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Reflections on S & P’s Downgrade of European Debt (Except for Germany’s): Pushing “Austerereich”


COMMENT: Stan­dard & Poor’s recent down­grade of euro­zone coun­tries’ cred­it rat­ings leaves us with much to pon­der:

  • Ger­many’s cred­it rat­ing remained at triple‑A.
  • The McGraw family–owners of S & P–are decades-long pow­er elite asso­ciates of the Bush fam­i­ly.
  • As not­ed by Paul Krug­man (and the vig­i­lant “Pter­rafractyl”)  S & P’s own analy­sis warns that the “con­tin­ued aus­ter­i­ty” promised by Angela Merkel was very like­ly to make things worse for the coun­tries that had their cred­it down­grad­ed.
  • Main­tain­ing Ger­many’s triple‑A rat­ing in the short run is like­ly to increase Ger­many’s influ­ence over the EU and over the even­tu­al fate of the Euro.
  • The Euro will con­tin­ue to be a weak cur­ren­cy, there­by increas­ing Ger­many’s already robust export econ­o­my.
  • With a col­lapse of the Euro, the glob­al econ­o­my would be thrown into chaos, there­by moti­vat­ing polit­i­cal and eco­nom­ic movers and shak­ers around the world to go along with Ger­many’s polit­i­cal will in this regard.
  • In light of the above, we must not lose sight of the polit­i­cal and eco­nom­ic ties of the Bush/McGraw milieu to The Under­ground Reich and the Bor­mann cap­i­tal net­work and the dom­i­nance of that net­work over the Ger­man cor­po­rate econ­o­my.
  • Paul Krug­man char­ac­ter­izes Merkel’s vow for more aus­ter­i­ty (“Aus­ter­ere­ich”) as con­tin­u­ing down the road to nowhere. It is not a road to “nowhere”–it is a road toward Ger­man impe­ri­al­ism. The Euro was nev­er intend­ed as a vehi­cle for mutu­al eco­nom­ic ben­e­fit, but rather as a vehi­cle for the real­iza­tion of the Third Reich’s goals for Euro­pean and world dom­i­na­tion. (Those goals were first envi­sioned by Friedrich List. BTW–the Ger­man word for Aus­tria is “Oster­re­ich.”)

“S & P Got France Right, Ger­many Wrong: Opin­ion” by Peter Mori­ci; The Street; 1/16/2012.

EXCERPT: Stan­dard & Poor’s was cor­rect to down­grade the cred­it rat­ings of France and sev­en oth­er euro­zone gov­ern­ments but wrong to affirm Ger­many’s triple‑A rat­ing.

The euro will inevitably col­lapse and chaos will fol­low, endan­ger­ing even the strongest gov­ern­ments.

Prof­li­gate gov­ern­ment spend­ing sure­ly caused many prob­lems now besieg­ing Mediter­ranean and French gov­ern­ments, but investors under­stand aus­ter­i­ty alone won’t save them from default, and the costs of refi­nanc­ing and insur­ing sov­er­eign debt have risen sig­nif­i­cant­ly.

Slash­ing gov­ern­ment spend­ing and rais­ing tax­es are push­ing the Club Med and French economies into deep reces­sions, and tax rev­enues will not be enough to meet deficit reduc­tion goals.

Only rapid improve­ments in exports could get those economies going, but pro­posed labor mar­ket reforms will not improve com­pet­i­tive­ness quick­ly enough. And those reforms will be tough to imple­ment with unem­ploy­ment at more than 10% or 20%.

Soon­er or lat­er, Greeks, Spaniards and Ital­ians will ask why — if the euro was sup­posed to boost pros­per­i­ty — are wages falling, tax­es ris­ing and is unem­ploy­ment so high.

Polit­i­cal upheavals will ush­er in gov­ern­ments promis­ing to quit the euro and remark sov­er­eign debt to rein­sti­tut­ed nation­al cur­ren­cies. Cap­i­tal flight and exchange-rate depre­ci­a­tion will fol­low, impos­ing huge loss­es on cred­i­tors. Euro­pean sov­er­eign bonds, as val­ued in dol­lars or yen, will fall dra­mat­i­cal­ly. . . .


10 comments for “Reflections on S & P’s Downgrade of European Debt (Except for Germany’s): Pushing “Austerereich””

  1. France shot itself in the foot with its 35 hour work week and manda­to­ry ear­ly retire­ment.

    Posted by Vanfield | January 19, 2012, 7:46 pm
  2. There’s some con­flict­ing mes­sag­ing com­ing out of the Ger­man export-ori­ent­ed busi­ness lead­ers regard­ing the fate of the euro­zone and pos­si­ble reme­dies. One fac­tion appears to be voic­ing an increased will­ing­ness for Ger­many to dump the euro because return­ing to “Old Europe” is not an option:

    ‘The Old Europe’ Is ‘Not An Option For Ger­many’
    Tues­day, Jan­u­ary 17, 2012 at 5:28PM

    “The fact that we prof­it mas­sive­ly from the euro doesn’t mean that we have to accept every polit­i­cal horse-trade to save the com­mon cur­ren­cy,” Anton F. Börn­er, pres­i­dent of the Ger­man Asso­ci­a­tion of Exporters (BGA), told the Handelsblatt—a swipe at Ital­ian Prime Min­is­ter Mario Mon­ti who’d demand­ed that Ger­many dig deep­er into its pock­ets to reduce the debt bur­den of oth­er coun­tries, such as, well, Italy.

    “The Ital­ian gov­ern­ment is on the wrong track if it thinks it can get out of this with­out dif­fi­cult reforms to strength­en its com­pet­i­tive­ness,” Börn­er said. Clear polit­i­cal mes­sages would be nec­es­sary; and Italy would have to deliv­er. But if coun­tries like Italy that are mired in crisis—the Krisenländer—refuse to imple­ment those reforms, then the breakup of the Euro­zone would be a solu­tion.

    His voice doesn’t go unno­ticed: the BGA rep­re­sents 120,000 exporters—the lifeblood of the econ­o­my. Ger­many fights for the euro because fail­ure would have a “mas­sive eco­nom­ic cost and incal­cu­la­ble polit­i­cal con­se­quences,” Börn­er said. It would mean “rena­tion­al­iza­tion and pro­tec­tion­ism” and final­ly “balka­niza­tion and mar­gin­al­iza­tion of Europe.”

    He’d already stepped into the spot­light in Novem­ber when he uttered the then still unspeak­able: “We need a com­mon mar­ket, not one cur­ren­cy.” And he’d sug­gest­ed an alter­na­tive: a mini-euro­zone, one with­out Italy. For that whole deba­cle, read.... The Next Step Towards The End Of The Euro.

    Each coun­try must fight to retain the con­fi­dence of the finan­cial mar­kets or regain it through reforms, Börn­er said. But if “a coun­try can­not keep its deficits and debt with­in the com­mon­ly agreed-upon lim­its, it must irrev­o­ca­bly accept a sub­stan­tial reduc­tion in sov­er­eign­ty.” Ger­many is pre­pared to sink a lot of mon­ey into the Krisen­län­der to help them on their way to com­pet­i­tive­ness, he said, but “the old Europe doesn’t have a future—and is there­fore not an option for Ger­many.”

    He isn’t the only one. Over the week­end, it was Wolf­gang Reit­zle, CEO of Linde AG, who’d elicit­ed gasps when he told the Spiegel, “I don’t believe that the euro must be saved at any price.”

    He feared that reform efforts would fade if the ECB takes pres­sure off the Krisen­län­der by buy­ing their bonds. And he explained: “If it is not pos­si­ble to dis­ci­pline the Krisen­län­der, then Ger­many must exit.”

    Yes, it would lead to an appre­ci­a­tion of the “Deutschmark, the euro-north, or what­ev­er cur­ren­cy we’d have then.” It would be a shock to the econ­o­my. Exports would cave and unem­ploy­ment would rise. But not for long. “Five years down the road, Ger­many would be even stronger in com­par­i­son to its Asian com­peti­tors.”

    The Ger­man indus­tri­al elite now open­ly dis­cuss exit­ing the Euro­zone. The ques­tion no longer is whether or not to keep Greece in it—the cap­i­tal mar­kets had already “checked off” that top­ic long ago, Reit­zle said—but what price Ger­many should pay to stay in it itself. Already, there is utter frus­tra­tion with the ECB. Hans-Wern­er Sinn, pres­i­dent of Ifo, a large eco­nom­ic research insti­tute, lament­ed that Ger­many was being mar­gin­al­ized at the ECB as nei­ther its pres­i­dent nor its chief econ­o­mist were Ger­mans. “All the pret­ty words how the ECB would func­tion after its mod­el, the Bun­des­bank, and how Ger­many, as the largest coun­try, would retain its spe­cial role turned out to be echo and smoke.”

    But there is no agree­ment. Yet.

    “A return to the D‑Mark would be cat­a­stroph­ic,” BMW CFO Friedrich Eich­n­er told Reuters (Spiegel). “We should to do every­thing pos­si­ble to avoid that it will get that far.”

    Siemens CEO Peter Lösch­er was more san­guine. “The euro is extreme­ly impor­tant for the Euro­pean indus­try,” he said. Frank Appel, CEO of Deutsche Post DHL, said, “what­ev­er it would cost to save the euro will be less than that what the euro has giv­en and will con­tin­ue to give Ger­many and Europe.” The spokesper­son for Mer­ck KGaA was more ambiva­lent: “It’s part of our job ... to be pre­pared for changes.”

    Mean­while, aus­ter­i­ty is tak­ing its toll on Greece. Sui­cides jumped by 22.5%. Unem­ploy­ment rose to 18.2%. Phar­ma­cies are hav­ing dif­fi­cul­ties obtain­ing med­ica­tions. More cuts are com­ing. If there is no agree­ment with bond­hold­ers, the bailout Troi­ka will walk and Greece will default in March. But now, even the Troi­ka is in dis­ar­ray.

    So is this what the busi­ness lead­ers are plan­ning on mak­ing “New Europe” look like:


    Fed­er­al and state agen­cies sup­port the inter­na­tion­al endeav­ors not only of cod­dled multi­na­tion­als like Siemens and VW but also of fam­i­ly-owned mid­size enter­pris­es that form the core of Ger­man indus­try. For exam­ple, the Cham­ber of Com­merce, a fed­er­al agency, has branch­es all over the world to sup­port Ger­man com­pa­nies in doing busi­ness over­seas. It’s all part of “Deutsch­land AG.”

    The cap­i­tal struc­ture of most com­pa­nies is con­ser­v­a­tive. With sig­nif­i­cant amounts of equi­ty, returns on equi­ty might not be stel­lar. But the fact that bal­ance sheets weren’t lever­aged to the hilt paid off dur­ing the finan­cial cri­sis when the his­toric order col­lapse didn’t cas­cade from an oper­a­tional fias­co to a finan­cial fias­co.

    Quar­ter-to-quar­ter think­ing (short-term-itis) is less preva­lent among Ger­man man­agers, par­tic­u­lar­ly of mid­size com­pa­nies that are often close­ly held and can afford strate­gies that don’t imme­di­ate­ly trans­late into upticks of their stock price.

    While com­pa­nies might not be able to lay off employ­ees eas­i­ly, they can cut their pay in half and reduce their hours. The gov­ern­ment makes up half of the cut. Thus, employ­ees get a 25% cut in pay, instead of being laid off. The gov­ern­ment doesn’t have to pay unem­ploy­ment com­pen­sa­tion. Dis­rup­tions, morale prob­lems, and dis­lo­ca­tions that result from lay­offs are most­ly avoid­ed. The com­pa­ny remains ful­ly staffed with expe­ri­enced peo­ple whose tech­ni­cal skills are up to date. As orders come in, hours and pay can be ratch­eted up as need­ed with­out the expense and delays of hav­ing to hire and train new peo­ple.


    Because that’s not what “New Europe” is look­ing like:

    Greece: Dis­agree­ment Every­where, Rift in the Troi­ka
    Thurs­day, Jan­u­ary 12, 2012 at 8:11PM

    Aus­ter­i­ty mea­sures are tak­ing their dai­ly toll on Greece. Sui­cides and attempt­ed sui­cides have jumped by 22.5% since 2009. The unem­ploy­ment rate rose to 18.2%. RTL, the largest radio net­work in Europe, lost 50% of its adver­tis­ing rev­enues in Greece since the start of the crisis—and decid­ed to leave. And now phar­ma­cies are hav­ing dif­fi­cul­ties obtain­ing med­ica­tions.

    The phar­ma­cy prob­lem is an unin­tend­ed con­se­quence of the aus­ter­i­ty mea­sures that the bailout Troi­ka (EU, IMF, and ECB) is impos­ing on Greece. To cut its health­care bud­get, the gov­ern­ment has reduced the prices that the indus­try can charge state-owned insur­ers. So whole­salers are sell­ing their lim­it­ed sup­ply out­side Greece. And state-owned insur­ers, whose bud­gets are squeezed as well, delay pay­ments to phar­ma­cies, which then can’t pay their whole­salers for the med­ica­tions they do get. Thus, whole­salers are even less like­ly to sell to pharmacies—and the sys­tem breaks down. A micro­cosm of the cur­rent state of the Greek econ­o­my.

    Yet more cuts are com­ing. To impose them, Prime Min­is­ter Lucas Papademos even threat­ened pri­vate sec­tor unions (and every­one else) with the nuclear option—disorderly default.


    In light of the forced col­lapsed of the PIIGS’s economies, it’s worth ask­ing why the Ger­man busi­ness elites seem to intent on mak­ing the weak­er euro­zone nations more “com­pet­i­tive” when that very process will gut the abil­i­ty of those nations to keep buy­ing Ger­many exports. After all, much of the tab would be paid by the Ger­man tax­pay­er for either bailouts or some sort of sub­si­diza­tion of Ger­many’s weak­er neigh­bors in order to make the euro­zone sus­tain­ably viable (instead of a giant trade imbal­ance debt bub­ble machine), with the bulk of the ben­e­fits accru­ing to the export busi­ness own­ers with increased exports and a cheap­er cur­ren­cy. It’s a ques­tion the Ger­man mid­dle class should be ask­ing itself because the unfold­ing sit­u­a­tion is look­ing a lot like one where the mid­dle class los­es and the export busi­ness elites win. Every­where, includ­ing in Ger­many. Because there is an alter­nate sus­tain­able mode of eco­nom­ic growth that Ger­many’s export busi­ness­es can use to keep grow­ing in the face of sus­tained reduced demand from their euro­zone neigh­bors: Turn the PIIGS into Ger­many’s Mexico/China. Ger­many’s mid­dle class may not like pay­ing for the “profli­ga­cy” those “lazy” Greeks (that actu­al­ly work more hours on aver­age than their Ger­man coun­ter­parts), but they’re prob­a­bly not going to like wage nego­ti­a­tions with an employ­er that can open up new man­u­fac­tur­ing oper­a­tions in “New Greece”, where labor laws and social safe­ty net are deemed to be “uncom­pet­i­tive”. After all, with the loss of all those exports to the lazy PIIGS, the whole euro­zone needs to become more “com­pet­i­tive” and the PIIGS aren’t the only ones that can be sent to the slaugh­ter­house.

    Posted by Pterrafractyl | January 21, 2012, 6:21 pm
  3. One of the crit­i­cal ques­tions that don’t seemed to be asked very much about the pro­posed visions for a future euro­zone is the ques­tion of what, exact­ly, a “com­pet­i­tive” econ­o­my might look like. There’s an arti­cle in NY Times about Apple’s man­u­fac­tur­ing sup­ply chain in Chi­na and the rea­sons why those jobs are unlike­ly to ever return to devel­oped nations. It might give us a hint as to what a “com­pet­i­tive” man­u­fac­tur­ing-based econ­o­my might look like for any puta­tive PIIGS in need of a mas­sive fun­da­men­tal social con­tract over­haul. Hint: it involves lots of “flex­i­bil­i­ty”:

    The iEcon­o­my
    How the U.S. Lost Out on iPhone Work

    Pub­lished: Jan­u­ary 21, 2012

    When Barack Oba­ma joined Sil­i­con Valley’s top lumi­nar­ies for din­ner in Cal­i­for­nia last Feb­ru­ary, each guest was asked to come with a ques­tion for the pres­i­dent.

    But as Steven P. Jobs of Apple spoke, Pres­i­dent Oba­ma inter­rupt­ed with an inquiry of his own: what would it take to make iPhones in the Unit­ed States?

    Not long ago, Apple boast­ed that its prod­ucts were made in Amer­i­ca. Today, few are. Almost all of the 70 mil­lion iPhones, 30 mil­lion iPads and 59 mil­lion oth­er prod­ucts Apple sold last year were man­u­fac­tured over­seas.

    Why can’t that work come home? Mr. Oba­ma asked.

    Mr. Jobs’s reply was unam­bigu­ous. “Those jobs aren’t com­ing back,” he said, accord­ing to anoth­er din­ner guest.

    The president’s ques­tion touched upon a cen­tral con­vic­tion at Apple. It isn’t just that work­ers are cheap­er abroad. Rather, Apple’s exec­u­tives believe the vast scale of over­seas fac­to­ries as well as the flex­i­bil­i­ty, dili­gence and indus­tri­al skills of for­eign work­ers have so out­paced their Amer­i­can coun­ter­parts that “Made in the U.S.A.” is no longer a viable option for most Apple prod­ucts.


    Apple exec­u­tives say that going over­seas, at this point, is their only option. One for­mer exec­u­tive described how the com­pa­ny relied upon a Chi­nese fac­to­ry to revamp iPhone man­u­fac­tur­ing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forc­ing an assem­bly line over­haul. New screens began arriv­ing at the plant near mid­night.

    A fore­man imme­di­ate­ly roused 8,000 work­ers inside the company’s dor­mi­to­ries, accord­ing to the exec­u­tive. Each employ­ee was giv­en a bis­cuit and a cup of tea, guid­ed to a work­sta­tion and with­in half an hour start­ed a 12-hour shift fit­ting glass screens into beveled frames. With­in 96 hours, the plant was pro­duc­ing over 10,000 iPhones a day.

    “The speed and flex­i­bil­i­ty is breath­tak­ing,” the exec­u­tive said. “There’s no Amer­i­can plant that can match that.”


    Of course, no one can rea­son­ably expect Euro­pean coun­tries to tran­si­tion to the Chi­nese-mod­el of fac­to­ry cities where employ­ees are forced to live next to the fac­to­ry and work under slave-labor stan­dards in a job that destroys their bod­ies and pro­vides no futures for advance­ment...it’s unthink­able:

    Sep­tem­ber 08, 2011, 10:00 AM EDT
    In Hun­gary, the Job­less Go to Labor Camp

    A new wel­fare reform pro­gram forces the unem­ployed to sweat for their ben­e­fits

    By Car­ol Mat­lack and András Gerge­ly

    Wield­ing scythes and pitch­forks, about 30 men and women hack through bram­bles on a hill­side above the Hun­gar­i­an vil­lage of Gyöngyös­pa­ta. With the near­est road more than a half mile away, work­ers have to hike in with food and water for the day. For bath­room and lunch breaks, they duck into a thick­et that offers the only shade in the 98F heat. “It’s degrad­ing to work in these con­di­tions,” says Károly Lakatos, a 38-year-old father of three who was laid off ear­li­er this year from his fork­lift-oper­a­tor job in an auto parts fac­to­ry. When his unem­ploy­ment ben­e­fits ran out, the gov­ern­ment assigned him to a brigade clear­ing land owned by the vil­lage.

    If Prime Min­is­ter Vik­tor Orbán has his way, hun­dreds of thou­sands of Hun­gar­i­ans will soon join sim­i­lar squads. Under a plan approved by Par­lia­ment in July, by 2012 some 300,000 peo­ple will be work­ing in com­mu­ni­ty ser­vice jobs—doing every­thing from pick­ing up trash to build­ing stadiums—instead of draw­ing wel­fare or unem­ploy­ment ben­e­fits. Hun­gary will no longer “give ben­e­fits to those capa­ble of work, when there is much work to be done,” Orbán said in June. The effort is part of the rul­ing Fidesz Party’s 2010 elec­tion pledge to cre­ate 1 mil­lion jobs over the next decade.

    No ques­tion, Hun­gary needs jobs. Only 54.6 per­cent of the work­ing-age pop­u­la­tion is employed, the low­est rate in the Euro­pean Union, accord­ing to EU data. An ane­mic econ­o­my, fore­cast to grow 2 per­cent in 2011, is part of the prob­lem. But the real cul­prit is the sprawl­ing wel­fare state cre­at­ed after the fall of com­mu­nism. To help work­ers who lost jobs in state-run indus­tries, the gov­ern­ment estab­lished gen­er­ous ear­ly retire­ment, dis­abil­i­ty, and parental leave pro­grams. Those ben­e­fits are still in place. Accord­ing to the EU’s Euro­stat agency, in 2008 Hun­gary spent $5,200 per capi­ta on social pro­tec­tion, vs. $4,088 in Slo­va­kia and $3,706 in Poland. “There are peo­ple in this work pro­gram who’ve nev­er had a prop­er job in their lives,” says Oszkár Juhász, the may­or of Gyöngyös­pa­ta, which is an hour’s dri­ve north­east of Budapest.

    Under the new law, job­less ben­e­fits will be cut off after 90 days, down from nine months, and eli­gi­bil­i­ty for oth­er wel­fare pay­outs will be cur­tailed. Peo­ple tak­en off the dole are being offered jobs pay­ing $303 a month, twice the basic wel­fare pay­ment but less than the stan­dard $415 min­i­mum wage. Those who refuse will receive no gov­ern­ment aid.

    The oppo­si­tion Social­ist Par­ty says the pro­gram “is based on fear and force, just like in a pre­vi­ous era of terror”—an allu­sion to the hun­dreds of thou­sands of Hun­gar­i­ans who were con­script­ed for Nazi and Sovi­et work camps. By launch­ing the pro­gram in Gyöngyös­pa­ta, where mem­bers of the town’s Roma eth­nic minor­i­ty clashed with nation­al­ist vig­i­lantes ear­li­er this year, the gov­ern­ment gave the impres­sion that it is try­ing “to keep the Roma under con­trol,” says Péter Juhász of the Hun­gar­i­an Civ­il Lib­er­ties Union. “We live in fear that the black uni­forms [worn by the vig­i­lantes] will return,” says Irén Rácz, a 57-year-old Roma assigned to the Gyöngyös­pa­ta brigade.

    Roma make up about 6 per­cent of Hungary’s pop­u­la­tion and as much as 12 per­cent of those receiv­ing wel­fare and unem­ploy­ment ben­e­fits, accord­ing to the Budapest Insti­tute. In Gyöngyös­pa­ta, 36 of the 40 peo­ple work­ing in the pro­gram are Roma. Hungary’s Inte­ri­or Min­istry, which admin­is­ters the pro­gram, says it is pay­ing spe­cial atten­tion to Roma because they are dis­crim­i­nat­ed against and “under­skilled” com­pared with oth­er work­ers. “There is lit­tle chance that they can find work in the pri­vate sec­tor with­out devel­op­ment pro­grams,” the min­istry said in a writ­ten response to ques­tions from Bloomberg Busi­ness­week.

    The policy’s price tag is anoth­er con­cern. The gov­ern­ment, which is repay­ing a $29 bil­lion bailout led by the Inter­na­tion­al Mon­e­tary Fund, hasn’t spec­i­fied where it will find the mon­ey to put hun­dreds of thou­sands of work­ers on the state pay­roll and finance projects to employ them. Orbán has said the pro­gram will rely on old-fash­ioned man­u­al labor. “Build­ing dams, clean­ing ditch­es, build­ing reservoirs—this won’t hap­pen using 21st cen­tu­ry tech­nol­o­gy,” he said in a May tele­vi­sion inter­view. Balázs Vára­di, a Budapest Insti­tute econ­o­mist who advised the pre­vi­ous Social­ist gov­ern­ment, says “there has been an explic­it choice to use labor-inten­sive meth­ods, even if that is not eco­nom­i­cal.” The Gyöngyös­pa­ta work­ers are to spend three months clear­ing 16 hectares of land, a job that could be com­plet­ed far more quick­ly and cheap­ly with machin­ery.

    Hun­gar­i­an employ­ers say they are eager for skilled work­ers. Daim­ler (DDAIF) is recruit­ing 2,500 peo­ple, includ­ing engi­neers and IT spe­cial­ists, for a new Mer­cedes fac­to­ry in the town of Kecskemét. Pub­lic-works jobs gen­er­al­ly don’t pro­vide the kind of train­ing and expe­ri­ence busi­ness­es need, says Adri­enn Bálint, direc­tor for social dia­logue at the Con­fed­er­a­tion of Hun­gar­i­an Employ­ers and Indus­tri­al­ists. “This is not pro­duc­tive work,” she says.

    Near­ly a decade ago, Slo­va­kia tried a sim­i­lar pub­lic-works pro­gram to wean peo­ple off the dole, but the gov­ern­ment aban­doned the effort after a few years “because they real­ized peo­ple were not tran­sit­ing into reg­u­lar employ­ment,” says Mar­tin Kahanec, an assis­tant pro­fes­sor of pub­lic pol­i­cy at Cen­tral Euro­pean Uni­ver­si­ty in Budapest.


    Tru­ly com­pet­i­tive soci­eties employ teem­ing mass­es of dis­em­pow­ered cit­i­zens will­ing to destroy their bod­ies and minds for sub­sis­tence wages. Remem­ber that folks. It’s the new nor­mal.

    Posted by Pterrafractyl | January 22, 2012, 8:32 pm
  4. It begins...again...

    Por­tu­gal to need “debt hair­cut” as econ­o­my tips into Gre­cian down­ward spi­ral
    Por­tu­gal’s bor­row­ing costs have jumped to record highs and are track­ing the moves seen in the cul­mi­nat­ing phase of Greece’s debt cri­sis, dash­ing hopes that the coun­try will be able to stave off con­ta­gion by embrac­ing dras­tic aus­ter­i­ty.

    By Ambrose Evans-Pritchard, Inter­na­tion­al Busi­ness Edi­tor

    6:38PM GMT 19 Jan 2012

    Yields on Por­tu­gal’s 10-year bonds climbed to 14.39pc on Thurs­day. Cred­it default swaps mea­sur­ing bond risk have reached 1270 points, pric­ing a two-thirds chance of default over the next five years.

    While some of the lat­est dam­age reflects forced sell­ing of Por­tuguese debt after Stan­dard & Poor’s cut the coun­try’s cred­it rat­ing to junk sta­tus last Fri­day, there are deep­er wor­ries that sharp fis­cal cuts by the free-mar­ket gov­ern­ment of Pedro Pas­sos Coel­ho may prove self-defeat­ing.

    Mr Pas­sos Coel­ho has been praised by EU lead­ers and the Inter­na­tion­al Mon­e­tary Fund for deliv­er­ing on aus­ter­i­ty, but the risk is that severe tight­en­ing — with­out off­set­ting mon­e­tary and exchange stim­u­lus — will push Por­tu­gal into the same down­ward spi­ral that has already engulfed Greece.

    Jur­gen Michels, Europe econ­o­mist at Cit­i­group, said Por­tu­gal’s econ­o­my will con­tract by a fur­ther 5.8pc this year and by 3.7pc in 2013, a far sharp­er decline than offi­cial fore­casts. The peak-to-trough col­lapse would be 13pc, a full-fledged depres­sion.

    “As this gets worse it is going to be extreme­ly dif­fi­cult to go ahead with more aus­ter­i­ty mea­sures: polit­i­cal con­ta­gion will start to come through,” he said.

    Por­tu­gal has so far react­ed calm­ly. It has avoid­ed the sorts of riots seen in Greece, but patience is wear­ing thin. The CGTP labour fed­er­a­tion held a protest march in Lis­bon this week, vow­ing to resist “forced labour”.

    A new study by the Barom­e­ter for Democ­ra­cy shows that con­fi­dence in Por­tu­gal’s democ­ra­cy has fall­en to the low­est since the end of the Salazar dic­ta­tor­ship. Bare­ly more than half retain faith in the sys­tem and 15pc pine for “author­i­tar­i­an” rule.

    While Por­tu­gal’s pub­lic debt of 113pc of GDP is low­er than Greece’s, the pri­vate sec­tor has much larg­er debts and the coun­try’s total debt-load is high­er at 360pc of GDP — much of it exter­nal debt.

    “There is huge pri­vate sec­tor delever­ag­ing going on and the bank­ing sys­tem has big prob­lems. It is unclear how much of this pri­vate debt is going to end up on the state’s door-step,” said Mr Michels.

    “With­out a size­able hair­cut to its debt stock, Por­tu­gal will not be able to move into a viable fis­cal path. We expect a hair­cut of 35pc at the end of 2012 or in 2013.”

    Por­tu­gal’s Trea­sury faces mod­est debt repay­ment of €17bn this year. There is no immi­nent cri­sis since Lis­bon is already under an EU-ECB-IMF Troi­ka regime as part of its €78bn res­cue and does not need to access mar­kets until 2013.

    The prob­lem is the slow-burn threat of debt-defla­tion. Inter­est costs for Por­tuguese com­pa­nies are painful­ly high — if they can roll over loans at all — and the debt bur­den is ris­ing on a shrink­ing eco­nom­ic base. Real M1 mon­ey deposits con­tract­ed at an annu­al rate near 20pc in the sec­ond half of 2011.

    Since the coun­try can­not deval­ue with­in EMU, it hopes to achieve an “inter­nal deval­u­a­tion” to restore 30pc in lost com­pet­i­tive­ness against Ger­many. This is a gru­elling process, entail­ing cuts that eat away at tax rev­enue.

    I won­der if there are any “moral haz­ards” in this new fan­gled EU-debt-troi­ka-gov­ern­ment sys­tem that seems to have a default anti-labor/­so­cial safe­ty net man­date via a default tem­po­rary de fac­to mini-dic­ta­tor­ship every time the finan­cial sec­tor bursts ones of its bub­bles? If so, like all moral prob­lems fac­ing soci­ety, some aus­ter­i­ty is in order. Maybe even aus­ter­i­ty for the finan­cial sec­tor. Just as long as folks don’t go over­board.

    Posted by Pterrafractyl | January 22, 2012, 10:46 pm
  5. Oh look, anoth­er coun­try’s bank­ing sys­tem is look­ing a lit­tle queasy. More “labor mar­ket” reforms are the only pos­si­ble solu­tion:

    Span­ish cen­tral bank pre­dicts big drop in econ­o­my
    Spain cen­tral bank pre­dicts 1.5 per­cent fall in Span­ish econ­o­my and jobs mis­ery to con­tin­ue

    Asso­ci­at­ed Press­By Daniel Woolls, Asso­ci­at­ed Press | Asso­ci­at­ed Press – 01/23/2012

    MADRID (AP) — Spain faces more unem­ploy­ment mis­ery and needs seri­ous labor mar­ket reforms, the coun­try’s cen­tral bank warned Mon­day as it slashed its eco­nom­ic fore­casts for this year.

    The Bank of Spain pre­dict­ed the coun­try’s econ­o­my will con­tract 1.5 per­cent this year, rather than expand by that same amount as per its fore­cast until now.

    In a report, the bank said that since last sum­mer the euro­zone debt cri­sis has sapped busi­ness con­fi­dence and choked off bank cred­it. This has caused a major drop in domes­tic demand, only par­tial­ly off­set by strong exports.

    In 2012, house­hold spend­ing will con­tract because of euro15 bil­lion ($19 bil­lion) in tax hikes and spend­ing cuts already enact­ed by the new con­ser­v­a­tive gov­ern­ment to chip away at the bud­get deficit, it said.

    The econ­o­my will expand in 2013, but only by 0.2 per­cent, the cen­tral bank fore­cast.

    It warned that the gloomy out­look will hit jobs with­out thor­ough labor mar­ket reforms. Spain already has a 21.5 per­cent unem­ploy­ment rate and fig­ures due out Fri­day are expect­ed to show a fur­ther rise.

    The new con­ser­v­a­tive gov­ern­ment that swept to pow­er after Nov. 20 elec­tions has warned Spain will fall into reces­sion this quar­ter because of declines in GDP in the last three months of 2011 and the first quar­ter of 2012.


    Posted by Pterrafractyl | January 23, 2012, 7:54 am
  6. It looks isntalling a troi­ka in place of Greece’s gov­ern­ment did­n’t go far enough:

    Exclu­sive: Ger­many wants Greece to give up bud­get con­trol

    By Noah Barkin

    BERLIN | Fri Jan 27, 2012 6:59pm EST

    (Reuters) — Ger­many is push­ing for Greece to relin­quish con­trol over its bud­get pol­i­cy to Euro­pean insti­tu­tions as part of dis­cus­sions over a sec­ond res­cue pack­age, a Euro­pean source told Reuters on Fri­day.

    There are inter­nal dis­cus­sions with­in the Euro group and pro­pos­als, one of which comes from Ger­many, on how to con­struc­tive­ly treat coun­try aid pro­grams that are con­tin­u­ous­ly off track, whether this can sim­ply be ignored or whether we say that’s enough,” the source said.

    The source added that under the pro­pos­als Euro­pean insti­tu­tions already oper­at­ing in Greece should be giv­en “cer­tain deci­sion-mak­ing pow­ers” over fis­cal pol­i­cy.

    “This could be car­ried out even more strin­gent­ly through exter­nal exper­tise,” the source said.

    The Finan­cial Times said it had obtained a copy of the pro­pos­al show­ing Ger­many wants a new euro zone “bud­get com­mis­sion­er” to have the pow­er to veto bud­get deci­sions tak­en by the Greek gov­ern­ment if they are not in line with tar­gets set by inter­na­tion­al lenders.

    “Giv­en the dis­ap­point­ing com­pli­ance so far, Greece has to accept shift­ing bud­getary sov­er­eign­ty to the Euro­pean lev­el for a cer­tain peri­od of time,” the doc­u­ment said.

    Under the Ger­man plan, Athens would only be allowed to car­ry out nor­mal state spend­ing after ser­vic­ing its debt, the FT said.

    “If a future (bail-out) tranche is not dis­bursed, Greece can­not threat­en its lenders with a default, but will instead have to accept fur­ther cuts in pri­ma­ry expen­di­tures as the only pos­si­ble con­se­quence of any non-dis­burse­ment,” the FT quot­ed the doc­u­ment as say­ing.

    The Ger­man demands for greater con­trol over Greek bud­get pol­i­cy come amid intense talks to final­ize a sec­ond 130 bil­lion-euro res­cue pack­age for Greece, which has repeat­ed­ly failed to meet the fis­cal tar­gets set out for it by its inter­na­tion­al lenders.


    “One of the ideas being dis­cussed is to set up a clear­ly defined pri­or­i­ties on reduc­ing deficits through legal­ly bind­ing guide­lines,” the Euro­pean source said.

    He added that in Greece the prob­lem is that a lot of the bud­get-mak­ing process is done in a decen­tral­ized man­ner.

    “Clear­ly defined, legal­ly bind­ing guide­lines on that could lead to more coher­ence and make it eas­i­er to take deci­sions — and that would con­tribute to give a whole new dynam­ic to efforts to imple­ment the pro­gram,” the source said.


    It’s a good thing Euro­peans kept all those cas­tles around. They’ll make great scenic back­drops for Europe’s neo-feu­dal­ist future.

    Posted by Pterrafractyl | January 27, 2012, 10:04 pm
  7. At least it sounds like Greek politi­cians are dis­miss­ing the new pro­pos­al com­ing out of Berlin. And as details con­tin­ue to drib­ble out, we also learn­ing that Greece should­n’t take this new pro­pos­al too personally...the rest of the euro­zone would also be liv­ing under the new euro­zone sword of Damo­cles:

    Greece should give up bud­get con­trol: Ger­many
    By Erik Kirschbaum | Reuters – 01/29/2012

    BERLIN (Reuters) — Greece must sur­ren­der con­trol of its bud­get pol­i­cy to out­side insti­tu­tions if it can­not imple­ment reforms attached to euro zone res­cue mea­sures, the Ger­man econ­o­my min­is­ter was quot­ed as say­ing on Sun­day.

    Philipp Roesler became the first Ger­man cab­i­net mem­ber to open­ly endorse a pro­pos­al for Greece to sur­ren­der bud­get con­trol after Reuters quot­ed a Euro­pean source on Fri­day as say­ing Berlin wants Athens to give up bud­get con­trol.

    “We need more lead­er­ship and mon­i­tor­ing when it comes to imple­ment­ing the reform course,” Roesler, also vice chan­cel­lor, told Bild news­pa­per, accord­ing to an advance of an inter­view to be pub­lished on Mon­day.

    “If the Greeks aren’t able to suc­ceed them­selves with this, then there must be stronger lead­er­ship and mon­i­tor­ing from abroad, for exam­ple through the EU,” added Roesler, chair­man of the Free Democ­rats (FDP) who share pow­er with Chan­cel­lor Angela Merkel.

    Reuters report­ed on Fri­day that Ger­many wants Greece to give up con­trol of bud­get pol­i­cy to Euro­pean insti­tu­tions as part of dis­cus­sions over a sec­ond res­cue pack­age.


    With many Greeks blam­ing Ger­mans for the aus­ter­i­ty med­i­cine their coun­try has been forced to swal­low, offi­cials in Athens dis­missed the idea of relin­quish­ing bud­get con­trol as out of the ques­tion.

    Finance Min­is­ter Evan­ge­los Venize­los said on Sun­day Greece was per­fect­ly capa­ble of mak­ing good on its promis­es.

    Any­one who puts a nation before the dilem­ma of ‘eco­nom­ic assis­tance or nation­al dig­ni­ty’ ignores some key his­tor­i­cal lessons,” he said in a state­ment before head­ing to Brus­sels for a Euro­pean Union sum­mit on Mon­day.


    Under the plan, Athens would only be allowed to car­ry out nor­mal state spend­ing after ser­vic­ing its debt, the paper said.


    A gov­ern­ment source in Berlin said Ger­many’s pro­pos­al was aimed not just at Greece but also at oth­er strug­gling euro zone mem­bers that receive aid and are unable to make good on their oblig­a­tions.

    The Euro­pean Com­mis­sion, the exec­u­tive arm of the 27-coun­try bloc, said it want­ed the Greek gov­ern­ment to main­tain auton­o­my.

    So if Greece ends up in this new bud­get trap, where all state expen­di­tures must be spent on pay­ing bond hold­ers before any­thing else after Greece exceeds the deficit lim­it, are things like schools and hos­pi­tals sub­ject to get­ting shut down? How about nation­al defense-relat­ed costs? These seems like a ques­tion worth ask­ing before the lat­est rad­i­cal over­haul in the social-con­tract gets agreed upon. Ampu­ta­tion isn’t the best diet plan.

    Posted by Pterrafractyl | January 29, 2012, 4:01 pm
  8. Putting the ‘vicious’ in ‘vicious cir­cle’:

    Greeks unset­tled by demands of a frus­trat­ed Europe
    By Michael Birn­baum, Pub­lished: Feb­ru­ary 1


    As Europe starts to acknowl­edge that its aus­ter­i­ty-dri­ven poli­cies else­where have not done enough to lift the con­ti­nent out of its eco­nom­ic trou­bles, lead­ers have shown a new will­ing­ness to con­sid­er eco­nom­ic stim­u­lus poli­cies. But Greece, so far, remains an excep­tion.

    If Greece doesn’t low­er its min­i­mum wage, cut pen­sions and fur­ther slash spend­ing on pub­lic health with­in days, Euro­pean lead­ers have hint­ed that they are ill-inclined to keep loan­ing mon­ey to help the coun­try pay its debts. They com­plain that Greece has fall­en far short of meet­ing the finan­cial promis­es that it has made over the past two years and has near­ly run out of time to make up for it.

    In Ger­many, frus­tra­tion with Greece has grown so deep that lead­ers there briefly float­ed the idea last week­end of hav­ing a Euro­pean com­mis­sion­er take over the country’s bud­get and spend­ing sov­er­eign­ty for the dura­tion of the bailout, spark­ing mem­o­ries of Germany’s World War II occu­pa­tion of Greece. They lat­er backed off.

    “Greece must live up to its com­mit­ments. We can only help when it is not a bot­tom­less pit,” Ger­man Finance Min­is­ter Wolf­gang Schaeu­ble told Deutsch­land­funk radio Wednes­day.

    Some Greek lead­ers are incred­u­lous that Europe is demand­ing cut­backs that could hurt the nation’s poor­est first even as it talks about stim­u­lat­ing eco­nom­ic growth else­where in the euro zone. “If you cut salaries, incomes, pen­sions,” said Devel­op­ment Min­is­ter Michalis Chriso­choidis, “you cut every­thing, the demand decreas­es, and then con­sump­tion decreas­es rapid­ly. All the poli­cies are part of a vicious cir­cle.”

    Euro­pean lead­ers say that reduc­ing Greece’s min­i­mum wage would boost the nation’s com­pet­i­tive­ness against coun­tries such as Por­tu­gal, where labor costs are low­er. But Greek offi­cials and econ­o­mists say that stronger com­pet­i­tive­ness is vir­tu­al­ly mean­ing­less as long as their future with the euro is in doubt. Only the gut­si­est investor, they say, is will­ing to gam­ble on the coun­try in the inter­im, because if Greece goes back to its old cur­ren­cy, the drach­ma, infla­tion could wipe out a large por­tion of those invest­ments.

    But many oth­ers see the demands as way too bur­den­some. The cuts “are not nec­es­sar­i­ly very wise­ly thought out,” said a Greek offi­cial, speak­ing on the con­di­tion of anonymi­ty to talk can­did­ly about Greece’s per­cep­tion of the demands from the Euro­pean team of nego­tia­tors from the IMF, the Euro­pean Com­mis­sion and the Euro­pean Cen­tral Bank. “The troi­ka,” as the team is called, “is becom­ing harsh­er,” the offi­cial said.

    The troi­ka has pro­posed addi­tion­al lim­its on health spend­ing, and many doc­tors who work in the tan art deco Sis­man­oglio Hos­pi­tal, perched atop a hill in a sub­urb north of Athens, said they’re wor­ried about the future.

    Their pay has been slashed, their ranks have thinned by a third, and their work­loads have increased as many of their peers go abroad for work or they retire and are not replaced, the doc­tors said. For­eign sup­pli­ers demand upfront pay­ment for ban­dages and oth­er med­ical neces­si­ties before they send over their goods, fear­ful that if they extend any cred­it to Greece they will nev­er be paid back.

    Now, the doc­tors said, the troi­ka is reach­ing deep­er into their pro­fes­sion­al lives, ask­ing that that they write at least half of their pre­scrip­tions for gener­ic drugs, dri­ven in part by sus­pi­cion that kick­backs from drug com­pa­nies are keep­ing costs arti­fi­cial­ly high. Doc­tors acknowl­edge that cor­rup­tion is a prob­lem, but they say that the new rules are arbi­trary and rigid.

    So does Pro­tu­gal’s min­i­mum wage get a pass once Greece slash­es its min­i­mum wage below Por­tu­gal’s or do they keep play­ing this game for­ev­er?

    Posted by Pterrafractyl | February 2, 2012, 10:17 am
  9. Anschluss eco­nom­ics!?

    Posted by GrumpusRex | February 3, 2012, 6:31 am
  10. @GrumpusRex: Per­haps, more like Leben­sraum. LOL. =D

    Posted by Steven L. | February 4, 2012, 4:53 am

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