In a column this morning about the state of the nation, Paul Krugman, Mensch, and one of the smartest persons on the planet, noted that there are small signs of -- and don't say it too loud -- 'recovery' with a small 'r' here in America.
But the economy is depressed, in large part, because of the housing bust, which immediately suggests the possibility of a virtuous circle: an improving economy leads to a surge in home purchases, which leads to more construction, which strengthens the economy further, and so on. And if you squint hard at recent data, it looks as if something like that may be starting: home sales are up, unemployment claims are down, and builders’ confidence is rising.At the same time, Krugman notes that our nacent 'recovery' could be cut short by what Europe's leaders are (or, aren't) doing:
Furthermore, the chances for a virtuous circle have been rising, because we’ve made significant progress on the debt front.
There are, of course, still big risks — above all, the risk that trouble in Europe could derail our own incipient recovery. And thereby hangs a tale ... told by a recent report from the McKinsey Global Institute.What Europe does, or more likely does not do, is the 800-Pound Gorilla in global finance.
The report tracks progress on “deleveraging,” ... bringing down excessive debt levels. It documents substantial progress in the United States, which it contrasts with failure to make progress in Europe. And while the report doesn’t say this explicitly, it’s pretty clear why Europe is doing worse than we are: it’s because European policy makers have been afraid of the wrong things.
In particular, the European Central Bank has been worrying about inflation — even raising interest rates during 2011, only to reverse course later in the year — rather than worrying about how to sustain economic recovery. And fiscal austerity, which is supposed to limit the increase in government debt, has depressed the economy, making it impossible to achieve urgently needed reductions in private debt. The end result is that for all their moralizing about the evils of borrowing, the Europeans aren’t making any progress against excessive debt — whereas we are.
Merkel and Sarkozy are determined to save the Euro, and preserve European Union. They absolutely will not waver from austerity programs which Greece, Spain, Ireland, Great Britain, Italy and Portugal have had to adopt as a condition of loans made by the ECB (Note: This isn't true for the British, who have voluntarily adopted Austerity Forever! because they're a cold people who boil everything, including their bread; so there). It doesn't matter that evidence is clear that Austerity is killing Europe's economy as it impoverishes its people. Yet all the Great Nations Of Europe can do is say more cuts!
The 'Greek Problem', the great Black Hole of European finance, continues, and there is certainly evidence that the Greeks may have to pull out of the Eurozone. But as Angela and Nicky refuse to allow increased spending by governments like Greece, it forces unemployment and economic contraction, and leads to a lack of tax revenues; increasing the likelihood of default on sovereign debt, forcing the European Central Bank to intervene with more emergency bailout loans, just so the Greek government doesn't default on bonds already issued, to raise money to pay back loans already received...
This has been the cycle with Greece, twice in the past two years, and it may simply end with them leaving the Eurozone. Angela and Nicky are trying hard to prevent that -- with finances as interconnected as they are, a meltdown of Greece (or any 'at risk' Eurozone nation) could mean the unraveling of the Euro and the EU.
And in these days of interdependent, counterparty-risk financing, if that happens it will adversely affect whatever kind of recovery we begin to have here in America.
Courtesy of Calculated Risk, here are some key dates for the Eurozone to keep in mind as it rapidly turns into the Twilight Zone:
Euro zone finance ministers will decide on Monday what terms of a Greek debt restructuring they are ready to accept as part of a second bailout package for Athens after negotiators for private creditors said they could not improve their offer...
Once the guidance from the finance ministers, known as the Eurogroup, is clear, talks on the restructuring could be finalized later in the week.
Late April: Proposed date for Greek general election.
- Jan 30th: European Union leaders meet in Brussels on debt crisis
- Feb 9th: ECB holds rate meeting
- Feb 20th: Euro-area finance ministers meet in Brussels
- Feb 29th to March 1st: Italy redeems [has to pay bondholders] 46.5 billion euros of bonds
- March 1st and 2nd: EU leaders meet in Brussels
- March 8th: ECB holds rate meeting
- March 12th: Euro-area finance ministers meet in Brussels
- March 20th: Greece redeems [has to pay bondholders] 14.4 billion euros of bonds
- March 30th: Euro-area finance ministers meet in Copenhagen
April 22nd: France holds a presidential election.
MEHR: ...and, Europe edges closer to the Schwarzschild Radius of the Greek Black Hole:
(Reuters) - Greece was clinging on Tuesday to hope of a last-minute bond swap deal to avoid a messy default ...
Athens is desperate for a deal within days to ensure funds from a 130 billion euro rescue plan drawn up by European partners and the International Monetary Fund arrive before 14.5 billion euros bond redemptions fall due in March.
After weeks of haggling with creditors in Athens, euro zone finance ministers in Brussels on Monday dealt a sharp setback to those hopes by rejecting creditors' demand for a 4 percent coupon, or interest rate, on new, longer-dated bonds in exchange for existing debt.
Donnerwetter: Noch Einmal! Boy, do I hate being right.
WASHINGTON — The International Monetary Fund warned on Tuesday that global growth prospects had dimmed as the sovereign debt crisis in the euro zone entered a “perilous new phase.”The venue for Lagarde's speech should give it away: She was speaking from the Haus of Angela, and the 'what it knows must be done' that Chrissie mentioned is CodeTalker language for More Austerity! It's Our Only Hope!!
Releasing quarterly updates ... the fund cut its estimates of global growth this year to 3.25 percent, from the 4 percent it forecast in September, on “sharply escalated” risks emanating from Europe.
In light of that market uncertainty and sluggish growth, the fund is seeking to raise up to $500 billion in additional lending capacity... calling on the European Union to expand its bailout fund to at least $1 trillion from its current capacity of 440 billion euros, or about $570 billion...
In a speech in Berlin on Monday, Christine Lagarde, managing director of the fund, said: “The longer we wait, the worse it will get. The only solution is to move forward together... The world must find the political will to do what it knows must be done.”
The goal of most European politicians (of EU / Eurozone nations, anyway) is to try and preserve the Euro and the Union -- for economic reasons good and bad, and to preserve a politically unified Europe.
European politicians remember the lessons of their own recent history -- hyperinflation, political instability brought on by economic crisis; trade union strikes and riots; and the rise of fascism. They've bet the Farm on Austerity as the method to weather the current crisis. Their governments have followed Germany and France's insistence that it be so, and Europe's citizens have gone along, so far -- mostly because the full weight of the Austerity programs haven't bitten down hard enough, yet.
Unfortunately, the Realpolitik is that Austerity they've hooked their own political fortunes to will not solve Europe's interconnected economic problems -- their own governments may eventually collapse under a tide of unpopularity when their own people can't take 'Austerity' any more. And in the process, the Euro and the European Union may cease to exist.
Noch Enimal Mit Unmöglichkeit !
Little Angela, Die Eisener Frau, says Ooopsie !
Angela Merkel has cast doubt for the first time on Europe's chances of saving Greece from financial meltdown and sovereign default, conceding that Europe's first ever multibillion bailout coupled with savage austerity was not working after two years of crisis that has brought the single currency to the brink of unravelling.Ha ha ha ha; sorry about that, Greeks. No hard feelings?
Days before the latest crucial EU summit, which – at Merkel's insistence and evoking scant enthusiasm elsewhere – is to finalise an international treaty between eurozone governments entrenching German-style fiscal and budgetary rigour in all single currency countries, the chancellor admitted to having doubts about the strategy she has pursued throughout the crisis...And that means More Austerity!!
With Europe's worst ever crisis moving into its third year, the chancellor is facing growing resistance to her key aim at Monday's summit – finalising the "fiscal compact" treaty that is the euro's new rulebook, foreseeing quasi-automatic fines for fiscal sinners... and establishing legally binding debt ceilings for eurozone governments.
The treaty would enshrine the German model of fiscal and monetarist rigour as binding on the eurozone, in effect outlawing Keynesian economics.
Criticism of the pact and the Merkel policy is getting louder. "A lot of time and energy wasted for nothing," Luxembourg's foreign minister, Jean Asselborn, told Der Spiegel ... Last week, a Finnish cabinet minister also attacked the treaty as having more to do with German domestic politics than with saving the euro.
But Berlin looks certain to get its way since it says there will be no new permanent euro bailout fund being established a year early in July without agreement on the new treaty.
Opponents say the pact will do little to stem the immediate crisis. The Germans insist in the medium-term it will prevent a repeat of the profligacy that caused the near-collapse in the first place.
And that's Jenga.