with a rate of 20.4% in the fourth quarter, up from 18.5% in the third. Unemployment for 30 to 44-year olds rose to 9.3% from 8.3%, while for the 45 to 64-year-old age group, joblessness rose to 6.3% from 5.7%.
Germany's potential role in the escalating Greek crisis has led to consternation domestically. Originally, it appeared that Germany would offer some sort of "bail out" program. However, in discusssions among euro-zone members, the German government has been thwarted by its concern that plans to help Greece would violate a “no bail-out” clause in EU rules on the euro and expose it to legal challenges before Germany’s highest court, officials said.
Instead, Germany is leaning towards involving the International Monetary Fund should Greece call for help to stem its budget crisis, a move Berlin hopes would help avoid potential constitutional court objections to a German bail-out.
The situation remains fluid in any event and one that has "game-changing" potential. The longer the situation festers, the greater the threat to the U.S. and world financial system.
Marko's Take
Please visit our YouTube channel at http://www.youtube.com/markostaketv.
The seriousness of the crisis is somewhat reflected in Greek bond yields — which rose recently to close to 6.5%, for 10 year-maturities. German Bunds are now at 3.06% - their lowest yield in around a year and close to the low of 2.9% hit in the depths of the financial crisis. This reflects 3 separate forces at work: a flight-to-German safety trade, a preference for German fiscal prudence and fears over the possible spill-over damage the Greek crisis could inflict on the euro-zone economy and financial system.
Another sign of the escalation of concern is the response of European Central Bank (ECB) President Jean-Claude Trichet, who has softened the ECB's hard line on Greece and switched to playing diplomat. He said Greece could receive loans from other governments if the euro-zone was threatened.
He further suggested the ECB might yet reconsider its collateral rules to allow Greek government debt to remain eligible beyond the end of this year if further ratings downgrades occur.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that the Greek crisis could affect the U.S. economy, resulting from a broad shock to financial markets that could impact the banking system or lead investors to retreat from sovereign debt.
The Greek economy is in shambles and rapidly deteriorating. Greek unemployment vaulted to an 8-year high of 10.3% in the fourth quarter, up sharply from a 9.3% rate in the third, the National Statistics Service said Thursday.
The data showed unemployment rose across all age groups, impacting young workers between the ages of 15 and 29, who have the highest joblessness with a rate of 20.4% in the fourth quarter, up from 18.5% in the third. Unemployment for 30 to 44-year olds rose to 9.3% from 8.3%, while for the 45 to 64-year-old age group, joblessness rose to 6.3% from 5.7%.
Germany's potential role in the escalating Greek crisis has led to consternation domestically. Originally, it appeared that Germany would offer some sort of "bail out" program. However, in discusssions among euro-zone members, the German government has been thwarted by its concern that plans to help Greece would violate a “no bail-out” clause in EU rules on the euro and expose it to legal challenges before Germany’s highest court, officials said.
Instead, Germany is leaning towards involving the International Monetary Fund should Greece call for help to stem its budget crisis, a move Berlin hopes would help avoid potential constitutional court objections to a German bail-out.
The situation remains fluid in any event and one that has "game-changing" potential. The longer the situation festers, the greater the threat to the U.S. and world financial system.
Marko's Take
Please visit our YouTube channel at http://www.youtube.com/markostaketv.
Subscribe to:
Posts (Atom)