The Eurozone needs to brace itself for another crash, this time it is Italy that is becoming more and more wobbly. The Age reports the following:
The Australian bond market opened firmer as traders moved to safe haven assets amid concerns the European sovereign debt crisis may spread to Italy.
At 0830 AEST on Monday, the June 10-year bond futures contract was trading at 94.700 (implying a yield of 5.300 per cent), up from 94.685 (5.315 per cent) on Friday.
The June three-year bond futures contract was at 95.020 (4.980 per cent), up from 94.970 (5.030 per cent).
Standard & Poor’s rating agency has downgraded its credit-rating outlook for Italy to negative from stable, citing its slowing economic growth and diminished prospects for a reduction of government debt.
Please read the whole thing. This is, however, the first report that I have seen on the financial situation in Italy. It is yet another country that has problems with a migrant population. At the present time Italy is coping with an influx of refugees from Tunisia and Libya. This is no doubt straining the government resources to a point where it is struggling with debt repayment.
Personally, I like the idea of Christine Lagarde getting the post. She has a well rounded career and she would bring a fresh face to the role. She has the respect in Europe as well.
However, there are some countries that seem to have other ideas about who should lead the IMF. As regards to the opinions of the Goose (Wayne Swan) from Australia, he is such a bad Treasurer that his opinions should not matter in the slightest. He is one person who has absolutely no idea about what is required in the top job. Put it this way, I would value the opinion of Paul Keating (a man I detest anyway) over that of the Goose.
If the person is chosen on merits then Christine Lagarde should remain the number one contender. Amongst the other names being mentioned is the failed politician UK Gordon Brown. It is well known that he aspires to this type of role, but, he does not have the support of the present leadership in the UK. On top of that Gordon Brown messed up the economy in the UK in both of his roles.
Socialism and pushing socialism through the IMF is not going to help the world’s woes. At present the IMF has a big problem in Europe. It really does need someone with credibility in Europe to head the group. Gordon Brown does not have that credibility. Christine Lagarde has the credibility. The people being pushed from Singapore and other countries do not have that credibility. There is one other new contender from Brussels.
Some of the issues that I have with the IMF structure includes the heavy socialist emphasis. The challenges of the eurozone has meant that there has been a need to catapult some of the present ideas. Keynesian economics will not work in a time of stagflation. This is the lesson that should have been learned from the 1970s and the 1980s when the stagflation was prolonged. There is a need for a different set of responses to the crises that occur.
For too long Europe has turned to socialism (which is not quite the same as Communism) in order to offer a raft of welfare benefits to their communities. What most of these governments have forgotten is that there is a need to have people working in order to gather taxes, and there is a need for business and industry in order to have people working. Policies such as high taxes on business do not work because in the long term employers make the decision to leave the marketplace. When this happens the consequence is a drop in tax revenue as well as higher unemployment which in turn leads to higher welfare benefits.
Europe also has another problem that desparately needs attention: open borders attracts the wrong kind of immigrants. This can be seen in countries such as Spain, France, England and Germany, as well as in Norway and Denmark. These immigrants see this as an opportunity to place their wives on welfare, and they soak up all of the other welfare state benefits such as free medical, free education etc. etc. If this is not kept under control, inevitably it leads to a break-down in the whole system. At the root of this problem is taxation, or rather taxation receipts.
Under Dominique Strauss-Khan the IMF has steered a number of European countries towards putting in place austerity measures that are supposed to bring about a restructure of their economies. Those governments can only be compliant if the people are compliant and stop their protests that cause disruption, and in the instance of Greece, become extremely costly in terms of property lost, as well as lives lost due to the riots. The Greek attitude has not been conducive to the necessary reform required. Greece is the typical example of a country where the expenditure on welfare outstrips by a long shot the taxation receipts, but the lazy Greeks do not seem to understand the implications of their own bad welfare system.
I am not against some form of welfare buffer for the most vulnerable in the community. There is a need to protect such individuals. I am not against short term unemployment benefits for those who are able-bodied. I do think that government needs to have other structures in place that will help the unemployed find work. What I am really against is the expenditure of government funds on projects such as wind farms that are inefficient and will never deliver according to government expectations. The windfarms do not increase employment, but decreases employment in some sectors.
The watermelon policies and the claims regarding AGW or climate change need to be challenged, and governments everywhere need to stop wasting money on bogus research. This also means that I am against the use of IMF funds going third world countries, where such funds would only be wasted upon dead in the water projects whilst those third world countries continue to purchase arms and kill their own people.
The IMF has warned Greece that its plans for budget reforms fall well short of what is required. At least the rhetoric is a good kick in the pants for the lazy Greeks.
Greece must cut its budget deficit to 7.6% of GDP this year to meet the terms of its EU and IMF bail-out.
Poul Thomsen told a conference in Athens that it would struggle to get the deficit below 10% at the moment.
Greece is attempting to raise money to pay off the debt via the sale of state assets, which includes assets such as gaming, telecoms, water management and electricity.
At the same time, it seems that the socialists in Europe continue to not understand that their solutions are a real disaster. However, there are others who have seen the light:
The EU and IMF are waiting for Greece to give further details of its plans before paying the next tranche of cash.
Mr Thomsen said: “The programme will not remain on track without a determined reinvigoration of structural reforms in the coming months.
“Unless we see this invigoration, I think the programme will run off track.”
‘Recipe for catastrophe’
There has been much response to Tuesday’s comments from the head of the eurozone finance ministers Jean-Claude Juncker, when he said that a “soft restructuring” of Greece’s debts was a possibility.
The European Central Bank’s chief economist Juergen Stark said restructuring the debt would be a “recipe for catastrophe”.
Now for the latest in the Euro rescue saga. Portugal is next to last of the PIGS nations to need a financial rescue package. Spain is still on the cusp, but has not needed to be rescued so far. However, the Portugal package is on the line, the Greeks are revolting (again) and the Finns are becoming more and more anti-Euro zone.
The success of the TrueFinns means that the Portugal rescue package is not a sure thing, since the TrueFinns have vowed to vote against the supplying of any more funds for these failing economies.
Portugal has opened its doors to the IMF and the European Commission, who will need to evaluate the economy and make recommendations. It is expected that Portual requires a package worth about $70 million Euros.
However, just like Spain, Ireland, Greece, and yes, even the U.K. unless these countries are willing to evaluate their social welfare criteria these packagaes are truly a waste of time. All of these countries need to re-evaluate their socialist system, because long term welfare policies do not work.
Greece has been a prime example of what has gone wrong. The lazy Greeks simply do not want to understand that the changes are necessary if the economy is to survive. Those changes include reforming social welfare payments in order to cut the government debt. However, I doubt that the Greek government has the will to make the deep cuts, especially in the face of protests from the Greek anarchists. The Greeks have shown themselves to be lazy and selfish in that they are unwilling to make the necessary sacrifices for the good of the country.
For a different perspective on the same European economic woes, there is more here and here is a snippet to get a taste of what is in store if there is no change in a welfare system that is bankrupting countries left, right and centre:
Greece is now paying 19.7% on 2 year bonds and there is a real fear of government default. This will put even more pressure on the other PIIGS, who are either on or already over the edge. The question then becomes which economies are triaged. Greece, Iceland, and Ireland are all moribund. Portugal is in the middle of a political crisis, and Spain is teetering on the edge. We are seeing the slow motion destruction of the economic and social programs that helped these economies enter the 21st century. It is hard to believe where these countries ranked economically and demographically even 25 years ago.
The BBC reports that the Irish Government is set to unveil new austerity measures as required by the EU-IMF rescue plan.
It will be a 4 year austerity plan targeting cuts of $15billion euros or 11% of Ireland’s output;
the aim is to bring down Ireland’s budget to 3% of GDP;
reform of the banking sector just falling short of nationalization;
the IMF recommends that Ireland should gradually cut the benefits to the long term unemployed;
the IMF also recommends that Ireland should reduce its minimum wage to be in line with the general fall in wage levels in the Eurozone;
There are some concerns about the proposed austerity measures. First the Cowan government could lose the support of the Independents plus some of his own party’s backbenchers. Second, the measures may prove self-defeating.
As expected, the stupid economist Krugman claims that the spending cuts will lead to a deeper recession. However, is this necessarily true?
European countries such as Ireland are in deep trouble because of their generous welfare state benefits. As a result of the generous benefits these countries have attracted immigrants from other parts of Europe as well as the Middle East and the sub-continent. These immigrants have a tendency to bludge on welfare instead of becoming wage-earners and tax-payers. They have a tendency to scam the welfare system. Like some of the long term unemployed who prefer being on the dole rather than worker, these people do need to have welfare benefits reduced in order to encourage them to seek out real work. These Governments cannot continue to pay for their welfare state without a corresponding increase in taxes, either through increasing the tax rate or by the entry of more wage-earners into the tax system.
The Keynesian economics that lies behind the Krugman concerns have already failed in the past. Long term welfare payments will not get an economy out of its malaise. On top of that there is always the possibility that in the longer term these welfare payments will contribute to a return to the days of stagflation – high unemployment, high inflation and high interest rates. Just like in the 1970s, such a return to stagflation would be a disaster.
When I first began this blog, and using the Internet as my source for information I came across the acronym PIGS – Portugal, Ireland, Greece and Spain. Well, Greece was the first to require a bailout, and there is still quite a bit of angst in Greece because of the austerity measures that have been visited upon the lazy Greeks. Ireland has been the next domino to fall, and the Irish Government has given in to the pressure to request a bailout.
It is interesting to note that the Green Party has had a significant role in this new situation. As I find out more about the Irish situation I will probably have more to say about the influence of the Watermelons, because it seems inevitable that the implementation of watermelon policies seems to end up in a disaster. (This is especially true in Spain because Spain wasted a lot of money on those uneconomic wind farms).
According to the German online magazine Der Spiegel (English Edition), Ireland has requested and the EU has agreed, to a bailout package. Ireland’s Prime Minister, Brian Cowan requested the financial assistance, said to be worth $100billion Euro and the finance ministers agreed to the request. The money is required to support Ireland’s ailing banks.
The political situation in Ireland is yet another one that can be considered interesting. The Watermelons have been in Coalition with Fianna Fail and Independents. Now the Watermelons are intending to pull out of the coalition and want Ireland to head to the polls in January to “end the uncertainty”. So once again we can see that the Green Party aka the Watermelons have had a sizeable influence on the Government of Ireland. (what could go wrong?)
So, why exactly did Ireland suddenly agree that it needed a bailout package?
Der Spiegel writes:
Justifying the request for help, Irish Finance Minister Brian Lenihan had said earlier on Sunday that his country had accumulated a deficit of €19 billion that it could not currently refinance on the financial markets. He said tens of billions of euros were probably needed to help ailing banks in the country, but insisted it would not be a "three-figure sum."
Lenihan insisted however that Ireland’s low 12.5 percent corporate tax would not be touched, despite calls from other European politicians for the tax rate to be raised.
The United Kingdom and Sweden, which are not euro-zone members, have also said they will provide bilateral aid to Ireland. British Chancellor George Osborne has agreed to pay 7.5 billion pounds (€8.8 billion or $12 billion) toward the bailout.
One very interesting point here, the company tax rate in Ireland is probably one of the lowest in the world. I would have thought that lifting the company tax rate should be an option in order to raise more revenue for government. However, one thing to keep in mind is that the lower tax rate should be working as an incentive for international companies to invest in Ireland and start building up some industry. With such a low tax rate as an incentive, I would have expected that revenues for the government would have increased as new firms opened their doors for business in Ireland. In other words, has this happened, and if not, why not?
Another question that needs to be asked is: exactly why has Ireland found it necessary to ask for help. Well this, it seems is the problem of being a part of the Eurozone. As we already know, Greece asked for and received financial help. In fact Greece was a real basket case. Spain remains on the precipice with regard to the help that will be required but what has this got to do with Ireland?
Der Spiegel writes:
Pressure on the Irish government to accept EU help had increased in recent days, in the hope that a rescue package would reassure the markets. Although the government does not need to immediately refinance its debt, Ireland’s problems have caused turbulence on the financial markets. Other beleaguered euro-zone countries such as Greece and Spain have seen their borrowing costs climb as a result, with rises in spreads on Irish, Greek, Portuguese and Italian government bonds.
Losses at five Irish banks have required a €45 billion bailout from the government at a time when tax revenues are significantly down due to the recession. The bank bailout has cannibalized the public finances, pushing the public deficit temporarily to 32 percent of GDP for 2010, 10 times that allowed by EU rules.
I have the following questions to ask:
1. why did the Irish government loan money to the Irish banks with public finance? Are these banks too big to fail?
2. what has been the impact on the Irish economy as a whole with regard to the world-wide recession?
I hope to find answers to those questions. At the same time I do suspect that the Irish government, like so many others has been busy wasting money on the useless implementation of Watermelon policies. It is also highly likely that the government coffers have been drained because of the welfare state. (stay tuned, I hope to find answers on these questions)
Whilst I should be shocked over the issue of bribes relating to Germany and Greece, I must admit that I am not shocked at all. Perhaps it is because for many years I have known that bribes are the way in which many companies and countries around the world do business. I first became aware of these bribe scandals when I learned about the bribes that take place when dealing with Indonesia. I learned about those bribes perhaps 10 years ago. Is it any wonder that I am not shocked to learn that the lazy Greeks have used a similar system when dealing with other countries. On top of that I am aware that bribes is also the way that many Chinese do business. How strange that when a Chinese councilor in Sydney (a man who was a member of my own church parish) was caught accepting a bribe, I had the urge to justify his actions, based upon what I had learned about such cultures. However, I am ahead of myself in dealing with this topic:
It seems that in the Greek economy there is what is known as miza and fakelaki. The fakelaki is the small envelope type bribe that might be paid to a doctor or a tax auditor. On the other hand the miza is the small suitcase kind of bribe and without miza no foreign company can do business within Greece. To me this sounds exactly like doing business in Indonesia. The large bribes are especially prominent with large government contracts. The bribes themselves enrich industrialists, civil servants, politicians and military, whilst the payments themselves are written off as commissions for negotiating contracts.
What has this got to do with Germany? Well it seems that the German car company Daimler has been paying miza to pave the way for vehicle deliveries to Greece. Germany’s national railway operator Deutsche Bahn resorted to bribes to win an underground railway contract in preparation for the Athens Olympic games in 2004. Another corrupt company involved with Miza is Siemans.
Investigators into the Siemens scandal have found that the company’s Greek branch needed an annual slush fund of some €15 million. To secure the €500 million OTE contract alone, the firm allegedly paid €35 million in miza in the late 1990s. At Siemens headquarters in Munich, they spoke with great admiration of their branch in Athens for years — hardly any other national subsidiary had delivered such impressive results.
Even politicians in Athens have allegedly benefited from the deal. According to statements made by company executives involved in the payoffs, up to 2 percent of the revenues from the Siemens Hellas telecommunications division were paid to the two main political parties, the Panhellenic Socialist Movement, better known as PASOK, and the conservative New Democracy. In Athens one never knows which government will remain in office — or for how long. Both parties have denied accepting any payments.
Read more here
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This is an old story from Mail Online, but right now is a good time to review the story, especially in light of what might be the inevitable crash of the Euro. Is it really possible that George Soros, in his greed, has set out to cause this much havoc in the world? I am no conspiracy theorist but the more I hear about George Soros, the more I shudder….
The article refers to a meeting back in February 2010 at which the Soros Hedge Fund was represented. It is not hard to imagine that there is a plot in place to see the Euro fail. It seems that these hedge fund managers stand to reap billions if this happens. This is what was reported on February 24 when it was first apparent that Greece was in real trouble, and that this was putting pressure on the Euro:
The single currency has been under enormous pressure because of Greece’s debt crisis, plus financial worries in Portugal, Italy, Spain and Ireland.
But, it has also struggled because hedge funds have been placing huge bets on the currency’s decline, which could make the speculators hundreds of millions of pounds.
The euro traded at $1.51 in December, but has since fallen to $1.34. Details of the secretive dinner emerged days after Mr Soros, chairman of Soros
Fund Management, warned in a newspaper article that the euro could ‘fall apart’ even if the European Union can agree a deal to shore up support for stricken Greece.
He said: ‘Makeshift assistance should be enough for Greece, but that leaves Spain, Italy, Portugal and Ireland.
‘Together they constitute too large a portion of euroland to be helped in this way.’
He believes that unless the European Commission is given sweeping powers over taxation and spending, the single currency will always be vulnerable to financial turbulence in individual states.
The BBC reports that the European Commission expects Greece economy to shrink by 3% amid fears over that country’s debt problem. The biggest fear for the European Commission is the spread of the crisis to other European countries including Spain and Portugal. (this of course, would not be surprising because Spain and Portugal are one of the STUPID countries).
The Commission said the eurozone countries as a whole would see growth of 0.9% – an improvement on the 0.7% forecast earlier this year.
But it admitted that the recovery in Europe “continues to be surrounded by high uncertainty”.
The commission cited “recent tensions” in the markets as a concern.
Greece has been in recession since the second quarter of 2009.
The euro fell to its lowest level against the dollar in more than a year, at $1.2935, with investors concerned that the Greek debt crisis could spread to other eurozone countries including Spain and Portugal.
The euro is also down against the pound, with one pound worth 1.167 euros.
European finance ministers had agreed a bailout for Greece but the deal has to be ratified by several EU states, including Germany. It also faces opposition amongst the Greek public.
Once again Greece is facing strikes and disruption due to the opposition to the austerity measures that are required as a result of the bail-out deal. However, one must question the reality of the Greeks because it seems that Greece has become the ultimate Welfare State.
Reuters had reported on some areas of waste in Greece with regard to welfare spending :
- tens of thousands of unmarried or divorced daughters of dead civil servants continue to collect their pensions. This largesse is worth more than $500 euros per year.
- civil servants are protected from dismissal and can retire from work in their 40s.
- Greek expenditure on pensions is expected to rise to 12% of GDP by 2050
The Greek government has promised to overhaul pension spending by raising the retirement age and banning early retirement.
Other areas of waste in paying civil servants include:
- being paid extra to use a computer
- bonus for speaking a foreign language
- bonus for turning up for work on time
- in case of foresters they get a bonus for working out of doors
- bonuses for Christmas and Easter.
The government attempt to trim these bonuses as austerity measures would amount to a saving of 1.7 billion euros. However, the Greeks are not happy about the attempt to implement these austerity measures and they have taken to the streets with rioting, as well as putting on general strikes.
Up until 2008 when it was finally sold, Olympic airways had been a loss making proposition for the Greek government. Even worse, the unions had foiled previous attempts to sell the airline so that they could fly themselves and their families for free around the world. When Olympic airlines was sold the 4600 members of staff were given a generous compensation package. However some of these staff recently took to the streets because they had not received all of the promised benefits.
The Greek government owns 74 companies, mostly in transport and utilities, many of which are over-staffed and loss-making entities. The railways are losing something like 800 million euros per year.
Another area of waste is the employment of committees, even though it is not clear what some of those committees do:
Hundreds of state-appointed committees employ staff though it is not clear what they all do. Greece has a committee to manage Lake Kopais, which dried out in the 1930s.
One Greek paper estimated that committees employ more than 10,000 people and cost over 220 million euros a year.
Coming through on a pre-election pledge to cut such waste, the government recently announced it would shut down or merge at least 200 such committees that have outlived their usefulness.
On top of this, Greece is expending on arms at a higher rate than other countries in the European Union – this is due to the tensions with Turkey.
Tensions with arch-rival Turkey have kept Greek military spending well above that of other EU members, reaching 14 billion euros, or 6 percent of GDP, in 2007 and 2009.
Budget woes have limited military procurements and the 2010 defence budget now stands at 6.7 billion euros ($8.92 billion).
But nearly 80 percent of Defence Ministry spending goes on administrative costs and payments of army staff. The government has said it will gradually reduce costs and spending on arms purchases will be contained to 1.8 billion euros (0.7 percent of GDP) this year