We have all heard of lazy Greeks, all living of government sponsored pensions. Things are somewhat different. Some important facts wort reconsidering prior to the election weekend coming up in Greece. Via Sturdyblog.
Stereotypes and untruths are everywhere, but this economic crisis is not the self-inflicted result of a mythical Mediterranean work ethic.
[This article was originally published in the New Statesman on 18th May 2012]
Maria was born in Paros in 1942. The country was under Nazi occupation. She experienced real fear, real poverty, starvation, bomb raids and executions. She survived the war and went to a Catholic girls’ school. Maria was good at sport and an excellent singer. She left school top of her class, got married, started working for the Archaeological Museum in Mykonos, from where she retired 44 years later at the age of 64 – one year before she was officially supposed to – in order to look after her husband who was dying of pancreatic cancer.
Maria worked two jobs most of her life – times were often hard. She was on PAYE all her life. She contributed to her pension and saved. She raised three children. She sat at her sewing machine many an evening, altering her skirts; so that they wouldn’t look so 50s in the 60s; so that they wouldn’t look so 60s in the 70s.
Biderman on the financial mess. Hint, the old world won’t be coming back….
What has been going on since this past November, is that we have a stock market admittedly rigged by the Federal Reserve since 2009. The US stock market is up almost double the 2009 low yet the US economy is barely growing. Similarly back in November I described Europe as an unfolding slow motion train wreck employing a strategy of kicking the can down the road. Unfortunately for Europe, the end of that road is now in sight.
What also has not changed is that the financial media since November, particularly the Fed apologists on TV, firmly believe all that is missing for Europe is a plan that works. These nitwits apparently still believe that there is a way out of the mess that solves all problems; and afterwards the world can go back to the way it was.
With the Greek weekend coming up, let’s brush up the definitions of the fancy ESM and the EFSF. From TF Market Advisors.
There is so much confusion about the ESM or EFSF funding costs. How it works, how it affects countries, etc. Here is how it works.
€1 Billion of EFSF Borrowing
The EFSF sells bonds to the market. They have already issued €109 billion of bonds, so they are a meaningful issuer and buyers at this stage understand how it works. The bonds are backed by “guarantees” from member countries with an “overcollateralization factor”.
The key is that for every €1 billion of bonds issued, you get a billion of guarantees from useful countries. Yes, Spain and Italy are included. Yes, technically if Spain or Italy receive money it is circular, but ultimately they are pretty irrelevant. Investors buy EFSF bonds and are getting paid more than if they invested in France directly – the weakest of the high quality guarantors. If you invested €1 billion split among the 5 best issuers in this ratio, you would expect to earn 1.01%. By investing in EFSF you get 1.82% and yet your risk is more than covered by those top 5. Yes, there is a risk that they don’t come in on their guarantees, but at same time you are getting almost double the spread of investing in countries outright and pick up the throwaway guarantees for free.
So now you can see how EFSF funds, how irrelevant Spain and Italy are too it, and that it is likely sustainable when it is so much cheaper than direct investments in the top countries (especially if people don’t think there will be an FX event in Europe).
Guest post by Lance Roberts of Streettalklive.com.
The recent release of the CPI data confirms our view that “deflationary” pressures are rising in the economy. During the past several months we have been discussing, and warning about, the similarities between the current market environment and that seen in the summers of 2010 and 2011. While there was much media commentary to the contrary, we said “The market is currently playing out very similar to 2010 and 2011. Whether that continues is not important; however, with Fed support ending in June and economic numbers weakening, the environment is not currently supportive of higher stock prices.” Since that time the market has been rocked with volatility as stresses from the Eurozone crisis, weakening economics and the end of stimulative support all coalesce into the perfect storm. The chart shows the composite inflation index, an average of PPI and CPI, which has declined sharply at the headline rate in the last three months as those deflationary impacts have grown.
Angela Merkel, the German chancellor, declared on Thursday that Europe was “in a race with the markets” to turn its monetary union into a fully fledged political union, even as she warned her partners notto overburden the German economy in the eurozone crisis. Her intervention coincided with a new surge in borrowing costs for Spain, following a downgrade by Moody’s rating agency, while Italy moved to reassure the markets by promising further cuts in public spending. http://www.ft.com/intl/cms/s/0/7d1842e2-b642-11e1-8ad0-00144feabdc0.html#axzz1xe4lV9a0
The U.K. introduced a series of measures designed to shield its financial system from the ongoing European crisis, with plans to flood banks with cheap credit in an attempt to jump-start lending to British businesses and households. The efforts helped push the euro up 0.6% overnight to $1.2633, late in New York, though the single currency weakened slightly in Asia to $1.2625. The dollar weakened against the yen to 79.25, compared with 79.35 on Thursday night. The Australian dollar was trading just above parity against the dollar early on Friday, at $1.0004. Japan’s Nikkei was up 0.2%, ahead of the Bank of Japan’s policy meeting later in the day; South Korea’s Kospi was down 0.8%, while Australia’s S&P ASX 200 was up 0.3%. Hong Kong’s Hang Seng Index gained 1%, the China Shanghai Composite edged up 0.3%, and Singapore’s Strait Times Index was 0.4% higher. http://online.wsj.com/article/SB10001424052702303734204577467353499921894.html?mod=WSJASIA_hpp_LEFTTopWhatNews
The U.K. on Thursday unveiled an extraordinary series of measures designed to insulate the British financial system and economy from the euro zone’s deepening crisis. Chancellor of the Exchequer George Osborne and Bank of England Gov. Mervyn King announced plans to flood banks with cheap funds in an attempt to jump-start lending to British households and businesses and to fend off potential financial problems at big U.K. lenders. The British programs resemble some of the emergency measures enacted by central banks in Europe and the U.S. earlier in the financial crisis. The British announcement on Thursday, at an annual black-tie dinner with bankers in central London, reflects leaders’ intensifying concerns that Europe’s crisis threatens to drag down the U.K. economy and financial system. “These are very difficult economic times—as difficult perhaps as any our country or our continent has faced outside of war,” Mr. Osborne said. “Together we can deploy new firepower to defend our economy from the crisis on our doorstep.” The British programs resemble some of the emergency measures enacted by central banks in Europe and the U.S. earlier in the financial crisis. The British announcement on Thursday, at an annual black-tie dinner with bankers in central London, reflects leaders’ intensifying concerns that Europe’s crisis threatens to drag down the U.K. economy and financial system. http://online.wsj.com/article/SB10001424052702303822204577466790091232290.html?mod=WSJEurope_hpp_LEFTTopStories
Germany alone can’t solve the euro-area sovereign debt crisis, German Chancellor Angela Merkel warned on Thursday, as she urged the world’s largest economies to play their part in helping to restore growth. Speaking ahead of a meeting of the Group of 20 industrial and developing nations, Ms. Merkel told parliament in Berlin: “The causes of the weakening global economy are indeed not only in the euro area. “Everyone must be prepared to overcome their specific weaknesses,” she said. Since the start of the debt crisis, Ms. Merkel and Germany have come under intense pressure to do everything possible to keep the monetary union from breaking apart. As the euro zone’s largest economy, Germany has accepted the greatest financial share of the bailout packages. The country has taken responsibility for as much as €401 billion ($503.54 billion) of the agreed temporary and permanent bailout programs’ entire resources, according to an estimate from Credit Suisse. http://online.wsj.com/article/SB10001424052702303734204577465910985870838.html?mod=WSJEurope_hpp_LEFTTopStories