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As Greek Deal Nears, More Austerity Planned

Greek Debt Crisis

Greece agrees to more austerity to fend off German dictates

After fits and starts, Greece may be on the verge of a deal on its private sector debt. European Union leaders need to bless the deal in a summit in Brussels today.  Greece will apparently get the lower interest rate it wanted out of its creditors, though not all of them will participate. Greece will try to force the situation through collection action clauses that mandate participation from the holdouts, which could trigger lawsuits and will almost certainly trigger credit default swaps. It’s even unclear whether the European Central Bank, which holds 55 billion euros, will accept a loss on the Greek debt the ECB holds.

The problem is that their debt problem is bigger now than previously thought, and EU leaders want – surprise! – another round of austerity to make up for that! The fact that the first round of austerity caused a bigger deficit doesn’t factor into this equation here.

It is a tense time for Greece. Officials from the three institutions that are keeping the near-bankrupt nation financially afloat — the European Commission, the monetary fund and the European Central Bank — are demanding another round of spending cuts and reforms to justify a release of as much as 30 billion euros ($39 billion) in the months ahead.

A private sector debt deal is seen as a strict condition to Greece’s securing its next bailout installment.

Officials expect that the deeper bond loss will allow Greece to meet its goal of having a debt-to-gross-domestic-product ratio of 120 percent by 2020, a significant drop from the current ratio of 160 percent.

The recent collapse of the economy has made it more difficult for Greece to hit this number.

I love that construction. It assumes that the real problem concerns hitting an arbitrary (and still large) debt-to-GDP ratio, not, you know, the COLLAPSE of the economy.

Greece will probably back more austerity. The only place they have drawn the line is on a report, possibly bogus, that Germany would want effective veto power over the Greek budget. But Lucas Papademos, the EU-installed technocrat, has persuaded his unity government partners into accepting more austerity measures.

The statements on Sunday by Mr. Papademos suggested that he had overcome some of the objections of the party leaders — his Socialist predecessor George Papandreou, the conservative leader Antonis Samaras and the right-wing leader Georgios Karatzaferis — to new austerity measures proposed by the troika, although some points of contention remain.

The three party leaders were later quoted on Sunday as saying that their only objections were to proposed cuts to wages in the private sector — which would intensify a deep recession — and to reported German demands for a European Union commissioner to oversee Greek budget decisions.

I don’t know why anyone would expect austerity to work now where it has manifestly not worked before. And in fact, even the EU leadership no longer believes that, which makes the request for Greek austerity purely vindictive, I guess:

Bowing to mounting evidence that austerity alone cannot solve the debt crisis, European leaders are expected to conclude this week that what the debt-laden, sclerotic countries of the Continent need is a dose of economic growth.

A draft of the European Union summit meeting communiqué calls for ‘‘growth-friendly consolidation and job-friendly growth,’’ an indication that European leaders have come to realize that austerity measures, like those being put in countries like Greece and Italy, risk stoking a recession and plunging fragile economies into a downward spiral.

The difficulty, however, is that reaching such a conclusion is not the same as making it happen.

Exactly. Because fiscal stimulus isn’t being discussed here, only the vague “labor market reforms” that are supposed to make southern Europe bounce back. This is insufficient to reverse the downward spiral. What’s more, what Germany and the EU leadership want more than ever is a fiscal compact, which would in the words of one official “criminalize Keynesianism.” So the new rhetoric is no substitute for action, and the lack thereof is destroying countries in the Eurozone.

Paul Krugman has more on The Austerity Debacle
Photo: ruskpp/shutterstock.com

CommunityThe Bullpen

As Greek Deal Nears, More Austerity Planned

After fits and starts, Greece may be on the verge of a deal on its private sector debt. European Union leaders need to bless the deal in a summit in Brussels today.  Greece will apparently get the lower interest rate it wanted out of its creditors, though not all of them will participate. Greece will try to force the situation through collection action clauses that mandate participation from the holdouts, which could trigger lawsuits and will almost certainly trigger credit default swaps. It’s even unclear whether the European Central Bank, which holds 55 billion euros, will accept a loss on the Greek debt the ECB holds.

The problem is that their debt problem is bigger now than previously thought, and EU leaders want – surprise! – another round of austerity to make up for that! The fact that the first round of austerity caused a bigger deficit doesn’t factor into this equation here.

It is a tense time for Greece. Officials from the three institutions that are keeping the near-bankrupt nation financially afloat — the European Commission, the monetary fund and the European Central Bank — are demanding another round of spending cuts and reforms to justify a release of as much as 30 billion euros ($39 billion) in the months ahead.

A private sector debt deal is seen as a strict condition to Greece’s securing its next bailout installment.

Officials expect that the deeper bond loss will allow Greece to meet its goal of having a debt-to-gross-domestic-product ratio of 120 percent by 2020, a significant drop from the current ratio of 160 percent.

The recent collapse of the economy has made it more difficult for Greece to hit this number.

I love that construction. It assumes that the real problem concerns hitting an arbitrary (and still large) debt-to-GDP ratio, not, you know, the COLLAPSE of the economy.

Greece will probably back more austerity. The only place they have drawn the line is on a report, possibly bogus, that Germany would want effective veto power over the Greek budget. But Lucas Papademos, the EU-installed technocrat, has persuaded his unity government partners into accepting more austerity measures.

The statements on Sunday by Mr. Papademos suggested that he had overcome some of the objections of the party leaders — his Socialist predecessor George Papandreou, the conservative leader Antonis Samaras and the right-wing leader Georgios Karatzaferis — to new austerity measures proposed by the troika, although some points of contention remain.

The three party leaders were later quoted on Sunday as saying that their only objections were to proposed cuts to wages in the private sector — which would intensify a deep recession — and to reported German demands for a European Union commissioner to oversee Greek budget decisions.

I don’t know why anyone would expect austerity to work now where it has manifestly not worked before. And in fact, even the EU leadership no longer believes that, which makes the request for Greek austerity purely vindictive, I guess:

Bowing to mounting evidence that austerity alone cannot solve the debt crisis, European leaders are expected to conclude this week that what the debt-laden, sclerotic countries of the Continent need is a dose of economic growth.

A draft of the European Union summit meeting communiqué calls for ‘‘growth-friendly consolidation and job-friendly growth,’’ an indication that European leaders have come to realize that austerity measures, like those being put in countries like Greece and Italy, risk stoking a recession and plunging fragile economies into a downward spiral.

The difficulty, however, is that reaching such a conclusion is not the same as making it happen.

Exactly. Because fiscal stimulus isn’t being discussed here, only the vague “labor market reforms” that are supposed to make southern Europe bounce back. This is insufficient to reverse the downward spiral. What’s more, what Germany and the EU leadership want more than ever is a fiscal compact, which would in the words of one official “criminalize Keynesianism.” So the new rhetoric is no substitute for action, and the lack thereof is destroying countries in the Eurozone.

Paul Krugman has more on The Austerity Debacle

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David Dayen

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