You Have Nothing To Lose But Your Fast Food Chains

Greece Shows The Way

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MEHR, MIT AROOO:  Paul Krugman, one of the Smartest Humans On Earth™, explains that there's more to the Greek finance drama than meets the eye -- principally, that The Syriza Party's standing up to bullying by EU finance ministers may be the beginning of the end of Austerity programs in the Eurozone. 

From an economist's perspective, Krugman believes Greece has done well in the sort term and is positive about its future. The actors in this drama who aren't happy in the EU are the Austerians, who should just go back to Planet Buzzkill, already.

... the main issue of contention involves just one number: the size of the Greek primary surplus, the difference between government revenues and government expenditures not counting interest on the debt. The primary surplus measures the [amount of money] that Greece is actually [paying] its creditors. Everything else, including the [total amount of Greece's] debt — which is a more or less arbitrary number at this point, with little bearing on the amount anyone expects Greece to pay — matters only to the extent that it affects the primary surplus Greece is forced to run.

For Greece to run any surplus at all — given the depression-level slump that it’s in and the effect of that depression on revenues — is a remarkable achievement, the result of incredible sacrifices. Nonetheless, Syriza has always been clear that it intends to keep running a modest primary surplus. If you are angry that the negotiations didn’t make room for a full reversal of austerity ... you weren’t paying attention.

The question instead was whether Greece would be forced to impose still more austerity. ... So did the current Greek government back down and agree to aim for those economy-busting surpluses? No, it didn’t. In fact, Greece won new flexibility for this year...

And the creditors did not pull the plug. Instead, they made financing available to carry Greece through the next few months. That is, if you like, putting Greece on a short leash, and it means that the big fight over the future is yet to come. But the Greek government didn’t succumb to the bum’s rush, and that in itself is a kind of victory.

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Meanwhile, In Downtown Europa: Greece, Part VI

Playing Chicken In The Eurozone

 Some men see things as they are and ask, "Why?"
I see the same stuff and say, "Yeah, yeah; whatever:"
Bender Bender Bender / Bender Bender Bender...
-- Bender

Things are truly going on, out there in whatever you consider the Big World to be. And, dogs do pay attention to these things.

Yes; we know -- you think all we're interested in is food, elimination of bodily waste -- squirrel! -- your attention; food; other Dogs -- hey! another squirrel! -- being left outside the store; food; and dry-humping an available leg.   So wrong.

Greece has apparently said Γαμώτο λιτότητας. As we've noted many times in the past (like, 2010, and in 2011 and also 2012), since The Crash of 2008, Greece has suffered through a tragedy worthy of Sophocles.

It's economy was overextended when the Bankster class (led by America -- USA! USA!) set up the Crash. Greece's national debt was roughly 175% of GDP, where it remains today. It had, like any country, sold bonds as investments -- and without loans from the EU (primarily, German banks), the European Central Bank (ECB) and the IMF, the country might default on payments when the bonds came due.

Worse, they might default on paying the bailout loans -- and as the graphic below indicates, that default action would be Sehr Schlecht for banks in France and Germany.

 Circa 2012: Why Greek Debt Matters For Europe

(Click On Image To Enlarge: It's Easy and Fun!)

So Greece was provided a series of four IMF/ECB loans -- "bailouts" -- but as a condition of receiving the money had to accept forced austerity measures to reduce the country's deficits and pay down their public debt.

The EU state in the best shape, financially, after 2008 was Germany -- and principal among EU leaders who supported austerity was Die Eisen Kanzellerin Angela Merkel.  Many European nations, Angela said, had been profligate and spent above their means; it had taken an American-led financial crisis to show the cracks in Europe's financial foundations.

To correct that, nations like Spain, Portugal, Ireland, and Greece, would have to reduce public spending until the pips squeaked. This meant reductions in public services, massive layoffs of government workers, and cuts in pension payments to retirees. Without promises to do so -- no soup for you! and no loans from Germany's banks.

So, Greece's economy contracted by one-quarter after 2008, and Greece's unemployment rate climbed steadily to 25% and has remained there. The lack of jobs meant few people had much discretionary spending power -- they were too busy trying to figure out how they would feed their families.

Greece's public electricity utility is state-owned -- so it was negotiated away to be sold to a "private consortium" (Read: Oligarchs), along with Piraeus, the country's largest port and shipping facility. There was even talk of selling some of Greece's national art treasures to museums and "private collectors".  The country was holding a Fire Sale: Our Misfortune Could Be Your Fortune! Everything Must Go!

Fortunately, Greece's cultural heritage remained in its museums. However, private individuals had to drain their savings accounts, and sell any private assets they had for whatever they could get -- art, land, jewelry; businesses.  "Private investors" (Read: Vultures) in Russia, Europe, and China all swooped down to pick up a few bargains. The wealthy were able to weather the storm, but by 2013 the majority of Greece's population was declared by the BBC to be "living in poverty".

None of this could have happened without the collusion active support of the Greek government, led by Center/Right politicians, who negotiated loans from the EU and tried to convince the Greek populous that austerity today would mean prosperity and security down the road.

The problem was that austerity is a complete failure. Forcing a nation into high rates of unemployment doesn't stimulate economies; exactly the opposite -- though even a brain-dead chimpanzee would have known that), one bailout loan was followed by Greek inabilty to meet its loan payments, meaning another loan... which the EU, ECB and IMF would not provide without even more austerity measures.

2012, Athens: Happy Greeks Enthusiastically Embrace Austerity 

To Assist European Allies By Vowing To Live On Dog Food For
The Next Ten Years (Photo: Guardian UK / Milos Bicanski)

So it went for three years. The belt-tightening continued; strikes and riots occurred across the country. There were several changes of governments -- which involved penalties for anyone not supporting austerity (in February of 2012, members of Greece's parliament who voted against accepting the ECB/IMF's financing terms were thrown out of their political parties). The Center-Rightists always managed to maintain just enough of a majority in Greece's parliament to be the party forming a government, and maintaining control... until this past weekend.

The election of a majority of Leftist Syriza party candidates for the Greek Parliament placed it in control of the Greek government -- which has announced it would 'renegotiate' the country's $240 Billion-Euro debt, shelved plans to sell its state utility and the port of Piraeus, and declared the 'era of humiliation' was over.

This sent a shiver through Brussels. It was, possibly, the beginning of a worst-case scenario which some peripheral EU nation has threatened to deliver for over five years -- and if not Greece, then Portugal, or Spain; Italy; even France. Martin Schulz, President of the European Parliament, said he will meet with Greece's new Prime Minister, Alexis Tsipras, next week, for some "straight talking". 

New Prime Minister Tsipras stated earlier this week that the new government did not plan a "Grexit" from the EU or the Euro -- that Greece intends to honor its debt obligations and not default. However, he was clear that the terms of repayment would be theirs, and not the debtholders' -- that demands for austerity wouldn't continue. 

The new plan would be to renegotiate terms of Greece's debt with the individual EU countries which had provided money for their loans -- something like renegotiating the terms of your auto loan with the depositors whose money was used, instead of your bank.

Today, the Eurogroup finance chief and Dutch politician, Jeroen Dijsselbloem, met with the new Syriza party Greek Finance Minister, Yanis Varoufakis, to discuss how Greece's new government planned to meet its loan obligations to the "troika" (EU banks, ECB and IMF).  Dijsselbloem represented the troika, and finance ministers of the core EU states most at risk from a default; he appeared in typical business suit and tie, but his eyebrows shot up when Varoufakis arrived wearing a shirt without a tie, and not even tucked into his trousers.  Things kind of went downhill from there.

After meeting privately for two hours, the men held a brief press conference. Varoufakis said flatly that Greece would no longer negotiate with the "troika", but with the individual EU countries involved in the loans.  Dijsselbloem  appeared surprised (so, what did they talk about for two hours?), and said he was disappointed. 

After less than ten minutes, the men stood up -- Dijsselbloem shook hands with Varoufakis and whispered something in his ear, then walked off without looking back  (It was reported that Dijsselbloem had said, "You just killed the troika," and that Varoufakis simply responded, "Wow").  Dijsselbloem clearly felt dissed.

Why is any of this important? If the Troika of lenders and the new Greek government can't reach an agreement on repaying the loans they already have, there will be trouble -- European finances are tight, and if some lenders aren't repaid on time ( It's been noted already that the Greek debt most at risk is in loans from German banks), it can unbalance a whole house of cards.  

And, there's always the worst-case: Greece pulls out of the EU or removes itself from the Euro, which would send financial markets into a nose-dive.  That probably won't happen -- and Paul Krugman, Very Smart Human (smarter than you and me; that's for sure), will explain it all for you here.

Of course, if he's wrong, we'll have our own brand of Fun in the not-too-distant future:

August

Der Anfang

 August 2nd is a Saturday this year. In 1914, the 2nd was a Sunday, and an unusual one in London, because the Prime Minister, Herbert Asquith, had called his Cabinet into session at No. 10 Downing Street -- a thing that had never happened before in British history.

It had been a difficult week, a difficult month. On June 28, the Archduke Franz Ferdinand, heir to the Hapsburg Austro-Hungarian empire, had been shot with his wife in Sarajevo.  The Serbian government was behind the assassination; Austria was determined to "crush the nest of vipers", and Imperial Germany had given the Hapsburg empire promises of support that amounted to a 'blank check'.

German Students Marching To Volunteer, August 1914

But, Imperial Russia stood behind the Serbs (protectors in spirit, if not fact, of Slavic peoples in the Balkans). They were also allied with Republican France -- if Austria were to attack Serbia and the Germans stood with them, Russia could go to war with Austria and Germany in the east, and France would attack from the west.

Belgium, the Netherlands, Spain and Portugal, Denmark and Scandinavia, and Italy were neutral in all this. So was the Empire of Great Britain -- but no one expected them to stand by in a general European war.

Soldiers Of France's 5th Infantry Regiment, August 1914

Austria-Hungary had mobilized its army and sent the Serbian government an ultimatum -- a sham, and everyone knew it. On July 28, Austria declared war on Serbia, its gunboats began shelling Belgrade, and Austrian troops crossed the Serbian border.

Russia ordered a general mobilization, and on July 31st the Germans announced a Kriegsgefahr, a general warning that meant preparation for war had begun. Great Britain, still neutral and conflicted, had quietly issued a Warning Telegram that allowed their War Office to take preparatory steps on July 29th.

The British government made a public offer to host a five-power European conference, and help mediate a solution; Austria curtly refused. After two generations of peace a general European war seemed impossible, unthinkable -- but now, seemed impossible to stop.

August 1

Yesterday, August 1st, in 1914, the situation on the Continent quickly deteriorated. Asquith's cabinet had been meeting in London during the day; there had been talk and debate about the crisis in the Commons. In discussion, twelve of Britain's eighteen ministers declared themselves opposed to any support for France should they go to war with Germany. What was the point, they argued, of taking sides in a squabble that had nothing to do with Britain or British interests? and their division mirrored their country's in miniature.

Prime Minister Asquith was "determined not to lead a divided nation into war" -- however, his Foreign Minister, Sir Edward Grey, had declared the Germans as a force in Europe "bad as Napoleon", and intimated that if the government decided to remain neutral in the case of a war, he would have to resign.

At 4:00PM word reached Grey that France had ordered a general mobilization, and at 5:00PM he was told that Germany had followed suit. General mobilizations are serious and expensive -- disruptions in transportation; affect to businesses as reserve soldiers leave work for active service; the effects to financial markets -- and when they occur, mobilizations mean war. They carry a sense of inevitability with them.

The cabinet, in low spirits, separated for dinner.  First Lord of the Admiralty, Winston Churchill, was dining there when  a messenger arrived just after 8:00PM carrying one of the British government's ubiquitous red dispatch boxes. Churchill opened it, took out a single sheet of paper and read it, then told his dinner companions, "Germany has declared war on Russia".

Admiralty House, London

He walked from the Admiralty House to Downing Street, and met with Asquith, Grey, and two other senior ministers.  More bad news had arrived: at about 9:00PM, the British Foreign Office received word from the Foreign Minister of Luxembourg that German troops had crossed their border and seized the main telegraph exchange, a major European communications hub.

Churchill left the Prime Minister's residence, returned to the Admiralty, and at some time after 10:00PM ordered (as a separate act from any order for the army) the British fleet to mobilize.

August 2

10 Downing Street Is The Dark-Grey Building At Center/Right -- In 1914, Other Buildings
In the Immediate Vicinity Held The Home Office, Foreign Office, India Office and Colonial Office

 So on that Sunday, when a general war engulfing the European continent seemed inevitable, the British cabinet met -- an act that had never occurred in British history. The question they faced was the same as it had been the day or the week before: why take the country to war over what amounted to a dispute between Austria-Hungary and Serbia? How did this involve Great Britain?

Cabinet Room, 10 Downing St.

Even with the clock clearly at two minutes to midnight, all the major combatants mobilized and two out of four (Russia and Germany) having declared war, the majority of Asquith's cabinet still believed a diplomatic miracle could occur to avoid a massive conflict -- because such a thing seemed so unbelievable.

The major topic of discussion that Sunday was the British and German navies -- for decades before 1914, the Germany and Great Britain had been involved in a (principally naval) arms race. If Germany and France went to war, it was likely the German fleet could sail into the English Channel.  On principle, the British couldn't permit it -- but if they moved to block the Germans, such an act might force them into a war with Germany.

Men Outside London's Main Army Recruiting Station, August 1914 (Click To Enlarge)

 The problem Prime Minister Asquith and his cabinet faced was, Britain's government had already quietly committed their country to a de facto alliance with the French. Unfortunately, no one had informed the country, or the Parliament, about any of this.

For years, the French and British military high commands had met and developed detailed plans for cooperation in case of a war between France and Germany. The British would deploy 100,000 men to the continent within two weeks of a declaration of war, to fight alongside the French Polius. The French were pleased with what they saw as a commitment, an act of honor, from their neighbor across the channel.

The British saw it as discussions about a contingency -- just a general direction, you see. No one had made a formal commitment to do anything, and no one had signed a treaty; the military plans were on the level of a tabletop war game.  The politicos assumed, along with everyone else, that the long peace in Europe would last forever. The plans would never have to be used; the French were kept happy... where was the harm in all that?

Events on the continent since June 28th were threatening to expose the government as having committed Britain to an alliance, and a possible war, without debate or consensus. The public, its elected representatives in the Commons; even King George V would not be amused when they found out -- one more reason Asquith and his cabinet agonized over Britain's position as Europe plummeted into war.

Late on that afternoon, Foreign Secretary Grey asked the cabinet for authority to declare that if the German fleet sailed to attack France's northern ports, Britain's navy would defend the Channel. After arguments on both sides, the Cabinet uncomfortably agreed, and two isolationist ministers resigned forthwith.

While the British cabinet continued to talk, at 7:00PM in Brussels the German ambassador  met with the Belgian Foreign Minister, and delivered a note: Germany had 'reliable information' that France was planning to attack them, through Belgium -- a country which had been as neutral as Switzerland since 1830, that neutrality guaranteed in a document signed by all Europe's major powers.

It would be necessary, the ambassador explained, for the German army to cross Belgium on its way to France.  The Belgian army could 'line the roads' as the Germans marched through, or fight. If they resisted, the Belgians would be regarded as an enemy.  They had twelve hours to respond with 'an unequivocal answer'.

Word of Germany's ultimatum reached Foreign secretary Grey in London over dinner; he drove immediately to 10 Downing Street and urged the Prime Minister to give the order for full military mobilization; Asquith agreed.

The Belgians advised the British and French that they would resist the invasion; as Asquith's orders calling up British reservists were issued, another two ministers in his cabinet, shocked and saddened at what they saw as the folly of the moment, resigned.

Back in Belgium, at 9:00PM its cabinet of ministers met with Albert, King of the Belgians, at the royal palace. Albert was not completely surprised by the German demand -- while visiting Berlin less than a year earlier, he was treated to barely-disguised threats from the Kaiser and leading military officers that if Der Tag ever came and France was to be dealt with, Belgium would be forced to choose a side.

Royal Palace, Brussels, Belgium

 The Belgian army consisted of six divisions of infantry and one of cavalry, roughly 60,000 men -- and Belgium had a series of forts at Liege and Namur which (based on wars of the past) could at least slow the German advance. Over 350,000 men would swing across Belgium, towards France.  The Belgian army had Dog Carts, pulled by actual dogs; the Germans had 380mm and 420mm artillery pieces.

Even so, there was never a doubt in the minds of Albert or his ministers what their response to the German ultimatum would be. "It must be 'no', whatever the circumstances," Albert told them. Another minister said, "Well, if we are to be crushed, let us be crushed gloriously!"

The King and his ministers continued meeting past midnight. Bizarrely, at 1:30AM, the German ambassador reappeared to press for Belgium's standing aside as armies marched through their country, leaving empty-handed after an hour. At 4:00AM the ministers left to prepare the formal response to the Germans.

August 3

At 7:00AM, as the twelve hours of the ultimatum expired, the Belgian Foreign Minister delivered his government's response to the Germans: No.

In London, it was becoming clear that war could not be avoided, and that England was already, whether they liked it or not, involved in that war by it's previous vapid commitment to the French -- and they expected Britain to stand with her. In addition, the British could not allow the Germans free passage through the Channel; but the pending German invasion of neutral Belgium was an intolerable last straw.

At 3:00PM in the Commons, Secretary Grey rose to speak about the coming war and for nearly an hour was eloquent in his explanations as to why Britain could not stand aside. He explained the prior military cooperation with the French (which, given current events, suddenly appeared as sensible policy), and appealed to honor and practicality. When he was finished, the House erupted in applause. The nation, in the Commons, seemed united.

As Grey sat down, Winston Churchill asked him, Now what? "Now we shall send them an ultimatum to cease the invasion of Belgium within 24 hours. If they refuse, there will be war." At 5:00PM in Berlin, Germany issued a declaration of war on France and began their invasion of Belgium.

Not long after learning of Germany's declaration, Secretary Grey stood at the window of the Foreign Office -- believing there was little chance the Germans would stop their invasion -- watched as the gas-lamp streetlights were being lit outside, and said, "The lamps are going out all over Europe; we shall not see them lit again in our lifetime."

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Felix Valloton, "Cemetery, Chalons-Sur-Marne, 1917"

Two days later, on August 5th, as German armies began an assault of the fortress system around Liege in Belgium, the Chief of the German General Staff wrote to the head of Austria-Hungary's general staff, "Europe is entering the struggle that will decide the course of history for the next hundred years."

He was too conservative in his estimation. We still live in the world that war helped to create, and will for generations more.

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Let's All Get Up And Dance To A Tune

The EU's Gonna Play All The Hits

Via TPM today:

Angela Merkel is poised to allow the eurozone’s €750bn bailout fund to buy up the bonds of crisis-hit governments in a desperate effort to drive down borrowing costs for Spain and Italy and prevent the single currency from imploding.

Germany has long opposed allowing the eurozone’s rescue fund... But Merkel has come under intense pressure as financial markets have pushed up borrowing costs for Spain to levels that many analysts see as unsustainable.

Analysts are likely to see the decision as the first step towards sharing the burden of troubled countries’ debts across the single currency’s 17 members, though it falls short of the “eurobonds” proposed by the European commission president José Manuel Barroso.

The proposal was discussed on the margins of the two-day G20 summit in Los Cabos, Mexico, which has been dominated by the depressing impact of the eurozone crisis on the world economy.

...The [British Chancellor Of The Exchequer], George Osborne, hinted at the possible deal saying the eurozone was inching towards solutions. He said: “I think there are signs that the eurozone are moving towards richer countries standing behind their banks and standing behind the weaker countries.

“There is no doubt that they [the eurozone] realise that individual measures taken in individual countries - like recapitalising Spanish banks and getting a Greek government that is in favour of staying in the euro - are not by themselves enough”

The G20 communique due to be issued later mentions “steps towards greater fiscal and economic integration that lead to sustainable borrowing costs”.

British officials are pleased that the lengthy passage on the eurozone makes specific forward-looking references to improving the functioning of financial markets and breaking the feedback loop between sovereigns and banks.

It also speaks of the need for a more integrated financial architecture encompassing banking supervision and recapitalisation and deposit insurance.

And soothing treats for Europe's Banksters, and a partridge in a pear tree.

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In Motion

Laughing, Fit To Bust

SKYWALKER: Can You see what will happen to them?
YODA: Difficult to say. Always in motion is the future.

Star Wars: "Episode Five; The Empire Strikes Back" (1980)

When in doubt, quote a hand puppet: Greece and the Egyptians have gone to the polls this week in two sets of circumstances that are pivotal for the regions involved (the Eurozone, and the Middle East), and through them the rest of the world.

The Greek drama is more critical to the West. It's a straight up-or-down vote on agreeing to accept Austerity policies which EU fiscal conservatives (and politicians like Angela Merkel, specifically) have imposed on Eurozone countries as the price for receiving billions in loans to prop up their banks and then their economies.

Merkel and other believers in a common vision of a united Europe are committed to Austerity. It's what they believe is the only method to burn away excess debt, balance the books, and come out the other side in better economic condition than any other nations on the planet. They are forced by their own beliefs to double-down; the future of their political parties are at stake, not to mention their own: Angela doesn't want to go the way of Sarkozy, and neither does her CDU Partei want to lose power to the SPD.

However, proof of Austerity's failure won't stop with Greece. Spain, Portugal and Italy are all teetering on the edge (the Spanish have just "accepted" arranging for new loans from the ECB). Each will face new rounds of bank bailouts, new loans to "calm the markets", new loans to support more bond issues. And with each new round, their governments will have to agree to more budget cuts, more control of their national economies handed over to others.

But it won't work. Five years of Austerity has not and will not produce economic growth -- jobs -- which is what's desperately needed to escape what seems fated to occur. The cycle of more loans from the ECB or the European Stability Fund can't continue indefinitely. There just isn't enough money in the world to keep pouring into the black hole of debt.

Some kind of implosion (a shrinking of the Eurozone and the political EU to a few core countries, or the complete collapse of the Euro, followed by an international restructuring of currency exchange and a run on the Markets) is the only probable result. If it isn't triggered as a result of ballot box action in Greece this weekend, it will happen later. And the only question is, How bad will it become?

In Egypt, it's an even more volatile situation. The Revolution that played out (on CNN, the BBC or Al-Jazeera for Americans) in Tarhir Square in Cairo was a mass uprising against decades of corruption and repression. All facets of Egyptian society -- liberal, secular; religious conservatives and fundamentalists -- were united for a time.

That ended when Murbarak left office. Egypt's Military Council is still a caretaker government. The Parliamentary elections from the spring were effectively nullified this past week by the country's Supreme Court, and the voting for President of Egypt this weekend is a Morton's Fork -- a Murbarak appointee on one hand, and an Islamist who is precisely what you think he is on the other.

This election is as much about divisions in the culture being played out as anything, and should the Islamist be elected then Israel has one more serious concern beyond the possibility of a nuclear Iran -- and the rest of the world will be forced to deal with a national government that accepts Al-Qaeda as legitimate spokesmen for a movement to unify the Islamic world. Nothing good will come of that.

But secular liberals feel betrayed as well. What is their choice; to vote for a representative of the deposed, despised regime? Or for someone who they feel will impose Sharia law on the country and roll back decades of democratic process?

What will happen? We'll all get to see. Welcome to living through history -- something we believed we had outdistanced. Our technology, and the belief that we had all learned from the past, that modern politicians were wise and our modern political institutions would prevent financial collapse and regional or world war.

There is no expiration date on human avarice and hubris -- which is why we're here, now -- and no known antidote, either. Shakespeare, Dante, Voltaire and Göethe must be looking down on us and laughing, fit to bust.

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MEHR: The Krug Man weighs in:

June 17, 2012, 2:41 pm
And Then What?

So it appears that the governing coalition in Greece has pulled out a narrow victory — winning only a minority of votes, but getting a narrow majority in the parliament thanks to the 50-seat bonus New Democracy gets for coming in first.

So they will now have the ability to continue pursuing an unworkable policy. Yay!

Joe Wiesenthal tells us that there’s a meme in Greece to the effect that Syriza didn’t really want to win, because it would rather see the current government flail some more. Conversely, establishment types should actually be dismayed by this outcome: if current policies fail completely, which seems almost a given, and Greece exits the euro anyway, which seems highly likely, the entire Greek center will end up discredited; better, in a way, to be able to blame the radicals.

And I gather I’m not the only one thinking along these lines...

Any Questions?

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Chicken Little And The Eurozone

Whither Europa?

The Baseline Scenario (a financial blog you should be aware of) recently posted an article (The End of The Euro: A Survivor's Guide) by Peter Boone and Simon Johnson, describing as inevitable the implosion of the Euro.

The ... European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) has proved unable to restore the prospect of recovery in Greece, and any new lending program would run into the same difficulties....

... the Greek failure mostly demonstrates how wrong a single currency is for Europe. The Greek backlash reflects the enormous pain and difficulty that comes with trying to arrange “internal devaluations” (a euphemism for big wage and spending cuts) in order to restore competitiveness and repay an excessive debt level.

This is the result of the principle of Austerity, of forcing huge budget cuts on 'profligate' EU member nations through their governments, as a precondition to qualify for loans to (first) prop up their banks, and then, their governments' sovereign debt.

Through it all, the 'Greek Problem' was advertised as Europe's worst. Europe and the rest of the world watched as one Greek financial crisis was temporarily stemmed by band-aids made from hastily-patched-together ECB- and IMF-brokered loans. But no matter what was done, there was always another crisis, another loan, and even more draconian demands by the Austerians to cut more civil service workers and sell even more national assets to the Oligarch class of investors.

And, Austerity was the inviolable principle upon which the future of the European Union (through the Euro) rested. There would be balanced budgets and, after a period of 'pain' suffered by its citizens, Europe would find a sustainable prosperity while the US and Asia continued generating deficits and increasing national debts.

The Greeks were stunned by how much of their quality of life at least two Greek coalition governments were prepared to negotiate away. Eventually, state-owned monopoly businesses were being sold off to Oligarchs; it was suggested even the nation's ancient cultural artifacts might be sold. Ultimately, we were treated to the spectacle of Greeks rioting in the streets of Athens -- several times -- while elections (under immense pressure from outside the country) voted in new Greek parliaments whose representatives who would vote to accept the ECB-IMF terms -- the Austerity cuts -- to receive bailout loans, which would reduce the quality of life for Greek citizens even further.

And this scenario has played out twice in the past five years. It's about to occur again. But now, after years of financial reporting since the 2008 Crash, it has become clear that Austerity is a failure, a plague which kills economic growth. And finally over the past few weeks, the Greeks and the French spoke loudly at the ballot box: Enough.

EU leaders and financiers have begun to try and make Greece's leaving the Eurozone sound like it's an inevitability with a silver lining. The Greeks simply will not bring their spending under control, even after all the assistance good, frugal Europeans have given them -- so, let them go! It's for the best; and after that the EU can go about the business of rebuilding itself... under the banner of Austerity, or course.

Faced with five years of recession, more than 20 percent unemployment, further cuts to come, and a stream of failed promises from politicians inside and outside the country, a political backlash seems only natural. With IMF leaders, EC officials, and financial journalists floating the idea of a “Greek exit” from the euro, who can now invest in or sign long-term contracts in Greece? Greece’s economy can only get worse.

Some European politicians are now telling us that an orderly exit for Greece is feasible under current conditions, and Greece will be the only nation that leaves. They are wrong. Greece’s exit is simply another step in a chain of events that leads towards a chaotic dissolution of the euro zone.

The European Central Bank has claimed that the financial deals it has created to support the problems of Greece, Spain, Italy, Portugal and Ireland, are sound. But according to Boone and Johnson,

...the euro system claims on troubled periphery countries are now approximately 1.1 trillion euros (this is our estimate based on available official data). This amounts to over 200 percent of the ... capital of the euro system. No responsible bank would claim these sums are minor risks to its capital or to taxpayers.

These claims also amount to 43 percent of German Gross Domestic Product, which is now around 2.57 trillion euros. With Greece proving that all this financing is deeply risky, the euro system will appear far more fragile and dangerous to taxpayers and investors...

We agree: Once it dawns on people that the ECB already has a large amount of credit risk on its books, it seems very unlikely that the ECB would start providing limitless funds to all other governments...

The financial crisis in the Eurozone for the past five years has followed this pattern: An economy in crisis in the Republic of [Fill In The Blank], followed by their promises to "adhere to the principles of Austerity", followed by loans organized by the EU. Then, an identical crisis somewhere else or in the same place, and more promises of austerity followed by another loan.

But while it's interesting to understand some of the nuances in the labyrinth of international finance, let me skip the boring details and go right for the meat, as Dogs tend to do:

• This pattern of crisis isn't sustainable. At some point, through a combination of human error, regime change at the ballot box (a la France and Greece), malice or Acts Of God, the ECB and IMF will not be able to arrange financing necessary to keep the Eurozone whole.


• Given enough time, the international banking and investment structure would like to "unwind" all the debt that was created before (and after) the Fall of 2008. Unfortunately, their method -- there, as over here -- is to slowly and carefully shift that debt burden from private corporations to The People. Only, there isn't enough time; there is far too much debt to be hidden or passed along.

Too many Europeans understand that they are paying for the greed and sin of the Banksters, and they will at some point say Basta!! This is almost an inevitability -- and what, exactly, it will do to the world economy depends on how willing European politicians and Banksters are to deal with the reality that the Euro's days are numbered.

If human nature is constant (and sadly, it is), you can see the coming months as a large number of EU politicos, American and international corporate financiers all fight a long, bloody rearguard action to stave off the collapse of the Euro system salvage as long as possible. It doesn't have to be this way -- but blindness and bloody-mindedness seem to be the order of the day.

For the last three years Europe’s politicians have promised to “do whatever it takes” to save the euro. It is now clear that this promise is beyond their capacity to keep – because it requires steps that are unacceptable to their electorates. No one knows for sure how long they can delay the complete collapse of the euro, perhaps months or even several more years, but we are moving steadily to an ugly end.

Whenever nations fail in a crisis, the blame game starts. Some in Europe and the IMF’s leadership are already covering their tracks, implying that corruption and those “Greeks not paying taxes” caused it all to fail. This is wrong... We cannot blame corrupt Greek politicians for all that.

It is time for European and IMF officials, with support from the US and others, to work on how to dismantle the euro area. While no dissolution will be truly orderly, there are means to reduce the chaos... Most importantly, Europe needs to salvage its great achievements, including free trade and labor mobility across the continent, while extricating itself from this colossal error of a single currency.

---

MEHR: ... So, don't believe a Dog when he tells you the Eurozone is goin' down! How about the chief executive of the EU's version of the Fed, the European Central Bank?

FRANKFURT — The president of the European Central Bank, Mario Draghi, warned Thursday that the structure of the euro currency union had become “unsustainable” and criticized political leaders who he said had been slow to respond to a regional debt crisis now well into its third year...

Greece, progenitor of the debt debacle, is in political turmoil once again, and this time it is in danger of dropping out of the euro zone altogether. Spain, with one of the region’s largest economies, is in the grip of a banking crisis, and there is a growing sense that the danger to Spanish banks is of an entirely different order of magnitude from that in suffering but small Greece.

The clearest danger signal may be the euro currency itself. It is at a two-year low against the dollar, as investors who can do so are pulling money out of the euro region.

U.S. officials are also displaying increasing concern. President Barack Obama spoke with European leaders by video conference this week and the U.S. Treasury Department dispatched a senior official, the under secretary for international affairs, Lael Brainard, to Berlin and other European capitals to get the message across.

Any questions?

---

Austerity Non

Socialist Hollande Wins French Presidency

For only the second time in the history of France's Fifth Republic, a Socialist Party candidate, François Hollande, has won that nation's presidential vote.

Nicolas Sarkozy, the center-Right President of France, is out -- and along with him the most serious ally of Die Eisen Kanzellerin Angela Merkel's insistence on linking the salvation of the European Union with fiscal Austerity.

Sarkozy is the first major European New Austerian to be defenestrated by his country's electorate over the failure of France's economy -- and he may not be the last. Ironic, when you consider that Sarkozy and Merkel had helped to effectively force 'regime change' in Greece, Spain, (England could possibly be counted, too) Portugal, and Italy.

The New York Times reported that Austerity received additional blows in Greek and German elections as well:

Greek voters sent their own message against austerity. They handed the two main parties, both of which had pledged to follow harsh international bailout terms, significant losses as they streamed to parties on the far left and far right that have opposed budget cuts. In the process, voters cast into question the ability of any party to form a government soon, let alone continue with the austerity program.

...The French and Greek elections were closely watched in European capitals and particularly in Berlin, where Ms. Merkel has led the drive to cure the euro zone debt and banking crisis with deep budget cuts and caps on future spending...

... Ms. Merkel herself was embroiled in electoral politics on Sunday, suffering setbacks in elections in the state of Schleswig-Holstein, where her party appeared to be losing its hold on the state Parliament. With another election coming May 13 in North Rhine-Westphalia, Ms. Merkel is not viewed as having much room domestically to compromise on the critical issues of inflation and debt limits.

What Goes Around, Comes Around.

Roll Up For The Magical Misery Tour

You Say Yes; We Say No

Hey - Tirez Sur Mon Doigt; D'accord? (Photo: EPA, via UK Telegraph)

The path of Austerity™ in Europe -- baling out Banksters and Eurozone Zombie Governments on the one hand; slashing those government's budgets on the other -- has had two principal champions: Conservative politicians Angela Merkel in Germany, and Nicolas Sarkozy in France.
Economists (principally Keynesians) have predicted for over three years that Austerity™ would do nothing but drag 'spendthrift, profligate' European nations like Greece, Spain, Italy, Portugal, Ireland (and to some degree, Britain) into a spiral of increased unemployment and reduced consumer demand. They would, in turn, drag the rest of Europe into even deeper recession. Which would eventually torpedo the very, very modest 'recovery' here in the United States.

There's a great deal of current evidence that the Keynesians were, uh, right on the money.
France had a national elections today, pitting Center-Right Nicolas Sarkozy against the Socialist party candidate Francois Hollande. This election would have been between Sarkozy and Dominique Strauss-Kahn, former head of the International Monetary Fund, but for an unanticipated event. Strauss-Kahn wasn't exactly a fan of Austerity; as reported by The American Prospect in the week after his arrest on rape charges in New York City:

As recently as [April, 2011], in a talk at the Brookings Institution pointedly titled "The Global Jobs Crisis," Strauss-Kahn... [said] that

We need financial-sector reform and repair, to put the banks back in the service of the real economy, and direct credit to small and medium-term enterprises -- key drivers of employment and indeed of growth... But fiscal tightening can lower growth in the short term, and this can even increase long-term unemployment, turning a cyclical into a structural problem. The bottom line is that fiscal adjustment must be done with an eye kept keenly on growth.

When he was arrested at JFK airport, Strauss-Kahn was on his way to meet with Angela Merkel in Berlin to talk about resolving what was the Greek sovereign debt crisis. His abrupt departure as head of the IMF meant that the Greek situation was 'solved' by others -- among them Christine Legarde, the Fund's new head and someone much more sympathetic with Merkel and Sarkozy's New Austerian fiscal policies. And, being charged with rape also meant that Strauss-Kahn was neutralized as a political threat to Sarkozy as the Socialist Party's candidate for the French Presidency.

At the time of Strauss-Kahn's arrest, Greece was heading for its fourth (of a total of five, so far) financial crisis. A principal issue was whether holders of Greek bonds could be persuaded to accept a reduction in the interest they'd receive when the bonds were redeemed: A 'haircut', something that would affect a number of European major banks and brokerage houses.
This was negotiated, finally, in the winter of 2011-2012; by then the Greek parliament had no choice. Without the deal (which included more public-sector job cuts and selling off major state-owned industries to Oligarchs private interests), Greece would otherwise have had to default on all its obligations, pull out of the Eurozone, which would send the Euro plummeting on the currency markets and threaten the very existence of the European Union. 

But in May of 2011, when Strauss-Kahn was being arrested, the "haircut" hadn't yet been accepted. I don't know what his position was regarding it. This isn't an argument that his removal from any position of influence in European economic or political affairs was the result of a conspiracy -- just a recognition that there are a lot of interconnected interests at play. 

For New Austerians like Sarkozy, like Merkel, the stakes are very high. For them, the EU's financial crisis is about nothing less than maintaining a coherent European economic and political union in the face of a rising China, the U.S., Russia, and the Middle East, all of whom are in competition with EU nations for the Earth's shrinking natural resources.
 
The turnout in France's election yesterday was high -- eighty per cent of France's 44.5 million eligible voters turned out for what everyone in and outside the country understood was in part a referendum on Sarkozy's embrace of Austerity.

Both candidates qualified for the second round on May 6, with Mr Hollande taking 28 to 29 per cent of the vote and Mr Sarkozy 25 to 26, according to unofficial estimates from multiple sources.
Far-right candidate Marine Le Pen came third with between 17 and 20 per cent, beating far-left firebrand Jean-Luc Melenchon, who scored between 10.5 and 13 per cent, according to the estimates...
The two finalists will face off in round two on May 6, when Mr Hollande is expected to easily romp home...

In America, however, the focus of our news agencies is on other, more important things.
That the French are willing to vote for Hollande, a person who appears lackluster at best against the more energetic and charismatic Sarkozy, is an indication that the election isn't about personalities, but the policies.
It might seem that Sarkozy's departure could be the beginning of the end of Austerity -- but not yet, and not in any positive way. The European Central Bank, the majority of the EU's finance ministers and the IMF are committed to Merkel's Castor Oil and Carrots plan of strict budget targets and bank bailouts; lower standards of living for many Europeans and relief for corrupt financial institutions. Hollande may be a socialist, but he can't hold back the tide.

Austerity as a policy will simply have to play out and fail, spectacularly. Unfortunately a lot of people will be affected -- some more, others less; but unless you're one of the 1%, the cost of the New Austerian's lack of vision will be paid by you, and me. And for many French, that future is already here.

---

MEHR: And, from the Monday morning Reuter's wire:

NEW YORK / FRAKFURT , April 23 (Reuters) - U.S. stock index futures pointed to a sharply lower open on Monday on weak European data and renewed anxiety over how the region would tackle its debt crisis...
The euro zone's business slump deepened at a far faster pace than expected in April as European factories had their worst month since June 2009. Investors worried that fears of recession would undermine the political will to tackle the debt crisis...
France's presidential election was thrown wide open by the surprisingly high score of a far-right candidate in the first round vote while the Dutch government was set to resign in a crisis over budget cuts.

I suppose the only response to the continuing fiscal deterioration Europe is experiencing as a result of Austerity is (as The Great Curmudgeon would say) -- more Austerity.

---

Und Noch Einmal, Mit Schwein: Bondad weighs in as well: Austerity is a failure. Empirically.
Any Questions?

---

Und Nun Auch Diesen Auflage, "Was Ist Denn Mit Dir Los, Lumpenhunde?":

(NYT Wednesday, April 25) LONDON — Britain slid back into recession in the first quarter of the year, according to official figures released Wednesday, undercutting the government’s argument that its austerity program was working.
The British economy shrank 0.2 percent in the first quarter after contracting 0.3 percent in the fourth quarter of last year, the Office for National Statistics said Wednesday. The first double-dip recession in the country since the 1970s was mainly the result of a slump in the construction industry at the beginning of this year.
Some economists had predicted a small increase in first-quarter gross domestic product after recent surveys had indicated that the British economy was recovering, albeit very slowly. Prime Minister David Cameron’s government had pointed to the recovery as a sign that the austerity measures it implemented were working.
“The economy slipping back into recession comes as a blow” said Azad Zangana, an economist at Schroders. “It’s too early to call for a reversal of government policy, though these latest results do highlight that the economy will not withstand any further acceleration in cuts.”

Any Questions?

---

Greece -- The Tragedy; Season 5

Meanwhile, In Downtown Europe


Happy Greeks Enthusiastically Embrace Austerity To Assist
Their European Allies By Vowing To Live On Dog Food For
The Next Ten Years (Photo: Guardian UK / Milos Bicanski)

The Guardian UK:

Greece enacted billions of euros in spending cuts and fresh austerity measures last night in a volatile parliamentary vote aimed at avoiding default on its national debt and keeping the eurozone intact, despite some of the worst rioting and political violence witnessed in the country in years.

More than 40 buildings were set ablaze in an orgy of looting that left scores injured as protesters vented their anger at the caretaker government and parliament's ordering of a further €3.3bn of savings by slashing wages and pensions and laying off public sector workers.

In return, Greece is to receive a second eurozone bailout in two years worth €130bn in addition to a €100bn writedown of debt by the bankrupt country's private creditors.

There was turmoil inside the parliament, too. MPs voted 199-74 in favour of the cutbacks, despite strong dissent among the two main coalition members.

A total of 37 politicians from the majority Socialists and conservative New Democracy party either voted against the party line or abstained. A further six voted against sections of the legislation. After the vote, the government announced that those 43 MPs had been expelled.

In case you haven't been paying attention (or believe that what happens elsewhere doesn't affect you), the European Central Bank / International Monetary Fund bailout of the current Greek government is important, and you may want to keep these points in mind:

• The "assistance" gives the Greeks money to prevent default on the redemption of bonds, due on March 20th; not being able to do so would cause the Greek economy to implode (sooner than it will, that is);
• The loan package and debt restructuring makes sure the creditors (primarily major European banks) holding those bonds are paid enough -- some of these banks are Zombies, only kept alive and solvent by the constant motion of money, as in a check-kiting scheme. Without timely payment on these Greek bonds of enough Euros to keep everything in balance, the cash flow would be interrupted, the Zombie banks could suddenly assume full-on Walking Dead Status and default on counterparty obligations, which would Be Bad;
• The "assistance" to Greece came with a price -- including cutting over 100,000 public sector jobs in the next four years; selling state-owned electric, natural gas and other monopoly businesses to the highest bidders (Look Out! Here Come The Oligarchs!); and slashing government pensions by up to 40%.

And all of this demand for Austerity is just so that Greece will receive a bridge loan to ensure it will not default and affect European banks.

It does not solve Greece's overall deficit and debt problems. More loans and ECB/IMF financing will be needed for that -- and in order for Greece to receive that future assistance, Little Angela and the Austerians are saying that Greece will need to cut public financing and expenditures even more.


Greece's Finance Minister Evangelos Venizelos, One Of The
Largest Humans On Earth, Spots Christine Lagarde Of The IMF
At EU Headquarters In Brussels On Thursday. He Seems Hungry.
(Photo: National Post, Canada; Yves Herman / Reuters)

In this latest round of Voting To Impoverish Your People, I particularly liked the part where members of Greece's parliament who voted against accepting the ECB/IMF's financing terms were thrown out of their political parties. And in Brussels on Thursday, IMF Director Christina Legarde stepped from a BMW limousine to speak briefly to the press in her new red coat and black, two-inch-heel Pradas; so comfortable and fashionable. I'm sure the sight of her quiet luxury inspires Greece's children to want to grow up and be just like her.

But, the EU leaders who believe in Austerity don't see the previous weeks of turmoil around Greece as being about a band-aid for Europe's banks. This is about the survival of the Eurozone and the political entity of the European Union -- to people like Angela Merkel, Finance is the force behind the ideals, but it all seems to come down to money in the end. And unfortunately, at this point the world's financiers are not at all trustworthy.

And, please note that the Zombie banks are still at risk of failing from any event that could interrupt the necessary flow of money; they're balanced that precariously. Any default, any failure on the part of another bank to pay might cause one of them to fail. All this is widely understood if not acknowledged; one reason the results of 'Stress Tests' of European banks last year were greeted with skepticism.

But, this isn't over, just in case you were wondering. "Greek Crisis", Season 6, will start again in the near future -- and expect the Greeks to greet it in the same spirit of cooperation and sacrifice which we've seen on Teevee this weekend.

---

Kein Schwein Ruft Mich An

Episode XVI: Kicking A Can So Big It Cannot Fail

Jack Ewing, in the Paper Of Record, in the wake of Davos and in advance of the meeting of EU Leaders on January 30th:

DAVOS, Switzerland — World leaders turned up the pressure on Europe on Saturday to erect a more formidable wall of money against the sovereign debt crisis, warning that the eurozone continues to pose a severe threat to the global economy.

George Osborne, the chancellor of the Exchequer in Britain, said a bigger firewall was “a key to unlocking further confidence,” while Christine Lagarde, managing director of the International Monetary Fund, said the fund should be big enough to eliminate any doubts about European resolve.

“If it is big enough, it will not get used,” she said on Saturday during a panel discussion at the World Economic Forum here.

The firewall being discussed is the European Stability Mechanism (ESM), a separate fund set up by the EU and the European Central Bank in collusion cooperation with the IMF and the World Bank, holding 500 Billion Euro ($656 Billion USD) as an emergency contingency fund, to provide Eurozone governments with loans when austerity policies fail to reduce sovereign debt.

The 'economic charter', agreed to in principle by all but one of the Eurozone nations in December of last year (Britain opting out rather spectacularly) and still needing ratification by 16 governments, included a promise to complete setting up the ESM and having it ready for operation by July of this year.

These governments are faced with deficits in simply running their governments. They use short-term bond sales to raise cash -- but these auctions don't go well, because the interest rates on the bonds may be high. The governments end up paying more to bondholders than originally projected; an unanticipated addition to their deficits, which the bonds were supposed to help solve. Here, the ESM would step in to provide the government with a loan to ensure 100% on the Euro was repaid, plus interest, to all the bondholders.

The idea's supporters are saying that if the amount of funding in the ESM was huge, gigantic, then "The Market" should understand that it can invest in bonds from Greece and elsewhere with confidence, and interest rates for new short-term bonds should be lower. Maybe. The total ESM fund may have to be much larger than the $500 Billion Euros already suggested.


Obligatory Cute Small Animal Photo In Middle Of Financial Blog Rant.
Today, We Offer Reddy Kilowatt, In Advance Of The Pending Attack On Iran

Angela Merkel and Nicholas Sarkozy have tied the ESM's creation to the EU / Eurozone's acceptance of changes to centralize the Eurozone's economic policies; the ESM is part of that general framework.

Merkel couldn't get a consensus of the full 40-nation membership in the December, 2011 EU meeting to change the Treaty of Lisbon; however, she was able to pull together the Eurozone countries (minus England) to approve a separate 'economic charter' that would initiate a framework for more economic cooperation, but also to enshrine Austerity policies in EU economic regulation.

Austerity is the chosen method to end the cycle of debt in the Eurozone. 'Spendthrift' nations must cut their governments' budgets and reduce their annual deficits. If they don't (so the 'economic charter' lays out), in some cases they can be fined, or lose more autonomy in handling their nations' finances to the EU.

Austerity is an exceptionally bad idea, and many economists have weighed in against it. More Austerity means cutting government budgets because further deficit spending is viewed by the Austerians as an absolute evil. Austerity means (best case) stagnation, and no growth, or (worst case) full Recession.

Eventually, a European economic slide will effect global markets and economies -- and that's what Austerity ultimately means. It will prolong economic hardship for nearly everyone, except the already-wealthy. It will increase social stratification and continue destroying the so-called Middle Class in most Western nations.

For Europe, it means being shoved head-first towards an unknown period of higher unemployment and crime, lowered expectations and standards of living, and the general grit and depressive shabbiness which comes with all of that.

People in Europe understand this on an intellectual level, but many still have yet to experience fewer jobs, buses, streetcars and garbage pickups; reduced public health coverage and increased work loads for remaining employees of corporations who demand higher productivity: There's always someone else who will do your job for less -- so shape up and shut up. People in Greece and Ireland particularly, followed by Spain (where unemployment is nearly 23%) and Portugal, and soon, Italy, are already experiencing it.

One fact about the ESM is that it cannot be made large enough to cover all the potential deficits in national budgets of the 16 participating Eurozone nations. Creating it is more than just a political gesture, but as Felix Salmon noted in December,

... All of Europe’s hopes right now are being placed in ... the European Stability Mechanism ... [which] is going to have to be constructed with the ability to put out fires of any conceivable size. And as such, it’s going to have to be able to borrow enormous amounts of money, and lend them on to countries which have found themselves in trouble.

But that would make the ESM, essentially, a bank. And the European leaders seem determined, today, to prevent the ESM from operating as a bank at all. Which means it will never get the firepower it needs to be taken seriously... the ESM seems set to be capped at a mere €500 billion euros ... compare [that] to Italy’s total debt of roughly €2 trillion. And that isn’t even counting Spain, or Portugal, or Ireland, or whatever money Greece might yet still need.

Many Europeans already are beginning to understand that Austerity will not be experienced equally. Some countries within the EU which don't have as high a GDP-to-debt ratio (specifically, Germany and France) will not experience as rapid a rate of change, or as steep a drop, in their living standards as the 'spendthrift' nations of the Eurozone. And with that will come political tensions between EU countries, and between political parties in those nations where the bite of Austerity is felt most strongly.

Some EU politicians agree with this; some don't -- and the disagreement is over both making Austerity The economic policy, and giving up some control of their country's economies (including their banks) to a larger EU organization. The British voted 'No' to that, and other EU politicians are worried that support for the Eisen Kanzellerin and her 'policy of Less' might hurt them politically -- because not everyone in Europe Hearts Little Angela.

Eurozone leaders are more focused on dealing with what they see as the more immediate danger of a Greek default, and less on testing their taxpayers’ patience by increasing the size of the firewall...

“I’ve never been as scared as now about the world,” said Donald Tsang, chief executive of Hong Kong... “We do not know how deep this hole would be when the whole thing implodes on us,” he said...

Nouriel Roubini, a professor of economics at New York University known for his pessimistic views, forecast Saturday that Greece would have to leave the eurozone this year, and said that there was at least a 50 percent chance that the eurozone would break up within three to five years.

“The euro zone is a slow-motion train wreck,” Mr. Roubini said during a separate panel discussion.

...Speakers on Saturday did not say how big they thought the European firewall should be. But, again echoing American officials, they agreed it should be so enormous that no investor would question its integrity.

In other words, it should be made "Too Big To Fail".

---

MEHR: The Independent UK (courtesy of The Great Curmudgeon) reports:

Europe's leaders remained locked in dispute yesterday over the size of the eurozone bailout funds, as it emerged Germany is pushing for Greece to be stripped of powers to control its budgets.

The move to make Greece hand over control of budgetary policy as the price for agreeing a €130bn rescue package [this tied to an approaching deadline to redeem short-term Greek government bonds, plus interest; see above] would represent a humiliating blow to Greece's hopes of controlling its own destiny but could offer a means of staving off financial ruin.

The proposal was made by Germany as the euro group considered how extra finance should be offered to countries such as Greece which need support but are "continuously off-track" with their budgets... [that] European institutions already operating in Greece should be given "certain decision-making powers" over fiscal policy.

Hey -- Austerity forced on 'spendthrift' governments, as determined by Angela's model! Now that's an idea that will have broad, popular support among Greeks! Huh? You think? Well, okay; maybe not...

Details of the proposal emerged as finance ministers met at the World Economic Forum in Davos where France and Germany publicly disagreed over the size of the "firewall" needed to protect European economies.

Also, too, Bloomberg reports that new 30-year Greek bonds may well carry a cap on interest rates.

---

Mein Gorilla

Austerity Forever

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.

Furthermore, the chances for a virtuous circle have been rising, because we’ve made significant progress on the debt front.

At the same time, Krugman notes that our nacent 'recovery' could be cut short by what Europe's leaders are (or, aren't) doing:

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.

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.

What Europe does, or more likely does not do, is the 800-Pound Gorilla in global finance.

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.

• 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

Late April: Proposed date for Greek general election.
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.”

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 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!!

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.

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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...

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 means More Austerity!!

And that's Jenga.

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