Monday, December 15, 2014

Not looking good

Greece, readers of this blog will not be surprised to hear, is still in trouble and, as that great economist, Vicky Pryce put it in today's Evening Standard, this shows that the Eurozone's troubles are not over (did anyone actually believe they were?). In fact,
Stock markets across Europe have been falling as Greek troubles threaten to bring down the whole EU economy.
Ms Pryce ought to realize that there is no such thing as "the whole EU economy" but, clearly, Greece's continuing troubles do not help. Neither do the various other problems:
This time Greece is not alone. There are worries about growth prospects in China, concerns about the struggling Japanese economy, and fears that the decline in the price of oil reflects a slump in demand due to weakening world growth. In the UK, the FTSE 100 was 6.6 per cent down in the week, as energy companies took big hits, with Brent crude falling to $61 a barrel on Friday, less than half the price of $115 a barrel in June this year. Concerns about stagnation and deflation led to widespread falls in stock markets across the eurozone.

With Italy back in recession and France in increasing difficulty, one might imagine Greece’s problems are small by comparison. After all, the country represents no more than two per cent of the eurozone’s GDP. But it has become the symbol of the eurozone’s sustainability.

Greece’s fresh problems have been exacerbated by a return to political instability. Greece had been given an extension of two months to meet its bail-out conditions for the final instalment for its €250 billion loan from the “troika” of the European Central Bank, European Union and IMF. This in turn meant that Greek Prime Minister Antonis Samaras could not obtain agreement to exit the conditional arrangements of the bail-out package by the end of this year, as Ireland and Portugal have done.
So, a snap presidential election by MPs will happen and the EU is apparently worrying:
EU commission chief Jean-Claude Juncker has warned Greece against electing "extreme forces" into power and said he would prefer "known faces" - so far the strongest intervention of the EU top brass in the Greek campaign.

"I think that the Greeks - who have a very difficult life - know very well what a wrong election result would mean for Greece and the eurozone," Juncker said during an Austrian public tv debate with EUobserver and several other Brussels-based journalists.

He steered clear of explicit political advice ahead of presidential elections in Greece next week but said: "I wouldn't like extreme forces to come to power."

The presidential elections - to be held in the Greek parliament on 17 December - could trigger early parliamentary elections, if there are three failed attempts to elect a president.
Will the Greeks listen to these wise words? Who can tell? Just in case, Pierre Moscovici, the Economics Commissioner has flown to Athens for last minute negotiations:
Moscovici’s visit is meant to focus on reaching agreement on the last economic reforms Greece must make before the final tranche of €1.8 billion from its €240 billion bailout is paid out - however the dynamics of the presidential election are set to take centre stage.

Antonis Samaras’ governing coalition, led by the centre-right New Democracy party, brought forward the presidential elections this month in a bid to stave off early parliamentary elections that it fears could bring the left-wing Syriza opposition to power.

The vote will be held in the Greek parliament on 17 December. It could trigger parliamentary elections, if there are three failed attempts to elect a president.

The government is reliant on the support of several minor parties for its majority and has raised the spectre of Greece being forced out of the eurozone if Syriza takes power.
Meanwhile, things are not looking good in Belgium, either. Indeed, it has been "paralyzed by a general strike".
The entire Belgian airspace is closed on Monday (15 December), as well as high-speed trains from Brussels to London, Paris and Amsterdam and local buses, trams and metro lines, as part of a general strike over public sector cuts.

Schools, government offices and private firms are also likely to be closed on Monday. Garbage will not be picked up and newspapers will not be delivered.

Serious traffic jams are expected around Brussels and Antwerp, with transport trade unions calling on truck drivers to join in and "paralyse the country".

Trade unions already staged a huge march which ended in violent clashes with police a month ago, when the government first announced the plans to save €11 billion over the next five years. The measures include scrapping an automatic indexation of salaries next year and raising the retirement age from 65 to 67 from 2030.

Belgium last month was flagged up together with Italy and France and given time until March to bring its budget in order or face extra scrutiny from the EU commission.

Unlike France, Belgium is sticking to the three-percent budget deficit rule, but its public debt is set to reach 107.8 percent of GDP in 2017, compared to 104.5 percent last year. Under EU rules, countries should keep their public debt below 60 percent of GDP.
If memory serves me right, this kind of thing was not going to happen once the euro was established.

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