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The cost of the first bailout for Greece of May 2010 is 53 billion euros for eurozone funds and 20 billion euros for IMF funds, according to the European Commission. The cost of the second bailout for Greece of March 2012 is 142 billion euros for eurozone funds and 12 billion euros for IMF funds. The eurozone took back 11 billion euros following the failure of negotiations.

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In an interview with the Wall Street Journal Deutschland, Hans Werner Sinn, head of the Ifo Institute in Germany, says Greece's bondholders are overly exaggerating the effects on the eurozone of an exit by Greece. He sees it in the best interests of Greece to improve its competitiveness and return to growth by going back to the drachma. Just to get to the level of Turkey Greece would need to reduce prices by 31%, which is impossible to do within the eurozone without risking a complete breakdown in civil order. The best way to use the 130 billion euro second bailout package is to use it to recapitalize its banking system, says Sinn. Sinn says Portugal's faces the risk of a debt crisis following the crisis in Greece.

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Italy's budget deficit was brought down to 3% of GDP in 2012 under Mario Monti's government. The cost of austerity measures is a expected economic contraction of 1.8% in 2013, according to OECD and Moody's forecasts. There is intense opposition in Italy to the 4 billion euro property tax. The right wing parties under Berlusconi have called for this tax to be cancelled and reimbursing of 2012 payments. Italy's 2013 budget also assumes a one percentage point increase in the value added tax rate, a 4 billion euro additional tax. The new prime minister of a technocratic government, Enrico Letta, faces a delicate balancing act to keep the coalition of the right and left parties together, and still keep the confidence of the EU that Italy will control its deficit. The OECD expects the deficit to grow by half a percentage point in 2013-2014 as steps are taken to promote economc growth.

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Mario Monti, the new prime minister of Italy, is taking on one of Italy's toughest problems, a pervasive culture of tax evasion. The loss to the economy is not measured ony in terms of the loss of money to the Treasury, which one estimate puts at $340 billion a year. This burdens companies and the manufacturing sector with higher taxes and reduces investment in new plants, research and development, capital equipment, which would increase jobs. By encouraging this culture of tax evasion Berlusconi undercut and jeopardized his own plans to bring new economic growth to Italy. Berlusconi prevented allegations of false accounting against his companies by passing a law through parliament that made reduced penalties for false accounting. In Italy one saying goes that "only fools pay." In a country of 60 millon people only 394,000 people earn an income of more than $135,000 a year. "Evasion totale," referred to in newspapers in Italy is about total evasion by some owners of large property. One effort in parliament is to introduce legislation that would require the use of debit or credit cards, electronic transfer or other similiar methods of payment for amounts above a certain amount- with one of the amounts proposed being 100 euros. A recent poll by Demopolis showed that 73% of Italians polled want to see strong action to prevent tax evasion. This is also a strong reason why Monti, Draghi at the ECB, Bundesbank officials at Germany's central bank, and German chancellor Merkel, do not see the ECB's large scale buying of eurobonds by essentially printing money as a solution to eurozone debt problems- it puts off taking the neccessary and essential steps for reviving eurozone economies....

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Consumers are taking on new loans for cars and purchases such as refrigerators, but at the same time businesses and consumers are paying off debt at a faster rate. The sharp decline in the Euribor rate in 2015 is good news for Spanish consumers and business as most loans are tied to the Euribor rate. Yet memories of the severe downturn in the Spanish economy are leading to consumers reducing debt with reluctance to take on new loans. The result is that even though Spain's economy is expected to show 3% growth in GDP in 2015, the loan levels at Spanish banks are expected to remain flat in 2015 over 2014. The IMF says GDP will not reach precrisis levels till 2017, reflecting how deep this downturn has been in Spain. IMF forecasts show that debt held by Spain's businesses and households will be double economic output till about 2020.

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A proposal to transfer debt in excess of 60% of GDP of all eurozone countries into a single fund to be paid off in 25 years is gaining attention in Germany. It is seen as finding acceptance with Germany's Constitutional Court. Angela Merkel, the German chancellor, says eurobonds are unconstitutional in Germany. Germany calls instead for greater European integration and transfer of powers from sovereign governments to a European banking supervisory authority. In early June 2012 discussions continued in Berlin between Manuel Barroso, president of the European Commission and Angela Merkel of Germany. The German position is summarized in the words of German finance minister Schauble, when he said that Germany could not hand over its credit card to other countries.

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Thomas Sargent of New York University, the 2012 Nobel prize winner in economics, says the EU leaders can learn from the way the federal government in the U.S. handled the issue of state's debt when it came up in the 1790's and in 1840. In 1790 the federal government- under the leadership of Washington and Hamilton- saw the need to honor state's debt because of the contribution made by states in the war of independence and the U.S. assumed state's debt. In 1840 the U.S. refused to assume state's debt and states went into default. The result was beneficial because state's passed balanced budget rules and restrained reckless spending. Another benefit was that this preserved state rights to manage their finances and the federal structure setup under the constitution.

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The Italian government's austerity measures and changes to promote economic growth are facing criticism including the threat of a general strike by the CGIL trade union. Italy's business lobby Confindustria, said the government plan for new taxes on incomes above 90,000 euros of 5%, and on incomes above 150,000 euros of 10%, over three years, risks sending Italian management talent overseas. Ferrari chairman told the daily, Corriere della Serra, the government's plan does not address tax evasion and other structural problems in the Italian economy. The head of Italy's largest trade union, CGIL, expressed her opposition to the plan to let companies and unions make their own contracts that opt out of rules that make it illegal to fire an employee without "just cause."

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The IMF's changing views on the value of fiscal austerity. In the current debate about the value of fiscal austerity, there is the IMF view, a German view based on its own experience, and the views of other countries in Europe. The IMF's view has shifted over time. The IMF World Economic Outlook 2010, describes its view of the effects of austerity measures in the form of spending cuts and tax increases- "Fiscal consolidation typically has a contractionary effect on output. A fiscal consolidation equal to 1% of GDP typically reduces GDP by about 0.5% within 2 years and raises the unemployment rate by about 0.3% percentage points." Over the longer term there are benefits as the private sector is not crowded out in the search for captal funding by the excessive government borrowing. The IMF's economic models suggest that it would take 5 years before reaching the breakeven point when the benefits of austerity measures exceed the effects of austerity. The German view held by German central bankers is that the actions stimulate growth in the short term. Manfred Neumann, professor emeritus at the Institute for Economic Policy at the University of Bonn, says this is called the "German hypothesis" as it reflects the experience of Germany from austerity actions taken by Germany. Laurence Ball, professor of Economics at John Hopkins University, is critical of the "German hypothesis" and its application across Europe in different situations. Germany is a large exporting nation and exports helped counterbalance the effects of austerity measures. Within the eurozone with fixed exchange rates the exports of less competitive countries cannot be boosted through devaluing the currency to gain price competitiveness. The other problem is that with interest rates close to zero in the euro zone the central banks cannot cut rates aggressively to counteract the effects of spending cuts. The problem gets compounded when a number of countries are taking austerity measures at the same time accentuating the downturn....

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In this exceptional piece Krugman says Greece has won flexibility in the negotiations with the EU in April 2015, contrary to the media coverage. He says under the Samaras government negotiated agreement with the EU the primary surplus, the difference between the revenue and expenditures not including interest on debt, would have to be triple what it would be now for the next few years. This is the only figure that matters, says Krugman, as it is the amount that is transferred to the creditors. The Syriza government plans to run only a small primary surplus, which itself involves large sacrifices in Greece with the drop in revenues from the decline in the economy. Language about future surpluses is left obscure, and Greece continues to get financing for the next few months. In other areas Syriza agreed to structural reforms in the labor market regulations, and to take strong action against tax evasion, which he describes as constructive steps on the path to economic recovery.

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Italy's major problem is lack of growth, with growth averaging 0.3% in 2001-2010 compared to 1.1% for the eurozone area. In the 1st quarter of 2011 growth was only 0.1%. Italian bonds yield two percentage points above the yield on German bunds. With growth at the present level, Italy's would see an increase in debt to GDP ratios, according to Barclays Capital. Debt to GDP is currently at 119%.

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The IMF's latest economic report says there is a very real risk that Greece's debt crisis could spread. "Contagion to the euro area, and then onwards to emerging Europe, remains a tangible downside risk," the report says. Sentiment in the financial markets is for Greece restructuring its debt, possibly as soon as late 2011. Increasingly the concern focusses on Greece never being able to pay back the $464 billion in debt, as a result pushing losses onto bondholders and banks in Europe. The IMF's director for Western hemisphere, Nicolas Eyzaguirre, said Latin America is in danger of going into a full blown economic crisis if the situation is not managed correctly with overheating in their economies. Speaking at a conference of central bankers in Rio de Janeiro, he said the Latin American region could see major weakness in currencies with an external shock such as drop in commodities prices or increase in U.S. interest rates. He said Brazil "should rein in the economy through an array of measures to avoid excessive exuberance, or it could end in tears."...

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Spain has become a highly decentralized country in the response to decades under the military dictatorship of General Franco. Regional autonomy was suppressed in Galicia, Catalonia, Valencia and other regions during that period, and the trend after the country became a democracy was a high degree of decentralization and regional autonomy. This trend is being corrected in the area of spending discipline for all areas of administration in regional and state governments through a new agreement reached between the Mariano Rajoy government and the regions, including Valencia and Catalonia. In exchange for funding and liquidity from Madrid the regional governments have agreed to accept spending controls, penalties for exceeding deficit targets, and automatic spending cuts. The new legislation is being worked out between the Rajoy administration and regional governments. Rajoy says the failure of Spain to reach its 6% deficit target- it came out at 8%- was the result of overspending of 17 regions. The 17 regions together had a deficit of 2.7% of GDP, which was twice their 2011 deficit target. The new Budget Minister Cristobal Montero says the new agreement "has great political significance," as action can now be taken with new legislation for spending discipline at all levels of public administration in Spain. ...

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Joe Nocera compares the German insistence for tough austerity measures in Greece, Italy, Spain and Portugal, to the insistence ofthe Allies for large reparations from Germany after the First World War, which Germany was not able to pay and left it bankrupt by the late 1920's. He cites the failure of orthodox positions on financial and monetary policy to tackle complex issues such as the overvalued currencies of southern Europe, as productivity moved in opposite directions between Southern Europe and Germany. Austin Goolsbee, a former chairman of Council of Economic Advisors, makes the same point in an op-ed piece in the Journal, 11/29/2011. Nocera says this position is simiiar to the position on debt reduction for homeowners facing U.S. foreclosures with government intervention, where little action has been taken worsening the housing crisis and derailing the U.S. economy.

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Yields on France's government bonds turned negative on July 9, 2012. As the pool of bonds from haven countries such as Holland and Germany is shrinking, France with its deep and sizable debt market is benefitting. France was able to sell 3.9 billion euros of 13 week Treasury bills at a yield of -0.005 and 2 billion euros of 24 week bills at an average yield of -0.006.

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Higher inflation in Germany could help rebalance the German economy by increasing imports. German inflation has averaged 1.6% since 1999, compared to 2.0 % for the eurozone. It was 2.3% in December. And after years of wage restraint German unions are increasing the wage demands. IG Metall is looking for a 6.5% wage increase. And interest rates at 1% are quite low for Germany where unemployment is down to 5.5%, according to Eurostat, and employers have to meet higher wage demands. The ECB is aiming at 2% inflation and Germany has a 26% weighting in the calculation of the rate. But as Italy, France and Spain see inflation decline there is room for addditional inflation in Germany before the eurozone goes well above the 2% inflation rate. By freezing wages and improving price competitiveness with German products, other countries could increase exports. Yet the prospects of this making a large difference is limited because German companies are likely to push for wage restraint. The Bundesbank predicts wage increases of 2.4% in 2012. Over time the wage restraint in other eurozone countries and even slightly higher wages in Germany would reverse the trend since 1999 of Germany having much lower inflation, and this could be one of the factors helping in rebalancing....

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Analysts point out that there is not much room for austerity cuts in Italy and Spain without cutting into muscle. This is because these countries have moved to make austerity cuts much earlier. Their budget deficits are actually less than what they were when they joined the euro currency zone. In the case of Italy the budget is actually in surplus, to the amount of 2% of GDP, when the financial position excludes interest on debt. And Italy has now moved to reduce the deficit to 3.9% of GDP in 2011. Under pressure from the ECB Italy has announced its aim of balancing the budget by 2013. Because both Italy and Spain have growth rates estimated at below 1% for 2011, analysts believe it is important to emphasize growth.

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China's vice premier, Li Keqiang, wil visit Spain Jan 4-6, 2011. In an editorial page article for El Pais, Li wrote that China will continue to purchase Spain's public debt in the future. China is a large buyer of Spain's sovereign debt, owning about 10% of the total foreign holdings. Spain's central government will need to raise 170 billion euros in 2011, and its regional governments an additional 30 billion euros. Natixis expects 824 billion of eurozone government bonds to be auctioned in 2011. For China the eurozone is its largest market and it is concerned abou the impact of a eurozone crisis on imports from China. A declining euro would make Chinese exports less competitive and costlier in European markets. And China is wary of the impact on its export industries at a time when its economy is trying to make a soft landing, and strains are showing with an asset bubble in real estate, too much bank lending and high inflation.