Category : Euro

(Guardian) Germany split on EU's future as some call for a European government

The ideological split within German politics is essentially about whether the European commission should become more political after Brexit, or less so. Almut Möller of the European Council on Foreign Relations thinktank said: “All parties can see that the situation requires political answers, but that the European commission isn’t up to it ”“ that’s the dilemma.”

Henrik Enderlein, the director of the Jacques Delors Insitut in Berlin, said: “There are two possible roles the European commission could take in the future: either as a strong, political body that can take [the] initiative in key policy areas and during a crisis, or as a technocratic body that merely protects the treaties. At the moment, it is a hybrid of the two, and that has to change.”

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Posted in * Culture-Watch, * Economics, Politics, * International News & Commentary, Credit Markets, Currency Markets, Economy, Ethics / Moral Theology, Euro, Europe, European Central Bank, Foreign Relations, Germany, History, Politics in General, Theology

(Independent) Forget Brexit ”” Italy is poised to tear Europe apart

All eyes have turned to Britain’s vote to leave the European Union as having the most drastic political and economic impact onto the 28-nation state but if you look at the country’s economic data, bank issues, and the impending constitutional referendum coming up, Italy is like a bomb waiting to explode.

The Italian financial system, which to put it gently, is in a major state of flux right now. While Britain’s EU referendum in June was seismic in terms of having economic and political repercussions across the bloc, there is another referendum of equal importance, coming up in Italy in October, and the result could fundamentally alter the state of the already delicate Italian economy.

Italians will have a say on reforms to its Senate, the upper house of parliament, in October. The proposed reforms are widespread, and if approved could improve the stability of Italy’s political set up and allow Prime Minister Matteo Renzi to push through laws aimed at improving the country’s economic competitiveness.

Read it all and make sure to take a careful look at the productivity graph.

Posted in * Economics, Politics, * International News & Commentary, Credit Markets, Currency Markets, Economy, Ethics / Moral Theology, Euro, Europe, European Central Bank, Italy, Politics in General, The Banking System/Sector, Theology

(Telegraph) [Former chief Rabbi] Jonathan Sacks–We need morality to beat this hurricane of anger

The Prime Minister resigns. There are calls for the Leader of the Opposition to likewise. A petition for a second referendum gathers millions of votes. There is talk of the United Kingdom splitting apart. The Tory succession campaign turns nasty.

This is not politics as usual. I can recall nothing like it in my lifetime. But the hurricane blowing through Britain is not unique to us. In one form or another it is hitting every western democracy including the United States. There is a widespread feeling that politicians have been failing us. The real question is: what kind of leadership do we need to steer us through the storm?

What we are witnessing throughout the West is a new politics of anger. There is anger at the spread of unemployment, leaving whole regions and generations bereft of hope. There is anger at the failure of successive governments to control immigration and to integrate some of the new arrivals.

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Posted in * Economics, Politics, * International News & Commentary, * Religion News & Commentary, Consumer/consumer spending, Corporations/Corporate Life, Economy, England / UK, Euro, Europe, European Central Bank, Foreign Relations, Housing/Real Estate Market, Immigration, Judaism, Labor/Labor Unions/Labor Market, Other Faiths, Politics in General, Seminary / Theological Education, Theology

Ambrose Evans-Pritchard–Was Brexit fear a giant hoax or is this the calm before the next storm?

What we have learnt from the market moves since Brexit is that Europe is just as vulnerable as Britain. The vote has already triggered a banking crisis in Italy, where the government is struggling to put together a €40bn (£33bn) rescue but is paralysed by the constraints of euro membership.

The eurozone authorities never sorted out the structural failings of EMU. There is still no fiscal union or banking union worth the name. The North-South chasm remains, worsened by a deflationary bias. The pathologies fester.

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Posted in * Economics, Politics, * International News & Commentary, Economy, England / UK, Ethics / Moral Theology, Euro, Europe, European Central Bank, Foreign Relations, Politics in General, The Banking System/Sector, Theology

(FT) Brexit: the world’s most complex divorce begins

The goal is to unwind Britain’s 43-year membership of the bloc, disentangle and sever the legacy of shared sovereignty, and then reshape the biggest single market on earth.
Three fundamental issues arise.
On substance, what political and commercial arrangements will Brexit Britain demand and will the EU accept them?
In execution, will the exit deal ”” the divorce and breaking of old obligations ”” be struck at the same time as a trade agreement covering post-Brexit trade? And if no, is a transition possible to ensure a soft landing?

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Posted in * Culture-Watch, * Economics, Politics, * International News & Commentary, Credit Markets, Currency Markets, Economy, England / UK, Ethics / Moral Theology, Euro, Europe, European Central Bank, Foreign Relations, History, Ireland, Law & Legal Issues, Politics in General, Scotland, Stock Market, Theology, Wales

(Fulcrum) Andrew Goddard–The EU Referendum: How Should We Decide?

In deciding how to vote it is important that we recognise that we are answering a different sort of question from that at general elections but, as there, we also need to keep front and centre the test of what it means to love our neighbours and how our vote can serve the common good. That means not deciding on the basis of what is best for me personally (usually understood in simple financial terms) or even for the UK alone but to look at our personal and national good in the context of international society and the importance of good relationships. It also means trying to step back and take in the bigger picture both historically but also in terms of the present nature and likely future development of the EU. At least three broad areas require serious Christian reflection and evaluation in discerning how to vote.

First, as regards its form, the EU is an international legal and political entity based on treaties between national governments. This means considering a Christian attitude to the role and limits of nations and national identity and the dangers of empire as well as consideration of the principle of the free movement of peoples and how it relates to our sense of belonging and place of national borders. Second, the EU also has motives and aims which shape its ethos. Here Christians must evaluate how it has assisted in moving Europe from war to peace, whether and how it has enabled solidarity both within Europe and between Europe and the poorer parts of the world, and whether, particularly in relation to economic life, it is driven by our contemporary idols in the Western world and, through the Euro and austerity, serving or undermining human flourishing. Finally, as the EU is best viewed as a political community it needs, from a Christian perspective, to be assessed in terms of how well it serves the pursuit of justice and whether its political structures are ”“ or can be – representative of its 500 million people and whether they uphold the principle of subsidiarity which seeks to respect local and national governing structures and non-governmental forms of social life.

In the light of all these issues a number of arguments on both sides need to be rejected by Christians but, after exploring each of these areas, I believe it is possible to sketch out potential Christian arguments for each side of the debate focussing on these issues, often neglected in the wider political debate.

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(Telegraph) Anthony Evans-Pritchard This is a global stock market rout worth celebrating

We toiling workers can allow ourselves a wry smile. For most of the last eight years the owners of wealth and inflated assets have had things their own way, while the real economy has been left behind.

The tables are finally turning. The world may look absolutely ghastly if your metric is the stock market, but it is much the same or slightly better if you are at the coal face.

The MSCI index of world equities has fallen almost 20pc since its all-time high in May of 2015, implying a $14 trillion loss of paper wealth. Yet the world economy has carried on at more or less the same anemic pace, and the OECD’s global leading indicators show no sign that it is suddenly rolling over now.

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(Bloomberg) France’s Hollande Proposes Creation of Euro-Zone Government

French President Francois Hollande said that the 19 countries using the euro need their own government complete with a budget and parliament to cooperate better and overcome the Greek crisis.

“Circumstances are leading us to accelerate,” Hollande said in an opinion piece published by the Journal du Dimanche on Sunday. “What threatens us is not too much Europe, but a lack of it.”

While the euro zone has a common currency, fiscal and economic policies remain mostly in the hands of each member state. European Central Bank President Mario Draghi made a plea this week for deeper cooperation between the euro members after political squabbles over Greece almost led to a rupture in the single currency.

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(Economist Erasmus Blog) The euro, theology and values–The meaning of redemption

When big questions, like the future of Europe, hang in the balance, it can be tempting to toy with grand theories about the ways in which religion affects culture and economics. A famous one was put forward by Max Weber (pictured), who posited a link between capitalism and Protestant ideas of guilt and salvation. Such theories usually contain a grain of truth, but religious determinism shouldn’t be pushed too far because there are always exceptions.

Still, as religious-determinist theories go, an interesting one was put forward by Giles Fraser, a well-known left-wing priest of the Church of England, in a recent radio broadcast. He suggested that behind the financial standoff between Greece and Germany, there was a theological difference (between western and eastern Christians) in the understanding of how humans are reconciled with God.

As Mr Fraser recalled, traditional Protestant and Catholic teaching has presented the self-sacrifice of Christ as the payment of a debt to God the Father. In this view, human sinfulness created a debt which simply had to be settled, but could not be repaid by humanity because of its fallen state; so the Son of God stepped in and took care of that vast obligation. For Orthodox theologians, this wrongly portrays God the Father as a sort of heavenly debt-collector who is himself constrained by some iron necessity; they prefer to see the passion story as an act of mercy by a God who is free. Over-simplifying only a little, Mr Fraser observed: “the idea that the cross is some sort of cosmic pay-back for human sin [reflects] a no-pain-no-gain obsession with suffering,” from an eastern Christian viewpoint.

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(Globe and Mail) Greece bailout deal keeps country in the euro, but for how long?

Greece has received a tentative reprieve from exiting the euro, but the harsh austerity demands piled onto the recession-damaged country may still ultimately force it out the door, economists say.

Some of them think the chances of a Greek exit form the euro ”“ Grexit ”“ have not in any way diminished now that Greece and its creditors have tentatively approved a three-year, €86-billion bailout package that will boost Greece’s debt, increase taxes and trigger privatizations at what will likely be fire-sale prices.

In a note published Monday, Manulife chief economist Megan Greene said the deal, if approved by both sides and the national parliaments of the euro zone countries “will almost certainly be a failure for both political and economic reasons. The immediate risk of Grexit may be slightly lower following the summit conclusions this weekend, but the overall risk of Grexit is materially higher.”

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(FT) Wolfgang Münchau–Greece’s brutal creditors have demolished the eurozone project

The fact that a formal Grexit may have been avoided for the moment is immaterial. Grexit will be back on the table when you have the slightest political accident ”” and there are still many things that could go wrong, both in Greece and in other eurozone parliaments. Any other country that in future might challenge German economic orthodoxy will face similar problems.

This brings us back to a more toxic version of the old exchange-rate mechanism of the 1990s that left countries trapped in a system run primarily for the benefit of Germany, which led to the exit of the British pound and the temporary departure of the Italian lira. What was left was a coalition of countries willing to adjust their economies to Germany’s. Britain had to leave because it was not.

What should the Greeks do now? Forget for a moment the economic debate of the last few months, over issues such as the impact of austerity or economic reforms on growth, and ask yourself this simple question: do you really think that an economic reform programme, for which a government has no political mandate, which has been explicitly rejected in a referendum, that has been forced through by sheer political blackmail, can conceivably work?

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(AP) Greece reaches deal with creditors, avoids euro exit

Greece reached a deal with its European creditors Monday, pledging stringent austerity to avoid an exit from the euro and the global financial chaos that could have followed.

The deal calls for Greeks, already reeling from harsh measures and economic decline, to cut back even further in exchange for more loans without which its financial system would surely collapse. The deal, which still needs approval from Greece’s parliament, will be the country’s third bailout in five years.

To get to a deal, Greek Prime Minister Alexis Tsipras had to overcome the fundamental mistrust of many of his allies among the 18 other countries that use the euro, known as the eurozone. Just a week earlier, at his urging, Greeks had voted in a referendum to reject many of the measures he agreed to Monday, and the deal forced him to renege on many of his election promises.

“We managed to avoid the most extreme measures,” Tsipras said. “Greece will fight to return to growth and to reclaim its lost sovereignty.”

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Update: Politico also has a summary article on the deal there.

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(Telegraph) Greek deal in sight as Germany bows to huge global pressure for debt relief

The contours of a deal on Sunday are starting to emerge.

Syriza has requested a three-year package of loans from the eurozone bail-out fund (ESM) – perhaps worth as much as €60bn ”“ and is reportedly ready give ground on tax rises and pension cuts.

Germany’s subtle shift in position comes as the United States, France, and Italy joined in a united call for debt relief, buttressed by a crescendo of emphatic statements by Christine Lagarde, the head of the International Monetary Fund.

“Greece is clearly in a situation of acute crisis, which needs to be addressed seriously and promptly. We remain fully engaged in order to find a solution to restore stability, growth and debt sustainability,” said Ms Lagarde.

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([London] Times) Merkel faces rebellion in Berlin over Greek bailout

More than 100 MPs in Angela Merkel’s conservative party group have already written Greece out of the euro, even as its government scrambles to cobble together a plan acceptable to creditors.

The size of the rebellion in her own ranks ”” the Christian Democratic Union and Christian Social Union faction ”” limits the German chancellor’s ability to soften her position against Greece and all but kills off its hope of a huge debt write-off as part of the new bailout plan it needs to prevent a banking collapse.

Alexis Tsipras, the Greek prime minister, has been given until midnight tonight to submit plans justifying another multibillion-euro loan deal to keep Greece afloat or face a future outside the euro, with the EU already preparing humanitarian aid for the Greek people.

Announcing its intention yesterday to seek a three-year bailout, Greece said it wanted to make its €323 billion debt mountain “sustainable and viable over the long term”, code for the cut of 30 per cent demanded by Mr Tsipras.

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(London Times) Make concessions by tomorrow or you’re out, Greece told

The German Red Cross said today it was willing to rush medical and other humanitarian aid to Greece as the country’s economy teetered on the brink of collapse.

“We are ready in every respect,” spokesman Dieter Schutz told Leipziger Volkszeitung newspaper. “Pensioners, the poor, the sick and refugees” have been hit hardest, he said.

Donald Tusk, the president of the European Council, who will chair the summit said: “I have no doubt that this is the most critical moment in the history of the EU. This will affect all Europe also in the geopolitical sense.”

President Hollande of France, the most optimistic of eurozone leaders on finding a solution, said: “What is at stake is the place of Greece within the EU and therefore the eurozone.”

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(AI) Walter Russell Mead–After The “No” Vote, Soft Grexit Landing Now EU’s Best Option

There are, as many European and American writers have been commenting lately, sound geopolitical reasons to prevent the worst from happening in Greece. Migration issues, NATO issues, energy issues, terrorism, Russia: an angry, inflamed, suffering and radicalized Greece on a kind of Venezuelan path to national destruction could make life much more difficult for Europeans and Americans both. These considerations should be enough to command some attention and resources from policymakers on both sides of the Atlantic sufficient to avert worst case scenarios for the Greek people.

For Grexit to be a step forward rather than a step back, Western and Greek leaders need to become more creative and forward-looking. Washington needs to stop bleating platitudes about the evils of austerity and to start thinking hard about bolstering an alliance that remains critical to its global position; Brussels and Berlin need to move beyond anger at Greek tactics to a sober calculation of Europe’s interests; the Greeks need to reflect on the cost of being represented at a grave hour of national crisis by inexperienced politicians who none of their counterparts in Europe trust or respect.

But Brussels and Berlin (and Paris, Rome and Madrid) need to realize something else. Greece’s problems under the euro have been worse than anyone else’s, but Greece is not totally unique. There are deep design flaws in the euro and the common currency has not worked nearly as well as any of its proponents hoped. The discussion over the future of Greece needs to be delinked from the discussion over the future of the euro””but that doesn’t mean that the future of the euro doesn’t need to be discussed.

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(PS) Mark Roe–Europe and Greece on the Brink

…the risks have not been eliminated. The margin for error for the major banks and other financial institutions is narrow. Because they are still not strongly capitalized, modest losses from direct defaults and indirect losses from companies with business in Greece can threaten bank equity, causing bankers to cut back on lending. A few miscalculations in a major institution could have substantial repercussions. Making matters worse, central bankers have only a limited capacity to buoy the economy, as interest rates are still near zero.

The second channel through which risk and loss can spread from Greece is other heavily indebted countries, like Spain and Italy. So far, the financial markets have not panicked over the ability of these countries to repay their bonds. But a shift in the political situation ”“ especially in Spain, where the left-wing Podemos party is doing well in the polls ”“ could change that in an instant.

Finally, a Greek default and exit from the eurozone could unleash unpredictable political forces with a knock-on effect on the European economy. After all, it was the first wave of austerity in Greece that led to the election of Syriza, a left-wing party that few had expected would ever govern.

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(NPR) Hours From Greek Bailout Vote, 2 Sides Evenly Divided

Greece’s prime minister has put his political clout behind the “no” camp in a referendum to decide whether the country should accept the terms of an international bailout. But the people appear to be evenly split on the issue, according to two new opinion polls.

One survey, conducted by the respected ALCO institute just 48 hours before the referendum that could decide Greece’s economic fate and future in the eurozone, gives the “yes” camp 44.8 percent against 43.4 percent for the “no” side, according to Reuters.

But a second poll, conducted by Public Issue and published in the ruling party’s newspaper, reports a 0.5-percentage-point lead for those opposed to the bailout.

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(FT) Gideon Rachman–Europe’s dream is dying in Greece

The danger now is that, just as Greece was once a trailblazer in linking a democratic transition to the European project, so it may become an emblem of a new and dangerous process: the disintegration of the EU. The current crisis could easily lead to the country leaving the euro and eventually the union itself. That would undermine the fundamental EU proposition: that joining the European club is the best guarantee of future prosperity and stability.

Even if an angry and impoverished Greece ultimately remains inside the tent, the link between the EU and prosperity will have been ruptured. For the horrible truth is dawning that it is not just that the EU has failed to deliver on its promises of prosperity and unity. By locking Greece and other EU countries into a failed economic experiment ”” the euro ”” it is now actively destroying wealth, stability and European solidarity.

The dangers of that process are all the more pronounced because Greece is in a highly strategic location. To the south lies the chaos and bloodshed of Libya; to the north lies the instability of the Balkans; to the east, an angry and resurgent Russia.

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Posted in * Economics, Politics, * International News & Commentary, Anthropology, Credit Markets, Currency Markets, Economy, Ethics / Moral Theology, Euro, Europe, European Central Bank, Foreign Relations, Greece, Housing/Real Estate Market, Labor/Labor Unions/Labor Market, Politics in General, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, Theology

(FT) Mario Draghi warns of ”˜uncharted waters’ if Greece crisis deteriorates

Mario Draghi said the euro area was better equipped than it had been in the past to deal with a new Greek crisis but warned of “uncharted waters” if the situation were to deteriorate badly.

The European Central Bank president called for the resumption of detailed discussions aimed at resolving the country’s debt woes and urged the Greek authorities to bring forward proposals that ensured fairness, growth, fiscal stability, financial stability.

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(WSJ) Tumbling interest rates in Europe leaves some banks owing money on loans to borrowers

Tumbling interest rates in Europe have put some banks in an inconceivable position: owing money on loans to borrowers.

At least one Spanish bank, Bankinter SA, the country’s seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes.

The problem is just one of many challenges caused by interest rates falling below zero, known as a negative interest rate. All over Europe, banks are being compelled to rebuild computer programs, update legal documents and redo spreadsheets to account for negative rates.

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Giles Fraser–Arguments over Greek debt echo ancient disputes about Easter

The western church typically criticises the eastern view for having a “free lunch” view of salvation. No pain, no gain, insists Anselm. The eastern church says that the west fetishises suffering and is more committed to some iron logic of cosmic necessity than to God for whom all things are possible.

Atheists such as Alexis Tsipras, the Greek leader, may think both of these are fantasies. But for present purposes that’s beside the point. It’s worth recognising that these two completely different stories support two contrasting moral worldviews and different attitudes towards economics in general and capitalism in particular. Tsipras ”“ like me ”“ is very much more in the Greek Orthodox camp when it comes to salvation. And the Lutheran minister’s daughter Angela Merkel is very much in the western one. He wants to leap free from death-dealing debt. She believes it must be paid back, no matter how much blood and pain is involved.

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(FT) Wolfgang Münchau–Europe puts future at risk by playing it safe

…look where Greece has ended up after five years of crisis resolution. It has had one of the worst performances in economic history; yet we have just concluded an extension of the same policy.

Can this be sustainable? The pragmatists in Europe’s chancelleries say they can roll over loans indefinitely at very low interest rates. Economically, this is the equivalent of a debt writedown; yet politically it is easier to deliver because you do not need to recognise losses. The equivalent statement in a military conflict would be: if you renew a ceasefire often enough, you end up with peace.

This type of argument is not only immoral and dishonest. It also does not work. While you play this game of ex­tend-and-pretend, the real economy implodes: austerity has caused a meltdown in income and employment. Monetary policy mistakes caused a fall in eurozone-wide inflation rates that made it impossible for Greece and other periphery countries to improve the competitiveness they lost in the early years of monetary union.

If the EU deals with Ukraine in the same way it dealt with Greece, you can expect to see a parallel development in a few years.

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Negative Mortgage rates? In Europe, Bond Yields and Interest Rates Go Through the Looking Glass

At first, Eva Christiansen barely noticed the number. Her bank called to say that Ms. Christiansen, a 36-year-old entrepreneur here, had been approved for a small business loan. She whooped. She danced. A friend took pictures.

“I think I was so happy I got the loan, I didn’t hear everything he said,” she recalled.

And then she was told again about her interest rate. It was -0.0172 percent ”” less than zero. While there would be fees to pay, the bank would also pay interest to her. It was just a little over $1 a month. But still.

These are strange times for European borrowers, as if a wormhole has opened up to a parallel universe where the usual rules of financial gravity are suspended.

Read it all from the NYTimes Dealbook.

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(FT) Washington urges eurozone leaders to compromise with Athens

The Obama administration is pushing eurozone leaders to compromise more with Athens as fears grow that a protracted stand-off could damage the global economy, say senior EU and US officials.

The US lobbying comes amid mounting concern in Brussels and Washington about the hardline stand taken by some eurozone governments, particularly Germany, that Greece must press on with budget-cutting commitments made under its existing €172bn bailout regardless of last month’s election, which brought anti-austerity party Syriza to power .

“This is a conversation we’re having with people,” said a senior US official involved in the talks.

“There isn’t a special initiative. I don’t think our attitude has changed but what’s changed is that suddenly the situation in Greece is looking more problematic.”

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(FT Editorial) Syriza’s electoral win is a chance to strike a deal

It is easy to see why Syriza put debt repudiation at the heart of its electoral campaign. John Paul Getty once opined that “if you owe the bank $100, that’s your problem; if you owe the bank $100m, that’s the bank’s problem”. Greece’s predicament may ultimately force creditors to the negotiating table. To service its debt burden would require Greece to operate as a quasi slave economy, running a primary surplus of 5 per cent of GDP for years, purely for the benefit of its foreign creditors. Even the IMF has dropped hints in favour of some debt forgiveness.

But Greece’s EU creditors have equally strong reasons for refusing. Caving to Syriza’s demands would come at a high political cost, particularly for Germany’s Angela Merkel, who is harried by the eurosceptic AfD on her right. Other struggling countries would find their own radical parties emboldened by Syriza’s success. No country deserves to live beyond its means indefinitely.

Back in 2011, Greece posed an existential threat to the eurozone. Today, Berlin and Frankfurt are no longer as frightened by the prospect of Greece leaving the single currency. Yet for the Greek people this would be a catastrophe: a giant economic step backwards and a blow to living standards just as severe as any endured under austerity.

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Predictions suggest Greece's radical left-wing Syriza party is 1 vote short of absolute majority

The leader of the left-wing Syriza party Alexis Tsipras has said Greece is “leaving behind disastrous austerity”, after his party claimed victory in the country’s general election.

And the 40-year-old told jubilant supporters the “Troika” of the country’s lenders “is finished”.

He was speaking after the Greek Prime Minister Antonis Samaras, who heads the conservative New Democracy party, conceded defeat to Mr Tsipras.

Partial election results suggest Syriza has secured 36.5% of the vote, compared to 27.7% for the New Democracy party.

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Posted in * Culture-Watch, * Economics, Politics, * International News & Commentary, Credit Markets, Currency Markets, Economy, Ethics / Moral Theology, Euro, Europe, European Central Bank, Foreign Relations, Globalization, Greece, Politics in General, Theology

(Project Syndicate) Making Sense of the Swiss Shock by professors Markus Brunnermeier & Harold James

The SNB was not forced to act by a speculative run. No financial crisis forced its hand, and, in theory, the SNB’s directorate could have held the exchange rate and bought foreign assets indefinitely. But domestic criticism of the SNB’s large buildup of exchange-rate reserves (euro assets) was mounting.

In particular, Swiss conservatives disliked the risk to which the SNB was exposed. Fearing that eurozone government bonds were unsafe, they agitated to require the SNB to acquire gold reserves instead, even forcing a referendum on the matter. Though the initiative to require a fixed share of gold reserves failed, the prospect of large-scale quantitative easing by the European Central Bank, together with the euro’s recent slide against the dollar, intensified the political pressure to abandon the peg.

Whereas economists have modeled financial attacks well, there has been little study of just when political pressure becomes unbearable and a central bank gives in. The SNB, for example, had proclaimed loyalty to the peg just days before ending it. As a result, markets will now hesitate to believe central banks’ statements about future policy, and forward guidance (a major post-crisis instrument) will be much more difficult.

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Posted in * Culture-Watch, * Economics, Politics, * International News & Commentary, Credit Markets, Currency Markets, Economy, Ethics / Moral Theology, Euro, Europe, European Central Bank, History, Politics in General, Switzerland, The Banking System/Sector, Theology

(Bloomberg) Switzerland Ambushes the Global Economy

The Swiss National Bank’s shock move today to stop intervening in the foreign exchange market all but guarantees the European Central Bank will finally introduce quantitative easing when it meets Jan. 22. Switzerland is surrendering before a wave of post-QE money fleeing the euro threatens to make a mockery of its currency policy. It’s also capitulating as slumping oil brings global deflation ever closer.

t’s an astonishing U-turn. Just two days ago SNB Vice President Jean-Pierre Danthine told Swiss broadcaster RTS that “we’re convinced that the cap on the franc must remain the pillar of our monetary policy.” He added, though, that it was “very possible” that QE would make defending the threshold more difficult. It seems highly probable that the ECB has winked about its policy intentions to its Swiss counterparts.

The ensuing whipsaw in the currency market is unprecedented. The franc immediately appreciated almost 30 percent against the currencies of the Group of Ten industrialized nations, and surged to a record against the euro…:

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Posted in * Culture-Watch, * Economics, Politics, * International News & Commentary, Corporations/Corporate Life, Credit Markets, Currency Markets, Economy, Ethics / Moral Theology, Euro, Europe, European Central Bank, Globalization, Stock Market, Switzerland, The Banking System/Sector, Theology

Ambrose Evans-Pritchard–German bond yields to trump Japan as ECB battles deflation per RBS

German bond yields are to fall below Japanese levels and plumb depths never seen before in history as Europe becomes the epicentre of global deflationary forces, according to new forecast from the Royal Bank of Scotland.

“We are seeing `Japanification’ setting in across Europe,” said Andrew Roberts, the bank’s credit strategist. “We expect 10-year Bund yields to cross the 10-year Japanese government bond and we are amply positioned for such an outcome.”

Mr Roberts said it is a “weighty win-win” situation for investors. If the European Central Bank launches full-blown quantitative easing, it will almost certainly have to buy large amounts of German Bunds, and these are becoming scarce.

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Posted in * Economics, Politics, * International News & Commentary, Asia, Credit Markets, Economy, Ethics / Moral Theology, Euro, Europe, European Central Bank, Germany, Japan, Theology