LyrArc Article Gist
Breakdown of negotiations between Greece and EU finance ministers led by Dijisselbloem of the Netherlands on February 16, 2015. Dijisselbloem says the best way forward is for Greece to take a 6 month extension of the current program, because more time is needed to work out the details. Finance minister Varoufakis of Greece says Greece should not have to make cuts that are clearly recessionary. The bailout ends on Feb. 28. Without an agreement reached Greece loses access to 7.2 billion in funds from the EU, needed to make repayments due in March.

LyrArc Article Gist
Charles Dallara, managing director of the Institute of International Finance, which represents large global banks, describes the deal that was reached by eurozone leaders for restructuring Greece's debt in July 2011. He was one of the key negotiators. He says the agreement helps prevent contagion to Spain and Italy, and helps increase confidence in banks. By showing the losses are better understood and seen as manageable conveys a message that builds confidence for the banks and for the EU. And the effort to create the conditions for growth in Greece will make all the difference, he says. The Institute of International Finance estimates the deal will cost the banks and other investors $54 billion. Dallara says the turning point in the talks came in mid-July when European governments agreed to a plan for banks to swap Greek debt for new securities, backed by collateral.The focus then shifted to shaping the details. Josef Ackermann, chief executive of Deutsche Bank and chairman of the International Finance Institute, used his skills to pull the package together with European leaders. Dallara has experience going back to his days working on the negotiations for the Brady deal for Latin American debt in the 1980's. The Brady deal was also designed around banks swapping the old bonds for new ones with longer maturities and reduction of principal, and lower interest rates. In return the banks were given guarantees of repayment removing uncertainty- through 30 year U.S. zero coupon bonds- and making it possible for banks to start anew. The reduction of principal in the July 2011 eurozone agreement is around 20%, the Brady reduction was much larger, around 30%. This suggests eurozone governments are putting up more of the funds in this situation with the weaker condition of banks which may need to be recapitalized at some point, and the preservation of the euro itself at stake....

LyrArc Article Gist
IG Metall, the union representing 3 million workers in metals and engineering industries, negotiated a 4.3% wage increase over 13 months. The union had asked for a 6.5% increase. Unions won wage increases of more than 6% in the public and telecommunications sectors. Workers in chemical, agriculture and hotel industries are pushing for increases of over 6%. The union wage negotiations help set the pattern for wage increases for the 41 million employed workers in Germany. This will help France and other EU countries close the gap with Germany in wages and improve competitiveness.

LyrArc Article Gist
About $229 billion, three fourth of Greece's debt, is now held by the European Central Bank, the IMF and the European Commission. This is taxpayer money and the governments are making sure that they get back bailout loans in the form of interest payments. About two thirds of the $177 billion given to Greece as bailout loans since May 2010 actually came back to the ECB, IMF, and the EC, in the form of interest. The ECB is keen on recovering taxpayer money. The money route has been setup with an escrow account in Greece for bailout loans so that interest payments get paid, and this money cannot be used for any other purpose. Banking experts say this is a practice in risk management, and with Greece's poor record in finances the controls have been put in place to recover money the ECB invested in Greek bonds in an effort to calm nervous financial markets and now gets about 10% in annual interest payment. Under earlier debt restructuring for private creditors to Greece a haircut of over 50% on Greek bonds was taken, with the ECB insisting on receiving full payment. If Greece were to repudiate the loans under a new elected government losses would have to be taken by the ECB, IMF, and EC, and by private creditors. The ECB has Greek bonds in the range of $44 billion to $69 billion, and the European Financial Stability Facility $88 billion, by some estimates. Greece's exit from the euro would result in losses on these bonds .for the ECB and the EFSF, ultimately European taxpayers. It would also make the new bonds to private creditors under the restructuring of little value which is why European banks would not favor that outcome. Greece's tax receipts at some point, possibly 2013, would exceed basic operating expenses of the government, at which point a future Greek government might decide to exit the euro and stop interest payments on debt in its best interest....

LyrArc Article Gist
Nikos Voutsis, Greece's interior minister, says Greece lacks the money to make debt repayments of 1.6 billion euros to the IMF in June 2015. A proposal by the Left Platform, a faction within Syriza party led by energy minister Lafazanis, which has support of 30 of the 149 Syriza representatives in the Greek parliament, calls for not making debt repayments and looking for an alternate plan. It was defeated by the central committee of the Syriza party on May 24, 2015, with the vote 95 to 75 showing intense opposition within Syriza. Instead Syriza voted for a proposal to call for mutually beneficial negotiations and a deal that would preserve its core goals- a low target for the primary budget surplus, avoid more cuts to pensions, and restructuring Greece's debt to include an investment plan for economic recovery. Both sides in the negotiations, the EU/IMF and Syriza government in Greece, reached an impasse as the negotiating tactics of finance minister Varoufakis led to German finance minister Schauble also taking a tougher stance, saying he could not rule out Greece defaulting on its debt. ...

LyrArc Article Gist
Italy's prime minister, Monti, says he will submit his "irrevocable" resignation, after about 1 year in office, following the withdrawal of support from Berlusconi's People of Liberty party. He told president Giorgio Napolitano he would make an effort to pass the budget and a financial stability law to defer "the consequences of a government crisis" before turning in his resignation.

LyrArc Article Gist
Mark Gilbert, a visiting associate professsor of European History at the John Hopkins School for Advanced International Studies in Bologna, describes the crisis of the political culture in Italy that goes deeper than the economic crisis and has lasted for most of the post war period. Gilbert says the political parties have avoided implementing financial discipline and opening up the economy for most of the last two decades, except for brief periods, and did not take the opportunity of joining the eurozone to make serious changes. Italy has many parties with the Democratic Party having 25-30% support in the polls and Berluconi's People of Liberty (PdL) having the support of 20-25% of voters. There is also the Northern League, the Third Pole of centrist Catholic parties, the Italy of Values party, and the Ecology Freedom party. Italy lacks a national consensus on making the changes. The risk is that Monti will not have enough time to make the changes, as new elections may be held by April 2013. His government was formed as a government of technocrats led by former EU commissioner Mario Monti, after President Napolitano forced the PdL, the PD, and the Third Pole to work together to support the new government. Changes are needed in the legal system, local government, the health sector, and in the university system. One factor favoring Monti is that 90% of Italians voters are dissatisfied with the political parties, according to Italian think tank ISPI. For Italy the EU crisis has in this sense a positive aspect as it has forced Italy to come to grips with economic and cultural changes under a leadership from outside the political system....

LyrArc Article Gist
Macron is a close advisor to president Hollande since 2008. With the resignation of Montebourg as Economy Minister, Hollande offered the position to Emmanuel Macron to help improve conditions for business and increase investment in France. Macron pushed measures for changes through parliament by resorting to constitutional provisions because of opposition from the president;s own Socialist party members. Prime minister Valls was able to win the no-confidence vote that followed. In the 4th quarter of 2014 GDP growth in France was only 0.1%, lagging behind Germany at 0.7%. The economic stagnation has pushed Macron and the president to take more risks in overcoming resistance within the Socialist Party to relax labor restrictions and increase business investment. Macron says he agrees with investors that the 2 year tax of 75% on salaries of more than 1 million euros

LyrArc Article Gist
Failure by EU leaders to take early and decisive action to reduce Greece's debt to sustainable levels in 2009. This was when the IMF report by Dutchman Bob Traa blew the cover off the Greek coverup of deteriorated finances. Policy missteps included ECB president Trichet and other EU leaders pushing austerity measures and not taking needed tough action on reducing the debt. By November 2011 a 50% reduction in debt with bondholders taking the losses is not enough to correct the situation. Greece's debt is discounted by 70% by Nov 2011. Analysts estimate an 85% reduction in Greek debt being necessary for Greece to pull through without a default.

LyrArc Article Gist
The ECB's executive board's proposal is for 50 billion euros ($58 billion) in bond buying each month for the next 12 months. The ECB's executive board meets on Jan 20, 2015, to discuss the proposal.

LyrArc Article Gist
A report released by the Organization for Economic Cooperation and Development (OECD) shows growing income inequality in 34 OECD countries. OECD Secretary General, Angel Gurria says: "The social contract is starting to unravel in many countries. This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that the greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, income inequality will continue to rise." Countries with the largest ratios between incomes at the top and the bottom, are the United States, Turkey and Israel, roughly 14 to 1. Germany, Denmark and Sweden have ratios of 6 to 1, with their ratios up from the 1980's. Gaps in Chile and Mexico are at 25 to 1. The study covers the period from 1980 to 2008. Overall inequality went up by 25% in the U.S. from 1980. In 2008 the top ten percent in the U.S. earned $114,000, 15 times than incomes for the bottom 10%. The top 1% of Americans saw incomes go up from 1980 to 2008, increasing from 8 percent to 18 percent. The richest 1% having $1.3 million in after tax income, and the lowest 20% making $17,700. The trends have accentuated an increase at the highest end- the top 1% and top 10% of the people- and a sharp decrease for the bottom 20%, which can be grasped from the $17,700 and the $1.3 million, both at extreme ends. The study attributes the rise in inequality to a growing gap in wages for highly skilled workers as technology advances, a surge in foreign direct investment and a looser regulatory regime that reduces employee protections leading to wage premiums for financial jobs and smaller incomes for workers at the bottom. Income groups and professions and sectors that had the greatest influence in government were able during this period to get the greatest protection for incomes, and able also to maximize their incomes. Incomes in the financial sector increased dramatically in the last decade, as a result of deregulation leading to higher risk and speculative activities in the financial sector, leading to the financial crisis of 2008-2009. Financial crises further depress incomes at the lower end. Similiar income inequality trends can be seen for India and China. China has a Ginni coefficient of 0.5 according to researchers at Beijing Normal University, up from 0.3 three decades ago- a Ginni Coefficient above 0.4 is considered destabilizing. Another factor that played a part in these countries is corruption and lobbying by special interests for favored treatment of sectors or groups. Austerity measures taken in Europe and in the U.S. are likely to widen income gaps by depressing the lower end income groups, creating social unrest, especially in the absence of efforts to stimulate growth....

LyrArc Article Gist
Elsa Fornero is an economics professor who is Labor Minister in the government of Mario Monti. After several decades Italy has finally tackled the much needed changes to the 1970 Workers' Charter that forms the basis of Italy's labor laws. The Charter protected workers jobs but was designed during a different period and had long since lost its relevance in a modern economy. The laws led to Italy losing its competitiveness and entrenched small family firms in the economy. The new labor law protects the individual instead of jobs, by increasing the safety net to cover unemployed workers for shorter periods and lower benefits, and makes it possible for firms to layoff employees for economic reasons. Fornero says Italians need to recognize that work is not a right to be enshrined in laws but something that is earned through hard work. Article 18 of the Worker's Charter was originally intended to remove discriminatory practices in the workplace, but was enlarged to provide blanket protections to workers so that companies could not fire workers and avoided hiring. Under the new law discrimination is illegal, but now companies can layoff employees for economc reasons and not face long legal disputes and be forced to rehire the workers. The new law will increase productivity says Marcello Giustiniani, a labor specialist at Milan law firm Nonelli, Erede & Pappalardo. Italy's productivity gap with Germany has widened to over 30% since the introduction of the euro. The ASPI, new unemployment insurance plan, goes into effect in 2013, older programs will be phased out by 2017, giving time for the culture change in Italy for workers and business. Another major change is designed to help 2 million workers earning less than 18,000 euros. Businesses will have to give these workers proper contracts. Fornero's effort to tackle the pension system also includes linking retirement checks to how much is contributed over the lifetime- a practice common in other countries- not the final and highest salary. This simple change was not not implemented by 10 governments since a law was passed in 1995, showing why the Monti government was needed to get things done....

LyrArc Article Gist
Germany benefits from the lower value of the euro in relation to other currencies. Germany's exports to the eurozone as a percentage of all exports increased from 38.4% in 2009 to 41.7% in 2011, according to the Germany Federal Statistical Office and the German Chambers of Industry and Commerce. Exports to China increased from 4.64% to 6.11%, and to Asia from 11.8% to 13.73%, and to the U.S. from 6.77% to 6.95%. This increases the gap between Germany and other eurozone countries with smaller exports. Ireland with its large export base and foreign investment is likely to benefit from the lower euro. German companies VW, BMW, Mercedes, Heidelberg Cement and EADS also benefit from the weaker euro. France's Peugeot with sales concentrated in Europe does not benefit from the weaker euro compared to German auto companies with higher sales overseas, especially in China.

LyrArc Article Gist
Austin Goolsbee says the overvalued currencies of Italy, Greece, Spain and Portugal and the lack of growth under austerity plans proposed for these countries create impossible odds for resolution of the financial problems in these countries. The German position is that profligate spending and irresponsible accounting in Greece, and structural issues in Italy ranging from entitlement spending to tax evasion, need to be resolved.

LyrArc Article Gist
Criticism of the EU's handling of the Greece crisis by IMF officials in a report. The report says the actions taken for debt restructuring in 2012 should have come much earlier to reduce the debt burden and the size of austerity measures in Greece. Similiar criticism has been voiced by president Hollande of France and in editorials by the WSJ. President Samaras of Greece says the sharp cuts in spending reduced potential for growth in the economy.

LyrArc Article Gist
Germany's chancellor Merkel sees Britain as necessary for Europe and the European spirit. This even though she has differences with British prime minister Cameron on how to elect the new president of the EU following EU parliamentary elections in May 2014. She told the German parliament in June 2014- "Britain is really no cozy partner. Yet Germany and Britain share values and interests. I consider it grossly negligent, in fact unacceptable, how easily some people say that it is really all the same whether Britain goes along or not, or more: whether Britain remains a member of the European Union or not."

LyrArc Article Gist
The facts that guide one's understanding of what is happening in Greece relate to the size of the public sector for a small country like Greece, and the failure of people from all classes of society from cab drivers and civil servants to small business and the shipping industry, to pay taxes. These two twin facts and a splurge of spending during and after the 2004 Olympics without proper and correct account keeping, has brought Greece to its present situation. One estimate is that every Greek person would owe 27,000 dollars, that is how much the national debt has swollen to- a massive 300 billion euros debt for a small country. This is 115% of its GDP. And the public sector spending simply went unchecked by different governments trying to win votes. Estimates are that the public sector makes up 40% of Greece's GDP, and government workers are 15% of the active workforce. Not paying taxes has become a societal trait in Greece, as a result the government does not collect an estimated 25 billion euros a year in taxes each year. And this does not include the taxes that would be paid if owners in the Greek shipping industry were to not take advantage of an exemption from paying taxes granted by the government. The result- Greece's socialist government of Prime Minister Papandreou has accepted a $110 billion euro bailout from the European Union and the IMF which comes with cuts in public spending and austerity measures designed to reduce the deficit form 13.6% of GDP to 3% in 3 years. Its important to understand what is happening in Greece, because from Prime Minister Cameron in Britain (with his cuts in government department spending of 25% over 5 years), to Prime Minister Naoto Kan of Japan (with a planned doubling of the sales tax), the mood in Europe and Japan is shifting to austerity measures that would correct excessive government spending. In Greece Papandreou and his ministers are making serious efforts to change a culture of not paying taxes. See the groups and links for Papandreou and Greece....