Yesterday, I collected a few of my blog posts regarding the eurozone crisis and the issue of transparency on Grahnlaw Suomi Finland. The text is in Swedish, but most of the posts and some references are in English: EU-institutionerna mellan stumhet, PR och genuin öppenhet (Portugal och Grekland). (For the rest, you can try Google translation.)
While I am worried that the lack of quality information from the EU institutions is like a gift to demagogues and populists in the weak eurozone countries as well as in the stronger ones, the president of the European Council had taken a different tack the previous day. According to EurActiv, Herman Van Rompuy maintained that the messages given out are part of the problem, not a part of the solution: Special report: Van Rompuy warns leaders not to panic markets (20 May 2011).
As we have noted, credible and up-to-date information from the EU institutions about Greece is especially scarce. Not a word in the Ecofin conclusions on Tuesday.
Regardless of conflicting messages and Van Rompuy's admonishing words the markets follow their own instincts and reasoning.
Greece downgraded
On the Brussels blog (Financial Times), Joshua Chaffin notes that the credit rating agency Fitch Friday downgraded Greece's long term debt by one notch to B+, with a negative outlook. ”Soft” or not, the rating agency takes a dim view of any debt restructuring: Fitch joins chorus for another Greece bailout (20 May 2011).
However, Reuters speaks about a cut by three notches, but records the same B+: Fitch cuts Greek rating, warns over restructuring (20 May 2011).
According to Wikipedia, Fitch's credit rating B+ is in the category Non-investment grade, highly speculative. Three notches below the March rating BB+, Greece is now in the company of Zambia.
Le Monde makes the three-notch drop explicit, by mentioning both the previous BB+ and the new B+ grade: L'agence Fitch dégrade de trois crans la note de la Grèce (20 May 2011).
Bloomberg tells us that the yield on the Greek 10-year bonds rose to 16.6 percent: Fitch Cuts Greece to B+, Says Maturity Extension Is Default (20 May 2011). It is even clearer than before that Greece is outside commercial debt financing of its huge government deficits.
The next moves have to come from the government and society of Greece, followed by the conclusions of the EU-IMF mission, but we still have to wait for guarantees that the EU, including the ECB and the member states, will deliver a combination straitjacket and life jacket able to avoid financial meltdown.
Ralf Grahn
Saturday, 21 May 2011
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Dear Ralf,
ReplyDelete1)
Re: "Greece downgraded"
Should read "Greece's government bonds downgraded"
re: "Fitch cuts Greek rating"
Should "Fitch read cuts Greece's government bonds' rating"
Re: "Greece is now in the company of Zambia"
Should read "Greece's government bonds' rating is now in the company of Zambia's"
And so on,
A country is one, thing its economy another, the rating of its bonds yet another.
2)Which brings me to my main point, from a Eurozone, EU and global analysis perspective:
Greece's case (*) is a very valuable lesson regarding the shortcomings and downright faults of the dominant dogmae in Finance, Economics, Policy, etc especially of the so called "West". And a rare opportunity to overhaul these dogmae in favour of ones that are closer to reality and human needs.
I could elaborate further here, but it could evolve into a proper book.
Let me mention 1 or 2 examples:
Reliance on stats: It has become an obsession in a world/universe which by its very nature is unpredictable and uncertain. Our "Western" craving for stats, technical analysis, and certainties in general has been leading Europe and North America down a dangerous path. Greece's case is a wake up call. But not many seem to have grasped that, at least yet.
Another example: Some seem to treat countries or economies as football teams or pions in a "fantasy Euro or global economic league" not only using parameters that are by their value nature at best incomplete but also faulty in philosophy. This has, inter alia, an effect on not focusing on the real economy but an economic/financial "video game" that has little to do with reality, ie what is experienced daily by real people and real companies, esp. SMEs, in Greece, Eurozone, EU, USA, the OECD etc.
Free market capitalism is failing and is highly unpopular even in the US and UK (see relevant BBC surveys) because it is based on the faulty Economic, Financial, Policy and other dogmae I referred to above.
Nick
@nppolicyanalyst
(*) All one has to do is spend even 1 hour facing the Acropolis in order to appreciate how West thinking in Economics, Finance, Policy, etc has swayed away from its roots into uncharted waters.
Nick,
ReplyDeleteThank you for your comment. The economic news services - like sports commentators - speak an abbreviated language, in simplified terms.
The blog post quotes or emulates the sources and style, which as you correctly point out contain many simplifications.
Regarding your main points, I have less understanding, why all the causes of the problems seem to be located outside your country.
All the countries of the eurozone have joined voluntarily, and they have agreed to follow common rules of sound public finances.
We have seen spectacular failures in this respect, as well as with regard to the supervision of banks and other providers of financial services.
There is no if. These faults have to be corrected. The interesting questions are how, how quickly and how the effectively bankrupt states can bridge the transitional period.
Dear Ralf
ReplyDeleteThank you for your reply.
1)"The economic news services - like sports commentators - speak an abbreviated language"
Indeed but the result IMO of the repetition of such language distorts the proper cognitive associations of the terms in the public's minds.
2)" ...I have less understanding, why all the causes of the problems seem to be located outside your country"
I am not sure who has argued that. I certainly have not but as an EU/European/global affairs analyst, it is not my job to analyse Greece per se. My job is to look at EU and Eurozone systemics thus my tweets and blog posts have not focused on Greece's or Portugal's or Ire;and's policy faults but rather the systemic faults at EZ & EU level, eg the effects of the uber hard Euro on most Eurozone products and services, be they Greek or even German!
What I stated in my initial comments is that "Greece's case is a very valuable lesson regarding the shortcomings and downright faults of the dominant dogmae in Finance, Economics, Policy, etc especially of the so called "West".". Elements of Greece's case are to be found IMO in the other PIIGS as well, as well as most other Eurozone & EU members. But they are compounded in Greece's case, thus being more evident. That is not a defense of Greece but rather severe criticism, from my EU/Eurozone/systemics POV re the dominant Economic, Financial and Policy dogmae in the "West". Greece's problems are merely the most severe ones. And my concenr is that the EU, Eurozone and global lessons are not missed.
3) "All the countries of the eurozone have joined voluntarily,.."
As far as I know Greece sought to join the Euro manily as a national security issue considering that membership of the "core" of the EU would further guarantee its borders vis-a-vis a specific non EU threat that is not addressed by its NATO membership. As far as I know, membership of the EEC in 1981 has a similar main reason and that is why said country ranked 22nd with China (and No. 1 in the EU) in defence spending in 2006 (CIA Factbook).
".. and they have agreed to follow common rules of sound public finances..."
Which they all broke to different extents.
re "We have seen spectacular failures in this respect, as well as with regard to the supervision of banks and other providers of financial services."
That is indeed a major Western and global issue, which again affects Greece's case too. IMO the Oscar winning documentary "Inside Job" is good food for thought.
re "There is no if. These faults have to be corrected. The interesting questions are how, how quickly and how the effectively bankrupt states can bridge the transitional period."
It seems that the world nowadays is full of experts on what Greece should do. Thus I opt to focus on what, systemically, the Eurozone should do. 1) Adopt a more "moderate Euro" policy 2) consider the exit WTO option 3) move immediately to a political union. (1) and (3) are IMO absolute "musts".
Greece's debt is merely 4% of all Eurozone debt. Unless it learns the lessons from Greece, the EU or EZ or Europlus may "save" the Greek economy but lose the "European" one. I would think the objective should include both. But so far it seems that the lessons from Greece's problems have not be learned by the other 16. The recent report by DW "Red lights aflame as European students opt for sex work" for example shows how fragile are the systemics at the core of the core of the Eurozone, ie in Berlin!
Thus high time to rethink the Economic, Financial, Policy dogmae that the EU (and the US, ie the West) has been operating on, IMHO as an EU and global policy analyst!
Nick
@nppolicyanalyst
Erratum in my 2nd reply:
ReplyDeleteIn 3) :that is why said country ranked 22nd with China (and No. 1 in the EU) in defence spending in 2006 (CIA Factbook)."
should read "that is why said country ranked 22nd with China (and No. 1 in the EU) in defence spending PER CAPITA in 2006 (CIA Factbook)."