Europeans Are Turning Their Backs On Austerity While Officials Continue To Deny Reality
Mike "Mish" Shedlock, Global Economic Trend Analysis | May 22, 2011
Tens of thousands of demonstrators across Spain continued sit-ins and other protests against the established political parties on Saturday. They did so in defiance of a ban against such protests and ahead of regional and municipal elections on Sunday.
About 28,000 people, most of them young, spent Friday night in Puerta del Sol, a main square in downtown Madrid, the police said. They stayed even as the protest ban went into effect at midnight under rules that bring an official end to campaigning before the election in 13 of Spain’s 17 regions and in more than 8,000 municipalities.
Fueling the demonstrators’ anger is the perceived failure by politicians to alleviate the hardships imposed on a struggling population. The unemployment rate in Spain is 21 percent.
Beyond economic complaints, the protesters’ demands include improving the judiciary, ending political corruption and overhauling Spain’s electoral structure, notably by ending the system in which candidates are selected internally by the parties before an election rather than chosen directly by voters.
As the campaign ban came into force at midnight, many of the Madrid protesters stuck tape across their mouths to signal that they would continue the demonstration, even if ordered to be silent. “The voice of the people can never be illegal,” read some of the banners, while others argued, “We are not against the system but the system is against us.” more
The Euro Doom Scenario Starts With What's Happening In Spain Right Now
The Automatic Earth | May 21, 2011, 7:50 AM | 11,038 | 74
Back In February, I saw a Dutch docudrama, entitled 2011: The Year the Euro Falls (Sorry, no English version available as far as I can see). It's nicely made, with cameos for many -prominent- Dutch politicians, newscasters and media pundits, and based on a screenplay by the former financial expert for Holland's Greens, Groen Links ('links' means left), Kees Vendrik. It paints -potential, and more or less fictional- developments in Europe in 2011.
First: Spain falls in summer. Spanish bonds are dumped, interest rates on them rise to 9%. Seemingly endless EU/IMF negotiations follow. This is not Greece or Ireland, after all (?!). These negotiations end in a deal, against a background of large-scale protests across Europe, not the least of which take place in the rich EU nations, where people are sick of bailing out the poorer periphery.
Then, the government of Belgium (there actually is one in the screenplay!) abdicates. Belgium is now a serious threat to Euro -financial- stability, and it gets billions in loans from the European stability fund. The EU stabilizes for a short period of time.
However, next up are elections in Ireland. Sinn Fein win a large majority. They decide to leave the Eurozone -and the EU itself-. Which means that Irish bonds, denominated in Euro’s, will have to be paid back in a much weaker "new punt", which can't be done. In other words, those EU -and US- banks that have bought Irish bonds will have to write down losses, very substantial ones.
The markets then turn their attention to Italy; its bonds come under pressure. The first victims are the French banks, which have huge exposure to Italian debt. Somewhat surprisingly, PM Berlusconi refuses to be bailed out by the EU. This raises his domestic popularity beyond levels anyone could have imagined. Berlusconi then turns to China and Libya (it's a 2010 scenario!) for financial aid. Italy closes its borders.
This becomes the start of the endgame. Germany and Holland -perhaps France- may still be able to sell some debt, but other EU countries are locked out of financial markets. Austerity measures even in Holland reach draconic levels.
The European leaders end up in a long drawn-out meeting in Versailles. The outcome is a full political and fiscal union: The Unites States of Europe.
Nice detail: first, Angela Merkel will lead Europe from Paris. Then, Sarkozy will rule for 2 years from Berlin.
So far Mr. Vendrik’s fictional scenario. And that's just what it was meant to be: what might happen, not what will. Or was it? more
Abandoning the Euro
Can the Greek People Teach the Central Bankers Economics?
By DEAN BAKER May 22, 2011
There is an old maxim that in any bureaucracy people will always rise to the level of their incompetence. This certainly seems to be the case with the European Central Bank (ECB). After totally ignoring the build-up of dangerous housing bubbles in most euro zone countries, as well as the imbalances that supported these bubbles, the ECB now seems intent on punishing the people in many of these countries for its mistakes.
This is the likely result of the policies that it is now pursuing, whether or not this is the intention. The insistence that the heavily indebted countries in the euro zone – Greece, Ireland, Portugal, and Spain – pay off their debt in full will inevitably lead to years of high unemployment in these countries and trillions of dollars of lost output throughout the euro zone as a whole. The budget cuts demanded of these countries will force large reductions in pensions and other social supports at a time when macroeconomic policies ensure that few jobs are available.
It is difficult to see any plausible gain from this pain. If the purpose of the pain is increased respect for fiscal discipline then the guns are pointed in the wrong direction. Ireland, Portugal, and Spain had surpluses or relatively small deficits in the years preceding the crisis. The problems that sank these economies were bad loans in the private sector and the bubbles they fueled.
It is difficult to see what lessons are taught by strangling the public sector. The austerity policies being imposed on these countries are unlikely to put serious dents in the fortunes of those who profited from these speculative bubbles.
Even in the case of Greece, which clearly did have serious fiscal problems, the austerity agenda only deals with half of the problem. Every reckless borrower needs a reckless lender. In this case, the reckless lenders in Germany and France are being bailed out by new loans from the euro zone rescue fund and the International Monetary Fund (IMF). It's not clear what lessons the lenders are learning.
Remarkably, for its larger macroeconomic policy the ECB continues to maintain its fixation on its 2.0 percent inflation target, as though the economic collapse never occurred. This has caused it to already start raising interest rates at a time when more than 15 million people are unemployed throughout the euro zone. (It's worth noting that even at the peak of the crisis the ECB never lowered its overnight rate below 1.0 percent, compared to the near zero rate maintained by the Federal Reserve Board for the last two and a half years.)
The higher interest rate unnecessarily clamps down on badly needed growth throughout the euro zone but its impact on the heavily indebted countries will be especially pernicious. In addition to worsening the employment situation, it is also likely to increase their interest burden as the interest rates paid by these countries will likely rise in step with the ECB rate. more
Greece, Ireland and Portugal
Bankruptcy or Democracy?
By NICK DEARDEN May 12, 2011
It will come as no surprise to the hundreds of people gathered for a conference I have just returned from, that Greece's 'bail-out' package agreed 12 months ago has failed to provide a solution to the country's debt problems.
Organised by an unprecedented cross-section of Greek civil society, the international event launched the call for Greece (and now Ireland) to open their debts to the people of those countries for a public discussion as to how just and legitimate those debts really are. Campaigners from Brazil, Peru, the Philippines, Morocco and Argentina told Greek activists to 'stand on their shoulders' and not go through 30 years of devastating recession at the behest of international institutions like the International Monetary Fund.
The burgeoning European movement in opposition to debt repayments and austerity is making concrete links with groups from the global South, and it expresses a confidence and rationalism a million miles away from the governments of Greece and Ireland, which have followed policies which are punishing ordinary people in order to repay reckless bankers.
It is simply not possible that the policies being inflicted on Greece, Ireland and now Portugal will reduce the debt burden of those countries – the very opposite will happen, as was seen from Zambia in the 1980s to Argentina at the beginning of the last decade. Similar policies to those being inflicted on Europe saw Zambia's debt-to-GDP ratio double in the 1980s as the economy shrank. Argentina defaulted on its massive debts in 2001, after a 3-year recession brought about by IMF policies. Like Ireland today Argentina was told it had partied too hard, even though the debt had been run up by a disastrous set of privatisations and a currency peg foisted on the country by the same IMF. It's economy started recovering within a month of the default.
So why then are these policies still being pursued? Almost every commentator has known from day one that the 'bail-out' packages would not make the debts of Greece or Ireland sustainable. But delegates at this weekend's conference were clear – that isn't the point. The point is to recover as much of investors' money as possible, however liable those investors were for the crisis, and transfer liability to society.
Even if Greece and Ireland need additional bail-out money or restructuring through some sort of bonds – the same measures imposed on Latin America in the 1980s which created mountains of debt so big that those countries are still suffering the fall-out – the private investors will have been paid out. The argument becomes one between German and Greek populations as to who will foot the biggest portion of the bill, creating a dangerous nationalism already very evident.
European Commissioner for Economic Affairs Olli Rehn has continually told governments that these matters are best kept in the dark – public discussion is strongly discouraged. Those actually paying the price of austerity disagree, and campaigners in Greece and Ireland say the first step in any kind of just solution must be a debt audit – modelled on those carried out in developing countries like Ecuador.
A debt audit would provide people of Europe with the knowledge on which to base truly democratic decisions. As Sofia Sakorafa, the Greek MP who refused to sign the bailout terms and walked out of the governing party PASOK, put it at the conference "the answer to tyranny, oppression, violence and abuse is knowledge". Andy Storey from Irish group Afri echoed this, saying the purpose of an audit is to "remove the mask of the financial system which controls our economy". moreAnd for an excellent explanation of the Greek debt crises and the evil IMF response, this video is just unbelievably thoughtful. (Note: this is not merely a superb documentary from an information perspective, it is also technically excellent. There is a button you can push in the upper-right-hand corner that allows you to stream this in 720p. It is a hidden roll-over but if you want to watch this in full screen with a large monitor, it is worth finding.)