Revolt in the euro area has begun. Greece became the first country in the impoverished outskirts of the monetary union in Europe, who challenged Brussels and rejecting medieval methods "of treatment with leeches" wage deflation.
While Prime George Papandreou (George Papandreou) formally assured the European Summit, which took place on Friday that Greece would not have defaulted on debt of € 298 billion, in the end, journalists have given those words a different hue.
"Employees will not pay for our actions: we will not freeze or cut wages. We came to power in order to destroy the social structure of the state ", - he said.
We must assume that the countries covered by the anarchist riot and the influence of radical left-wing parties take the risk of its democracy in order to please Brussels?
Papandreou has good reason to throw the gauntlet at the feet of Europe. Greece persuaded to accept a package of IMF austerity without a devaluation, so desired IMF. These measures are ruinous and doomed to failure. Public debt has risen to 113% of GDP. It is assumed that in 2010 the debt will rise to 125% and 140% in 2012.
If Greece will impose draconian wage cuts, which is implemented in full swing in Ireland (5% reduction for ordinary employees and 20% for managers), this will aggravate depression and loss of tax revenue that will continue to decline. It is too late for such a crude policy. Greece has already passed that critical moment when the debt spiral could turn in the right direction.
Ireland is able to implement it, starting with the fact that it has less debt, more flexible labor market and the Nordic discipline. Papandreou faced with circumstances more similar to those faced by the Argentine leaders in 2001, when they tried to cut wages, mistakenly believing that the rejection of the dollar would be catastrophic landmark. Buenos Aires is caught up in riots. The police lost control, killing 27 people. President De la Rua was removed from the Casa Rosado on a military helicopter. Peg to the dollar was canceled, causing the largest default in history.
Economists expected the fall to earth, but this did not happen. Argentina achieved a growth rate of China for 5 years: 8,8% in 2003, 9% in 2004, 9,2% in 2005, 8,5% in 2006 and 8,7% in 2007.
London bankers are lining up to lend money (this is our pension funds?) Argentina, despite a 70% loss the previous creditors.
In theory, Greece could do the same thing: to restore its currency devalue it, to pass a law for the disposition of domestic debt in euros to drachmas, and "restructure" foreign contracts. This is a rather "popular" way. Such actions may allow Greece to withdraw from the vicious circle.
Bondholders will scream, but then they should further examine the work of EMU. RBS said that the UK and Ireland, this situation has the greatest impact, given the 23% of the Greek debt, divided between them (in the majority among global clients.) France owns 11%, Italy 6%.
Remember: Athens prevailed over by Brussels, not vice versa. Out of Greece from EMU would be very dangerous. Regardless of the immediate consequences for Central and Eastern Europe, such developments will affect the agreements that have advanced Integrating all European countries.
I do not want to say that Papandreou - an insider in the EU - thinks so. Full EU membership is necessary for a country that starts from the base of the Balkans, and in the end so close to the inevitable reckoning. However, Papandreou will not conform to European deflationary pact.
Without a doubt, the European institutions will find solutions. RBS said that would take steps in coming days. While the ECB can not save the country, he can buy Greek bonds on the open market. European states may unite to support the Greek loans afloat for some time. But this does not solve anything. This increases the debt of Greece, prolongs the agony. What this country really needs (if not leaving EMU), so this is a permanent subsidies from the North. Portugal and Spain are also in need of assistance.
Danger point for Greece will be a time when the fall of Pf in Berlin that the EMU discrepancy between North and South has been widened to such an extent that the system collapses: Germany suffers inflation, or 4 or 5%, to prevent the immersion of Central Europe into a debt deflation ; or she pays charitable contributions to the South (not loans), equivalent to those paid to East Germany after reunification.
Before you accuse Greece of the fact that it foozled with the euro, let's not forget how we got here. EMU countries of Central Europe were lured into a trap. Interest rates were too small for Greece, Portugal, Spain and Ireland, which was the result of a huge and devastating the building and the salary boom.
ECB has been an accomplice. It does not take into account inflation and M3 money supply was sent to Germany to save her from a sharp downturn. ECB rates were equal to 2% until December 2005. It was poison to the overheated Southern countries.
The deeper truth is that few are prepared to discuss the EU lies in the fact that EMU was originally useless to Greece, to Germany - and for everyone else.
While Prime George Papandreou (George Papandreou) formally assured the European Summit, which took place on Friday that Greece would not have defaulted on debt of € 298 billion, in the end, journalists have given those words a different hue.
"Employees will not pay for our actions: we will not freeze or cut wages. We came to power in order to destroy the social structure of the state ", - he said.
We must assume that the countries covered by the anarchist riot and the influence of radical left-wing parties take the risk of its democracy in order to please Brussels?
Papandreou has good reason to throw the gauntlet at the feet of Europe. Greece persuaded to accept a package of IMF austerity without a devaluation, so desired IMF. These measures are ruinous and doomed to failure. Public debt has risen to 113% of GDP. It is assumed that in 2010 the debt will rise to 125% and 140% in 2012.
If Greece will impose draconian wage cuts, which is implemented in full swing in Ireland (5% reduction for ordinary employees and 20% for managers), this will aggravate depression and loss of tax revenue that will continue to decline. It is too late for such a crude policy. Greece has already passed that critical moment when the debt spiral could turn in the right direction.
Ireland is able to implement it, starting with the fact that it has less debt, more flexible labor market and the Nordic discipline. Papandreou faced with circumstances more similar to those faced by the Argentine leaders in 2001, when they tried to cut wages, mistakenly believing that the rejection of the dollar would be catastrophic landmark. Buenos Aires is caught up in riots. The police lost control, killing 27 people. President De la Rua was removed from the Casa Rosado on a military helicopter. Peg to the dollar was canceled, causing the largest default in history.
Economists expected the fall to earth, but this did not happen. Argentina achieved a growth rate of China for 5 years: 8,8% in 2003, 9% in 2004, 9,2% in 2005, 8,5% in 2006 and 8,7% in 2007.
London bankers are lining up to lend money (this is our pension funds?) Argentina, despite a 70% loss the previous creditors.
In theory, Greece could do the same thing: to restore its currency devalue it, to pass a law for the disposition of domestic debt in euros to drachmas, and "restructure" foreign contracts. This is a rather "popular" way. Such actions may allow Greece to withdraw from the vicious circle.
Bondholders will scream, but then they should further examine the work of EMU. RBS said that the UK and Ireland, this situation has the greatest impact, given the 23% of the Greek debt, divided between them (in the majority among global clients.) France owns 11%, Italy 6%.
Remember: Athens prevailed over by Brussels, not vice versa. Out of Greece from EMU would be very dangerous. Regardless of the immediate consequences for Central and Eastern Europe, such developments will affect the agreements that have advanced Integrating all European countries.
I do not want to say that Papandreou - an insider in the EU - thinks so. Full EU membership is necessary for a country that starts from the base of the Balkans, and in the end so close to the inevitable reckoning. However, Papandreou will not conform to European deflationary pact.
Without a doubt, the European institutions will find solutions. RBS said that would take steps in coming days. While the ECB can not save the country, he can buy Greek bonds on the open market. European states may unite to support the Greek loans afloat for some time. But this does not solve anything. This increases the debt of Greece, prolongs the agony. What this country really needs (if not leaving EMU), so this is a permanent subsidies from the North. Portugal and Spain are also in need of assistance.
Danger point for Greece will be a time when the fall of Pf in Berlin that the EMU discrepancy between North and South has been widened to such an extent that the system collapses: Germany suffers inflation, or 4 or 5%, to prevent the immersion of Central Europe into a debt deflation ; or she pays charitable contributions to the South (not loans), equivalent to those paid to East Germany after reunification.
Before you accuse Greece of the fact that it foozled with the euro, let's not forget how we got here. EMU countries of Central Europe were lured into a trap. Interest rates were too small for Greece, Portugal, Spain and Ireland, which was the result of a huge and devastating the building and the salary boom.
ECB has been an accomplice. It does not take into account inflation and M3 money supply was sent to Germany to save her from a sharp downturn. ECB rates were equal to 2% until December 2005. It was poison to the overheated Southern countries.
The deeper truth is that few are prepared to discuss the EU lies in the fact that EMU was originally useless to Greece, to Germany - and for everyone else.
The Telegraph
December 13
December 13
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