Tag Archives: Portugal

Europe is going socialist – what’s the worst that could happen?

European Debt to GDP and Credit Rating
European Debt to GDP and Credit Rating

From MSN Money.

Excerpt:

European finance officials have discussed as a worst-case scenario limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls in at least Greece should Athens decide to leave the euro.

EU officials have told Reuters the ideas are part of a range of contingency plans. They emphasized that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen – no one Reuters has spoken to expects Greece to leave the single currency area.

[…]The discussions have taken place in conference calls over the past six weeks, as concerns have grown that a radical-left coalition, SYRIZA, may win the second election, increasing the risk that Greece could renege on its EU/IMF bailout and therefore move closer to abandoning the currency.

No decisions have been taken on the calls, but members of the Eurogroup Working Group, which consists of euro zone deputy finance ministers and heads of treasury departments, have discussed the options in some detail, the sources said.

As well as limiting cash withdrawals and imposing capital controls, they have discussed the possibility of suspending the Schengen agreement, which allows for visa-free travel among 26 countries, including most of the European Union.

[…]Another source confirmed the discussions, including that the suspension of Schengen was among the options raised.

“These are not political discussions, these are discussions among finance experts who need to be prepared for any eventuality,” the second source said. “It is sensible planning, that is all, planning for the worst-case scenario.”

I noticed an article that came out in CNN Money that explained how American households had lost almost 40% of their net worth since 2007 – the exact year that Nancy Pelosi took control of the House and Harry Reid took control of the Senate. The Democrats have been running the European playbook since they took over in 2007. We are just a few steps behind the Europeans thanks to the borrow and spend policies of the Democrats.

Jim Demint introduces bill to halt funding for European bailouts

Senator Jim Demint

The Wall Street Journal reports on the Republican effort to halt taxpayer-funded bailouts for socialist European nations.

Excerpt:

A group of Republican senators plan to renew their attempts at stopping the U.S. from funding International Monetary Fund loans to Greece and other countries after the Senate failed to vote on their proposal last week.

A spokesman for Sen. Jim DeMint (R., S.C.), who is leading the effort, said the GOP senators plan to soon introduce stand-alone legislation that would direct the U.S. Treasury to vote against any IMF assistance to European Union nations for the foreseeable future. If enacted into law, it could halt U.S. participation in any future IMF attempts to stabilize the sovereign debt crisis in Europe.

The proposal comes as finance ministers work towards a political agreement committing to provide financing to meet a growing gap in Greece’s funding needs beyond the current EUR110 billion, which in turn would allow the IMF to release a delayed tranche of cash in early July.

[…]Attempts by GOP lawmakers to block IMF loans failed to gain traction in Congress last year. And President Barack Obama has asserted in a signing statement after a House vote on an IMF provision that he doesn’t recognize Congress’ ability to tell the administration how to vote at the IMF.

Greece embraced socialism, and now they have to face the music.

Is the Euro aggravating the European debt crisis?

ECM sent me this story from the liberal German newspaper “Der Spiegel”.

Here’s the thesis of the article:

In the past 14 months, politicians in the euro-zone nations have adopted one bailout package after the next, convening for hectic summit meetings, wrangling over lazy compromises and building up risks of gigantic dimensions.

For just as long, they have been avoiding an important conclusion, namely that things cannot continue this way. The old euro no longer exists in its intended form, and the European Monetary Union isn’t working. We need a Plan B.

Instead, those in responsible positions are getting bogged down in crisis management, as they seek to placate the public and sugarcoat the problems. They say that there is only a government debt crisis in a few euro countries but no euro crisis, citing as evidence the fact that the value of the European common currency has remained relatively stable against other currencies like the dollar.

But if it wasn’t for the euro, Greece’s debt crisis would be an isolated problem — one that was tough for the country, but easy for Europe to bear. It is only because Greece is part of the euro zone that Athens’ debts are a problem for all of its partners — and pose a threat to the common currency.

If the rest of Europe abandons Greece, the crisis could spin out of control, spreading from one weak euro-zone country to the next. Investors would have no guarantees that Europe would not withdraw its support from Portugal or Ireland, if push came to shove, and they would sell their government bonds. The prices of these bonds would fall and risk premiums would go up. Then these countries would only be able to drum up fresh capital by paying high interest rates, which would only augment their existing budget problems. It’s possible that they would no longer be able to raise any money at all, in which case they would become insolvent.

Well, the article talks about how economically productive counties like Germany are on the hook for the bailouts to underperforming countries like Greece and Portugal. That will happen unless Greece reverts to the drachma and stops dragging down the Euro. But the strong European countries are not the only source of bailout funds – there’s also the International Monetary Fund. And guess who funds them?

Consider this article by John Bolton in the New York Post.

Excerpt:

Most Americans had barely heard of the International Monetary Fund before the arrest of its managing director, Dominique Strauss-Kahn, for sexually assaulting a hotel housekeeper. Yet the race to replace him offers a chance to rethink everything about what the real American interest is in the IMF — including whether its continued existence is beneficial.

The top contenders for Strauss-Kahn’s job are French Finance Minister Christine Lagarde and Bank of Mexico Governor Agustin Carstens. Europeans have headed the IMF since its founding, as Americans have led the World Bank — prerogatives that Third World countries increasingly resent as vestiges of colonialism. Carstens’ candidacy is the most visible manifestation of this rising discontent.

[…]Europe is eager to keep the top IMF job not simply because of geographical chauvinism but because continued IMF assistance is critical to European Union efforts to bail out the fractured economic and fiscal system in Greece and several other EU countries. Lurking behind the bailout crisis is the EU’s growing panic over the viability of its currency, the euro. Having a sympathetic ear at the IMF’s pinnacle seems absolutely critical to protect Europe’s parochial interests.

What of America’s interests? We should have long ago resisted throwing our scarce resources, through the IMF or otherwise, into the sinkhole of defending the euro. The currency was always conceived to be as much a political statement as an economic policy: Its European proponents believed the euro would enhance Europe’s strength as an alternative and perhaps rival to America.

If the United States and a few other developed countries like Japan decide to break with Europe over this vote, the IMF’s voting system, based on world-wide economic strength, makes defeating Lagarde a real possibility.

Today’s IMF does little or nothing for US national interests, especially when we face enormous domestic economic challenges. Why should Washington not support Carstens, break the EU hold on the IMF and stop IMF support for the euro?

We can barely afford us, and yet we have to bailout these profligate European nations? Give me a break.

What happened in Europe when they embraced Democrat policies?

Here’s a story from the radically-leftist New York Times.

Excerpt:

Francesca Esposito, 29 and exquisitely educated, helped win millions of euros in false disability and other lawsuits for her employer, a major Italian state agency. But one day last fall she quit, fed up with how surreal and ultimately sad it is to be young in Italy today.

It galled her that even with her competence and fluency in five languages, it was nearly impossible to land a paying job. Working as an unpaid trainee lawyer was bad enough, she thought, but doing it at Italy’s social security administration seemed too much. She not only worked for free on behalf of the nation’s elderly, who have generally crowded out the young for jobs, but her efforts there did not even apply to her own pension.

[…]The outrage of the young has erupted, sometimes violently, on the streets of Greece and Italy in recent weeks, as students and more radical anarchists protest not only specific austerity measures in flattened economies but a rising reality in Southern Europe: People like Ms. Esposito feel increasingly shut out of their own futures. Experts warn of volatility in state finances and the broader society as the most highly educated generation in the history of the Mediterranean hits one of its worst job markets.

[…]The daughter of a fireman and a high school teacher, Ms. Esposito was the first in her family to graduate from college and the first to study foreign languages. She has an Italian law degree and a master’s from Germany and was an intern at the European Court of Justice in Luxembourg. It has not helped.[…]Even before the economic crisis hit, Southern Europe was not an easy place to forge a career. Low growth and a corrosive lack of meritocracy have long posed challenges to finding a job in Italy, Greece, Spain and Portugal. Today, with the added sting of austerity, more people are left fighting over fewer opportunities. It is a zero-sum game that inevitably pits younger workers struggling to enter the labor market against older ones already occupying precious slots.

As a result, a deep malaise has set in among young people. Some take to the streets in protest; others emigrate to Northern Europe or beyond in an epic brain drain of college graduates. But many more suffer in silence, living in their childhood bedrooms well into adulthood because they cannot afford to move out.

“They call us the lost generation,” said Coral Herrera Gómez, 33, who has a Ph.D. in humanities but still lives with her parents in Madrid because she cannot find steady work. “I’m not young,” she added over coffee recently, “but I’m not an adult with a job, either.”

[…]Indeed, experts warn of a looming demographic disaster in Southern Europe, which has among the lowest birth rates in the Western world. With pensioners living longer and young people entering the work force later — and paying less in taxes because their salaries are so low — it is only a matter of time before state coffers run dry.

“What we have is a Ponzi scheme,” said Laurence J. Kotlikoff, an economist at Boston University and an expert in fiscal policy.

He said that pay-as-you-go social security and health care were a looming fiscal disaster in Southern Europe and beyond. “If these fertility rates continue through time, you won’t have Italians, Spanish, Greeks, Portuguese or Russians,” he said. “I imagine the Chinese will just move into Southern Europe.”

The problem goes far beyond youth unemployment, which is at 40 percent in Spain and 28 percent in Italy.

[…]“This is the best-educated generation in Spanish history, and they are entering a job market in which they are underutilized,” said Ignacio Fernández Toxo, the leader of the Comisiones Obreras, one of Spain’s two largest labor unions. “It is a tragedy for the country.”

Yet many young people in Southern Europe see labor union leaders like Mr. Fernández, and the left-wing parties with which they have been historically close, as part of the problem. They are seen as exacerbating a two-tier labor market by protecting a caste of tenured older workers rather than helping younger workers enter the market.

For Dr. Kotlikoff, the solution is simple: “We have to change the labor laws. Not gradually, but quickly.”

Yet in Greece, Italy, Portugal and Spain, any change in national contracts involves complex negotiations among governments, labor unions and businesses — a delicate dance in which each faction fights furiously for its interests.

The left think that education creates jobs. But education by leftists creates ignorance and resentment. Capitalism, corporations, property rights, the rule of law, and tax cuts create jobs. The unions that control left-wing parties like the Democrats are the ones to blame for blocking labor law reform that would create economic growth.

It’s sad, but not too sad, because you have to remember that the young generation is mentally challenged, and they overwhelmingly turn out to vote for more and more socialism – higher taxes, global warming alarmism, and bigger social programs. They just don’t know what the effects will be of their voting until they reach their 30s.

Young people are economically ignorant, but at the same time incredibly arrogant in their ignorance. They want to be cool and trendy, and to vote the way they were taught to vote by the media and Hollywood celebrities. They want to vote for the Peter Pan economics that their teachers and professors taught them – using the red marking pen as a whip to scourge them into submission.

Consider this editorial in Investors Business Daily.

Excerpt:

Heading into the new year, there’s plenty of optimism about the stock market rising, corporate profits recovering and companies hiring. There’s just one problem on that last jobs item: Many will be overseas.

On those rare occasions when it’s not demonizing businesses as bastions of corporate greed, the White House and all its supporting players spend their time pondering why U.S. businesses, with mountains of cash, won’t use at least some of it to hire workers. A mere 900,000 jobs were created in 2010, while U.S. companies sat on $1.1 trillion in cash.

Last week, President Obama went so far as to meet with 20 CEOs for several hours over this, “asking the attendees to dialogue with him on a shared agenda focused on moving our economy forward,” according to a White House statement.

We don’t have any inside lines as to what was said, but news is trickling out the Obama administration is starting to think about doing something big to end the jobs drought in the U.S.

The something big would be to lower the U.S. corporate tax, which at 35%, stands as the second-highest in the developed world. President Obama only told NPR that he discussed “simplifying the system, hopefully lowering rates, broadening the base.”

If so, and if there are no accompanying sleights of hand to extract cash from businesses some other way, as some reports have it, it’s good news. Nothing inhibits the creation of U.S. jobs quite like high corporate taxes and their accompanying regulatory regime.

The fact is, companies sitting on cash aren’t doing nothing. They’re hiring overseas, creating 1.4 million jobs in 2010 alone, according to the Competitive Enterprise Institute.

That’s not because they prefer foreigners to Americans, but because the bad business climate here pushes them to do so.

The rest of the world is a vastly different place from Obama’s U.S., which is characterized by high taxes and protectionist set-asides for politically connected unions that shut out free trade.

In places like Indonesia, Singapore, Taiwan, India and Thailand, nobody demonizes business or blasts trade. Instead great efforts are made by the state and the private sector to draw in foreign investment by becoming more competitive than their rivals.

U.S. multinationals go to these places not because labor is cheap but because these policies also create boomtowns with lots of customers. Incredibly enough, sometimes overseas profits and jobs provide a lifeline for troubled U.S. companies back home. Take GM — today, its Brazil and Korea operations help keep it afloat.

Growth in the 8% to 9% range is typical in Asia.

The young are so busy swallowing slogans and persisting in a taxpayer-funded extended childhood in the schools that they cannot come up for air for a second to understand how the economy really works. All they do is get their worldview from Comedy Central and Michael Moore movies. And when reality asserts itself, they throw rocks through windows to protest as their entitlements are taken away. A generation of barbarians, raised by unionized taxpayer-funded socialist educators who know nothing about life outside of their sheltered ivory tower.

eading into the new year, there’s plenty of optimism about the stock market rising, corporate profits recovering and companies hiring. There’s just one problem on that last jobs item: Many will be overseas.On those rare occasions when it’s not demonizing businesses as bastions of corporate greed, the White House and all its supporting players spend their time pondering why U.S. businesses, with mountains of cash, won’t use at least some of it to hire workers. A mere 900,000 jobs were created in 2010, while U.S. companies sat on $1.1 trillion in cash. 

Top academic warns of collapse of European economy

From the SA Times Live web site – top academic warns of economic collapse in Europe. (H/T Mary)

Excerpt:

Dennis Lachman, a professor in economics at Georgetown University and a resident fellow at the American Enterprise Institute for Public Policy Research, said at a conference on monetary policy and financial stability at the Reserve Bank on Thursday he has little doubt about this.

“The only question is how long the governments in the northern part of Europe can keep kicking the can forward by financing a trillion dollars here and a trillion dollars there to keep the party going for a little bit longer.

“We are talking about a currency arrangement that was flawed from the start.”

Lachman said the default of Greece or Ireland by the end of next year was another certainty.

“The important thing is that we are not talking about problems only in Europe’s periphery; we are talking about problems in the European banking system.

“Their inter-linkages with the European banking system makes this of concern. It is not only for the European economy, but what we have learned from the Lehman (Brothers) debacle and the sub-prime debacle is that these kinds of crises have a habit of being global in scope.”

Lachman said at the end of 2009 the exposure of French banks to the so-called PIIGS countries (Portugal, Ireland, Italy, Greece and Spain,) was around 37% of France’s gross domestic product. For Germany the exposure is 21% of GDP.

A write down of the debt of these countries would thus result in a shock for economies that haven’t fully adjusted to the Lehman shock, he said.

A euro crisis would coincide with the US economy either double-dipping or flirting with a double-dip, Lachman said.

I found two related videos on Verum Serum.

Austerity measures:

Rioting in Ireland:

The good news is that Americans have voted to avoid this dismal fate by electing Republicans. But we’re not out of the woods yet. But it’s definitely a good time to reduce your spending and start saving for a rainy day, and making a plan.

I’m struggling right now, because this is all happening too fast and my plan requires at least 3 years to execute… GAH! I didn’t expect this would happen so fast. I hope the House Republicans can put the brakes on the spending.