Greek gov't bonds downgraded to junk status, Eurozone in trouble

I didn't know you were contemplating a career in the clergy.

The nation-state, sir!

Don't worry, Rith. Empires have plenty of career opportunities too.

Ooooh, can I be Emperor? or Chancellor?

Nowadays we call them Commissioners.

Walp, looks like the stabilization fund thingy seems to have done the trick, for the moment.

[ http://news.bbc.co.uk/2/hi/business/10104140.stm ]

That's good, but all it does is buy everybody some time. We can still botch it in any number of ways. The next few weeks will be interesting.

Greece is starting to crack down on tax evaders.

[ http://news.bbc.co.uk/2/hi/europe/8682174.stm ]

Sounds like a drop in a bucket, but it's a start...

At this point, there's real value in token gestures.

Absolutely. Besides, give a choice between catching and punishing 57 blatant tax-evaders and catching and punishing no tax evaders, I'll take the former any day of the week -- even if there are another million or two to go.

As you know, I'm not a big fan of singling out sectors of society (ie class warfare), but there is some honest logic that the richest folks are going to be the biggest offenders in this case. There's no question this is a fair bit of pandering to the rioters, indulging their desire for "somebody else to blame", but I suppose you have to weigh the disgust for sacrificing 57 scapegoats against the disgust for burning down the country again.

I hope that this is just a start. But i still remain skeptical. In Greece there is some distance between issuing the fine and paying it. One of those doctors was staiting an income of 300 Euros annually.HAHAHAHA It took the tax service 20 years and the whole meltdown of a country to realize that!!
Again i think, politicians will not get away with it. They just voted that now politicians can go to justice for crimes, BUT from now on. Past crimes are past and cannot charged.

No way!!

El Pais: France Threatened to Leave the Euro:

French President Nicolas Sarkozy threatened to pull his country out of the euro zone unless other members promised to help Greece at the crucial meeting of ministers in Brussels last Friday, according to a report in Spain's El Pais. Details of the meeting were apparently revealed by Spain's prime minister, Jose Luis Rodriguez Zapatero, as he met behind closed doors with Socialist party leaders on Wednesday. An unnamed source at that meeting relayed Zapatero's account that at one point in Brussels, Sarkozy "banged his fist on the table and threatened to leave the euro, which obliged [German Chancellor] Angela Merkel to bend and reach an agreement." Another source at the meeting with Zapatero relayed that "France, Italy and Spain formed a common front against Germany and Sarkozy threatened Merkel with a break in the traditional Franco-German axis."
Source: MarketWatch.com

Here's some English reflection about it: Finance Blog

That's been denied by all parties concerned, though. Color me skeptical (about it being a serious threat anyway).

I'm somehow not awfully worried about the recent weakening of the euro and the pounding the stock markets have taken. Austerity measures during recessions will slash growth, and the markets will reflect that.

While we do know that it's going to suck being Spanish, Portuguese, Greek, or Irish for the next couple of years, we don't know how much this will affect the big European economies.

Since I've just announced I'm dumping the SDP, I might as well go on record disagreeing with everybody's favorite Nobel economist, Paul Krugman:

[ http://krugman.blogs.nytimes.com/2010/05/14/they-have-made-a-desert/ ]

He points out that the Baltic countries, which are held up as examples of successful adjustment, have unemployment rates around 20% and have economies that shrunk more than Iceland. That, IMO, is disingenuous.

The problem is that the Baltics (and Iceland, and Greece, and Ireland) had bubble economies. They posted huge growth numbers, but that growth was illusory -- all it was, was a self-feeding upward spiral in asset prices. When the bubble pops, the numbers will be very, very ugly, and unemployment numbers will shoot up as the economy grinds to a halt. If, on top of that, they suffer sovereign wealth crises or currency collapses, it's not going to be any better. And if the country is out of money -- as was the case in the Baltics but not Iceland -- there isn't much the gov't can do to soften the shock without precipitating a debt spiral that'll make it even worse. IOW, protecting the currency is sometimes the best the gov't can do, under those circumstances. I'm a staunch New Keynesian, but if you want to practice Keynesian policy, you have to have a rainy-day fund to draw from. Without it, all you get is Argentina.

Second, extremely painful adjustments like this have an upside. Take the one I know best: Finland's crisis and adjustment in the early 1990's.

In a very, very small nutshell, here's independent Finland's economic history.

From 1917 to 1939, we were a poor, primarily agrarian country, with some forestry related industry and exports, and some state-run heavy industry mostly for infrastructure purposes. Low taxation, low state services; however, we had high literacy and relatively high level of basic education. From 1939 to about 1956 we were a war economy: first to fight the wars, and then to pay the very heavy war reparations to pay for our unprovoked aggression on Stalin's paradise. That forced us to take on lots of government debt and invest it in heavy industry, since the war reparations mostly took the form of deliveries of capital goods. With that over and done with, we were left with a big, modern, and highly productive industrial base, and experienced a burst of growth, accompanied by urbanization and a structural change to an industrial economy, with exports of paper and pulp, heavy machinery, and such. From about 1960 to about 1985, the Finnish economy stood on two legs: paper and pulp production and exports on the one hand, and construction and heavy industry exports to the USSR via the so-called "clearing trade" -- that let us export pretty much anything we made, and the USSR paid us back in oil, gas, electricity, and military equipment. Nice, cushy arrangement, and almost entirely sheltered from the vagaries of the world market... except it started to go sour during the 1970's, with an inflationary spiral, rising unemployment, and increasingly uncompetitive products. (The Soviets weren't particularly discerning customers.)

In the 1980's, we liberalized banking and opened the doors to foreign capital. Consequently, banks started shoveling money out the doors and windows, ordinary people started speculating on the stock market, and many even took advantageous low-interest loans in foreign currencies. Predictably, a real-estate bubble followed, with everybody increasing spending in the resulting party. It popped in the early 1990's.

Oh, and, the USSR went tits-up too, as did the clearing trade.

So, when the shit hit the fan, where was Finland?

We had (1) an obsolete, uncompetitive heavy industry, (2) very heavy taxation, a very inflexible labor market, a very big public public sector, comprehensive social security (3) paper and pulp, the old standby, (4) a deeply indebted economy, from top to bottom, and (5) a banking sector in complete meltdown, and (6) a high level of education.

So. The adjustment. We kinda screwed it up and it was much more painful than necessary, but we really were *this* close to disaster -- we only just managed to avoid having to go to the IMF for help. We did a banking rescue that was unnecessarily expensive (although actually ended up getting most of the money back as the "junk bank" liquidated its assets over the next several years), we privatized most state-run industries, some of which were actual successes (some were not, though), we slashed benefits and taxes, we made the labor market a great deal more flexible (yes, it *is* possible to fire employees here), and generally went through a real bastard of an austerity program. The only thing we didn't touch (well, almost), was education.

Yet we somehow managed to preserve the fundamentals of a welfare state -- public health care, free education up to and including the university level, enough of a social security safety net to keep people from starving, that sort of thing. And then we hit the jackpot with Nokia.

For the past ten years or so, we've ranked near the top of global economic competitiveness ratings. And I'm pretty certain that this is due to the incredibly nasty adjustment process we went through. It really did cut out the deadweight from the system, and, being desperate, we had to look for creative solutions to our problems. By most metrics, it worked. We went from a semi-Socialist, rustbelt, classically "eurosclerotic" statist economy to a competitive, flexible, post-industrial one in one fell swoop, and we did it without going full monty with neoliberalism.

I'm pretty sure that Estonia at least will emerge stronger out of this crisis, largely due to their adjustment. They always were smarter than we are about that kind of stuff anyway. And if Greece and the others should go through a similar restructuring, they, too, can be near the top of competitiveness ratings ten years from now.

Very interesting breakdown. It seems that it takes a good meltdown to get people to make the painful decisions that they really need to make. Without being held over the abyss, people (and the politicians that claim to lead them) are content to resort to half-measures or complete denial, always pushing the problems to tomorrow as tomorrow's problems get progressively worse.

I'm curious about your figurehead during the ugly part. Looking at FDR and our Great Depression, we had a guy with a consistent vision (making no judgments about the quality of said vision) and the immense charisma to bend the public to it. Sure, one could claim that he was rescued by the economic jackpot of WW2 (again, making no judgment about the ultimate truth of those claims), but at the end of the day he still got the ship thru the storm and into port. When Finland had its meltdown, did you have a similar visionary leader pop up to "lead the faithful out of Egypt"? I'm betting you did, although I could be wrong.

I think some of the Obama Rapture faithful thought they had such a guy. Thing is, I don't think the night was quite dark enough yet to force the American public to accept the necessary agony, and Barack's vision and charisma both seem to be revealed as false beacons at this point (and for those that want to blame the repubs for keepin' the brutha down, I'd remind them that there were unhappy repubs back in the 30's as well, but FDR had the power to steamroll them, which Barack clearly lacks).

Which leads me to think that the Euro parliamentary system just might be a little better arranged to deal with such a reckoning. For the US to go thru "The Finn Cycle", it will have to happen in about 5 years' time. Very similar to what we're in right now--a collapse at the end of somebody's term leading to our leader/savior, who will have 4 years to fix the whole thing before he gets voted out due to the pain he will preside over. Not much time to correct 40-some years of sins, which means the "slope of the curve" will have to be really f-in steep. The Euro system allows consistent direction over longer periods, as you can hold the course with a fluid coallition as certain groups lose the faith and others get religion. Plus, if you stumble on your FDR, he's got a better chance of riding that coallition wave for a decade or more, meaning the valley doesn't have to be so stunningly deep. And, for that matter, your figurehead doesn't have to be quite the beacon since he can afford to piss off various interests thru the process as long as he can replace the defections with new recruits.

dteowner said:

Very interesting breakdown. It seems that it takes a good meltdown to get people to make the painful decisions that they really need to make. Without being held over the abyss, people (and the politicians that claim to lead them) are content to resort to half-measures or complete denial, always pushing the problems to tomorrow as tomorrow's problems get progressively worse.

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That's the paradox at the core of Keynesian economics, actually. It's politically very very hard to enact austerity measures when the party is on. The '90's crisis is in fresh memory, and we consequently paid down a fair bit of the national debt during the boom years—but even so, we made some tax cuts ca 2006 that weren't necessary then, but would help the economy now, and would have the fiscal balance looking less ugly.

(Yes, we're running a big-ass deficit now too, but in our case at least it is reasonably Keynesian—we were running surpluses during much of the boom, and the deficit is due to automatic stabilizers and some stimulus; there's a lot of moaning about it here, but I'm pretty certain the numbers will sort themselves out just fine once the economy picks up again. Still, it wouldn't hurt to have some more room to cut taxes and spread money around when that could actually help.)

I'm curious about your figurehead during the ugly part. Looking at FDR and our Great Depression, we had a guy with a consistent vision (making no judgments about the quality of said vision) and the immense charisma to bend the public to it. Sure, one could claim that he was rescued by the economic jackpot of WW2 (again, making no judgment about the ultimate truth of those claims), but at the end of the day he still got the ship thru the storm and into port. When Finland had its meltdown, did you have a similar visionary leader pop up to "lead the faithful out of Egypt"? I'm betting you did, although I could be wrong.

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Actually, we didn't. We're really pretty short on visionaries, up here. We tend to prefer technocrats and doomsayers.

The guy who personified the restructuring effort was the finance minister, Iiro Viinanen, and his vision amounted to "balance the budget, and fuck anyone who gets in the way." I don't recall anyone ever promising any unicorns at the end of the rainbow, or even outlining what kind of a country Finland should be once the dust settles; it was purely a matter of putting the fire out.

Our prez at the time, Mauno Koivisto, was a visionary, of a sort, but his mission had to do with reforming the political system badly damaged by his predecessor's quarter-century of semi-authoritarian rule; he didn't have much to say at all about the messy stuff. (I think you would've liked that guy—Urho Kekkonen was pretty close to a model enlightened autocrat. He did steer the country out of some nasty spots, some of which he created himself... but Kekkoslovakia was not all that much fun to live in, I can tell you.)

Oh, and, the PM? He was this guy called Esko Aho. Competent organizer, and good at whipping down the opposition and keeping the government together, but total non-visionary... unless you count ramming EU membership down his highly nationalist electorate "visionary."

Of course, none of the guys responsible for the austerity measures had much of a career after they lost the elections in 1995—once things picked up, people associated them with the really bad times of the early '90's, and started bitching about how it was done all wrong. (It sort of was, but hindsight is 20-20, as they say—and in retrospect, the mistakes they made cost perhaps one more year of recession, which is IMO an acceptable price for the ultimate result. The Swedes dealt with their banking crisis better, but whether that's because they were luckier or because they were smarter is something of a matter of opinion.)

I think some of the Obama Rapture faithful thought they had such a guy. Thing is, I don't think the night was quite dark enough yet to force the American public to accept the necessary agony, and Barack's vision and charisma both seem to be revealed as false beacons at this point (and for those that want to blame the repubs for keepin' the brutha down, I'd remind them that there were unhappy repubs back in the 30's as well, but FDR had the power to steamroll them, which Barack clearly lacks).

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Maybe. I've certainly been disappointed in his apparent lack of determination to fight for his causes, when push comes to shove.

Which leads me to think that the Euro parliamentary system just might be a little better arranged to deal with such a reckoning. For the US to go thru "The Finn Cycle", it will have to happen in about 5 years' time. Very similar to what we're in right now—a collapse at the end of somebody's term leading to our leader/savior, who will have 4 years to fix the whole thing before he gets voted out due to the pain he will preside over. Not much time to correct 40-some years of sins, which means the "slope of the curve" will have to be really f-in steep. The Euro system allows consistent direction over longer periods, as you can hold the course with a fluid coallition as certain groups lose the faith and others get religion. Plus, if you stumble on your FDR, he's got a better chance of riding that coallition wave for a decade or more, meaning the valley doesn't have to be so stunningly deep. And, for that matter, your figurehead doesn't have to be quite the beacon since he can afford to piss off various interests thru the process as long as he can replace the defections with new recruits.

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Perhaps; those are some of the reasons I tend to favor the parliamentary system. In all honesty, though, I don't think it would've made much difference in the '90's crisis—we were basically shell-shocked into consensus. Viinanen made us wear a hair shirt, but the opposition didn't really have any ideas, and were blamed for making the mess in the first place, so they sort of just went with it. Those highly unpleasant austerity measures really had a lot of public support; on the whole, we were smart enough to do the 'rithmetic and see that it really was going to get nasty. The people opposing them couldn't manage to come up with any alternatives, given that we were staring at bankruptcy.

So most of the stuff was just born out of necessity—the labor market reforms because we had*to let companies fire people, if we wanted them to stay afloat at all; the privatization because the state had*to get some money, and to get some (money-losing) stuff off its balance sheet; the cuts in the welfare system because there was no money. I think it rather surprised everyone that the economy took off like a turtle in heat, afterward.

It's funny how people lose a sense of proportion about stuff like this. Jean-Claude Trichet was quoted as saying that this crisis is the worst to hit Europe since maybe World War One.

Uh, no. Not quite.

So, can we expect a new Hitler then?

Prime Junta said:

It's funny how people lose a sense of proportion about stuff like this. Jean-Claude Trichet was quoted as saying that this crisis is the worst to hit Europe since maybe World War One.

Uh, no. Not quite.

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In a total off-topic, I simply MUST point out that there wasn't any wailing about civilian casualties from that there picture. Scenes like that were considered signs of victorious combat, not prompts for international "strong condemnations".

In your world, is that a GOOD thing?