'The Troika's Policies Have Failed'Now Paul, we all realize that it is impolite to gloat but it looks like gloating is the minimum one can do with the knuckle-draggers who must love to watch humanity suffer to support their bizarre economic ideas.
European Doubts Growing over Greece Debt Strategy
For months, European leaders have been trying to find a way out of the Greek debt crisis. But austerity is merely driving the country deeper into economic despair. Is it time for a radical rethink? Many think the answer is yes. By SPIEGEL Staff 02/13/2012
It would have been hard for German Chancellor Angela Merkel to find a more appropriate setting from which to promote her policies for Greece. She is sitting in a wide leather chair in Berlin's Neues Museum, home to Egyptian treasures and classical antiquities. The ancient columns towering behind her lend the scene an Acropolis-like air.
It's Tuesday of last week, and Merkel has been invited by a foundation to join in a discussion on the future of Europe. A young woman stands up and identifies herself as a foreign student studying in Germany and a "despairing representative of a younger Greek generation." She says that, of course, she would like to return to her home country after completing her studies. "But whenever I make inquiries about work in Athens," she says, "I'm only offered jobs in Germany."
Merkel nods. The situation in Greece is "extremely difficult," she says, adding that she cannot imagine a currency union without the highly indebted nation. "I want Greece to keep the euro," she says. And then, unasked and unambiguously, she provides something akin to a letter of guarantee for the Greeks. "I would not participate in pushing Greece out of the euro," she says. "That would have unforeseeable consequences.
It was a clear message at the beginning of a week in which those seeking to save the euro once again lost fundamental control over their drama. Europe's leaders had been hoping to finally present to their skeptical citizens a convincing and viable plan for rehabilitating Greece and fortifying the will to preserve the currency union in its current form at any price.
Instead, we are left with the outlines of a program that not even its designers believe in anymore. Finance ministries in Europe are growing increasingly skeptical about Greece's ability to reform, despite the passage on Sunday evening of a vast new austerity package in Athens. Efforts to get private creditors to participate in debt relief for the country have likewise been slow to make progress. And there is growing doubt among politicians in Berlin about the current rescue strategy -- as there is among the parties in Athens. Late last week, the populist LAOS party, the smallest of the three Greek parties in the current ruling coalition, announced it would no longer back the bailout deal and related austerity measures.
Europe is now paying the price for the inability of its leaders -- together with the International Monetary Fund (IMF) and its managing director Christine Lagarde -- have still not been able to agree on effective therapy for improving Greece's economic health. They share the belief that, given the unforeseeable consequences, a Greek exit from the euro zone should be avoided at all costs. But it remains unclear how the highly indebted country can be nursed back to health within the currency union.
In any case, the new program European leaders hammered out with their Greek partners last week would hardly seem to fit the bill. Although the ailing country will receive €130 billion ($172 billion), this massive amount of money won't necessarily make the country's rehabilitation any easier. The country's unsustainable mountain of debt will, of course become smaller, but that alone will hardly help. And while Athens makes even more cuts in wages, pensions and state expenditures, it isn't even remotely clear how this formula will return the Greek economy to growth. Fundamentally, Europe's strategy can be reduced to a single message: More of the same!
Yet after two years of fighting Greece's debt crisis, hardly anyone believes that this strategy will work -- not in Athens, Brussels or Berlin. German Finance Minister Wolfgang Schäuble stopped pretending long ago that he wasn't extremely annoyed by the stalling, delaying and squabbling of the parties in Athens. The same is true of Jean-Claude Juncker, the prime minister of Luxembourg who chairs the Euro Group, made up of finance ministers of the 17 euro-zone member countries. When asked whether he and his colleagues were slowly losing patience with Greece, he gave the curtest answer possible, saying only: "Yes." more
Pain Without GainAnd then there is Iceland—a tiny nation that still believes that criminals should go to jail—even if (or especially if) that criminal is a banker. There are moments when I am SO proud of my Viking roots.
By PAUL KRUGMAN February 19, 2012
Last week the European Commission confirmed what everyone suspected: the economies it surveys are shrinking, not growing. It’s not an official recession yet, but the only real question is how deep the downturn will be.
And this downturn is hitting nations that have never recovered from the last recession. For all America’s troubles, its gross domestic product has finally surpassed its pre-crisis peak; Europe’s has not. And some nations are suffering Great Depression-level pain: Greece and Ireland have had double-digit declines in output, Spain has 23 percent unemployment, Britain’s slump has now gone on longer than its slump in the 1930s.
Worse yet, European leaders — and quite a few influential players here — are still wedded to the economic doctrine responsible for this disaster.
For things didn’t have to be this bad. Greece would have been in deep trouble no matter what policy decisions were taken, and the same is true, to a lesser extent, of other nations around Europe’s periphery. But matters were made far worse than necessary by the way Europe’s leaders, and more broadly its policy elite, substituted moralizing for analysis, fantasies for the lessons of history.
Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.
Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending. more
Fitch has upgraded the country to investment grade BBB – with stable outlook, expecting government debt to peak at 100pc of GDP.
The OECD's latest forecast said growth will be 2.4pc this year, after 2.9pc in 2011.
Unemployment will fall from 7pc last year to 6.1pc this year and then 5.3pc in 2013.
The current account deficit was 11.2pc in 2010. It will shrink to 3.4pc this year, and will be almost disappear next year.
The strategy of devaluation behind capital controls has rescued the economy. (Yes, I know there is a dispute about exchange controls, but that is a detail.) The country has held its Nordic welfare together and preserved social cohesion. It is slowly prospering again, though private debt weighs heavy.
Nobody is forcing the elected government out of office or appointing technocrats as prime minister. The Althingi sits untrammeled in its island glory, the oldest parliament in the world (930 AD).
The outcome is a vindication of sovereign currencies and national central banks able to respond to shocks.
The contrast with the unemployment catastrophe and debt-deflation spirals across Europe's arc of depression is by now crystal clear. Those EMU shroud-wavers who persist in arguing that exit from the Europe would be suicidal will have to start coming up with a better argument.
Is it now so clear the Iceland will join the EU and the euro? Don't bet on it.
Here is the Fitch text:
Fitch Ratings has upgraded Iceland's Long-term foreign currency Issuer Default Rating (IDR) to 'BBB-' from 'BB+' and affirmed its Long-term local currency IDR at 'BBB+'. Its Short-term foreign currency IDR has also been upgraded to 'F3' from 'B' and its Country Ceiling to 'BBB-' from 'BB+'. The Outlooks on the Long-term ratings are Stable.
"The restoration of Iceland's Long-term foreign currency rating to investment grade reflects the progress that has been made in restoring macroeconomic stability, pushing ahead with structural reform and rebuilding sovereign creditworthiness since the 2008 banking and currency crisis," says Paul Rawkins, Senior Director in Fitch's Sovereign Rating Group. more