Tuesday, May 24, 2016

Ponters Pensées 24.5.16

Spanish (non)Government: Can it be that the charisma-less Marion Rajoy is about to emerge triumphant from the repeated elections next month, having seen off – at least for now – the prospect of a Catalan referendum and the threat from the Left? Much as I hate to admit it, this is looking more and more likely, as what's left of Spain's middle class is increasingly viewing the right-wing PP austerity party as the the least worst option. Especially when compared with the Podemos-IU coalition, which makes Jeremy Corby's UK Labour party look like neo-conservatives. Said middle class, by the way, is said to have lost 3m members, as result of the economic havoc wreaked by La Crisis.

More Police Abuse: Down in Madrid, a woman has copped an on-the-spot fine for carrying a bag that declared "All Cats Are Beautiful", plus the acronym ACAB. Despite the fact it also carried the image of a cat, the police claimed this stood for "All Cops Are Bastards". The relevant law is the ludicrously misnamed Citizens Security Law, which criminalises 'disrespecting' the police. In their judgment. I'd hazard a guess the police are even more disrespected now, as a result of this action. Can one imagine this happening elsewhere in Western Europe? Not sure about Eastern Europe.

Spain v the USA: My net colleague Lenox of Business Over Tapas cited this blog post the other day, describing it as 'silly'. I think it's very illustrative.

The EU: See The Times article at the end of this post for a sceptical view of what's being done – or not – to solve the Greek debt crisis.

The Brexit: My personal view aside, I've always insisted this isn't going to happen. The leading brain of the Out camp, Dr Richard North, long ago despaired of the strategy and tactics of his (estranged) colleagues in this movement. Today he sums things up thus: All Vote Leave needed was a sensible exit plan and most of the scaremongering would have evaporated. Instead, they based their campaign on a lie and chosen a serial liar[Boris Johnson] to lead it, having rejected the very idea of an exit plan. The last comment is a reference to his own detailed plan, Flexit. You can read this here. Though I very much doubt that (m)any of you will do this. The guy deserves a medal of some sort.

Galician Gypsies: Shoot-outs between different clans are not uncommon here. But I imagine everyone in an Ourense hospital was rather surprised by the one which took place there a while ago. At the trial last week, the defence of the accused was based on the claim that “They started it a while ago. In another place”.

Pontevedra Internet: After 16 years of complaints about only getting 0.5 megas, Telefónica have finally extended their cable network up our hill overlooking Pontevedra. Given that they'll surely get 100% take-up of '300 megas' at €62-82 per month, I'm lost as to why this took so long . I say €62-82 but the flier from Telefónica neglected to tell us there's also a 30 megas option at €50. Much better, of course, than €25 for 0.5 megas but still probably way above what you'd pay elsewhere in Europe. Is it any surprise that the Telefónica board is stuffed with ex-government ministers?

Finally . . . RT TV: Yesterday morning: Russia hasn't invaded any country – not Georgia, not Crimea, nor Ukraine. Anyway, Georgia started that war. Russian is not guilty of any aggression at all. It's all anti-Russian Western propaganda. Reflective of the meme of a 'dangerous Russia'. It's laughable. Thank God younger people have access to get the truth from the internet.

Why the EU is keeping quiet about Greek debt.     Ed Conway

In the 5th century BC the Greek philosopher Zeno described what became known as his paradox. An arrow fired towards a target will cover half the distance to the target, then half what remains, then half what remains after that, and so on. On this basis, while the arrow might get ever closer to its target, it will never actually hit it.

Zeno’s paradox isn’t much cop in the real world, or archery contests, but it does at least help to explain modern Greek economics: the closer we get to a deal, the more apparent it is that the country’s crisis will never be fully resolved.

In case you haven’t been following Greece recently, here are the three things you need to know.
First, in spite of various “deals” hatched over the past few years, most recently the bailout last summer, the country still faces the same problems it always has. Growth is non-existent. In fact the economy is shrinking again, by 0.4 per cent in the first quarter of 2016. Total national income is smaller than it was before the turn of the millennium. House prices are still falling and are now barely more than half their pre-crisis value. Shop prices are down too, leaving the country in deflation, while unemployment is still running at almost 25 per cent, or more than 45 per cent of under-25s. The national debt is set to reach about 200 per cent of gross domestic product this fiscal year according to the International Monetary Fund’s most recent analysis, which is already out of date.

The second thing to remember is that Greece’s creditors are divided. Most economists believe the country cannot recover unless a significant chunk of its debt is simply written off. However the majority of that debt is now owed not to private investors but to other eurozone governments. The Germans have resisted any immediate effort to cancel the debts; the IMF says it will not take part in future bailouts unless Germany does precisely that.

Third, the participants are doing everything they can to disguise the crisis until Britain’s referendum is out of the way. One thing worse than Greece being thrown out of the euro would be Britain leaving the EU, so the more they can suppress news of the continent’s own entrenched problems the better. It is worth being more sceptical than usual about any apparent breakthroughs in the coming weeks.

There are two ways of helping Greece, both of which originate from the UK

Eurozone finance ministers meet on Tuesday for another effort to resolve the crisis. We are told that creditors seem to be putting aside their differences, which is excellent news if it is to be believed. Behind the scenes they are hatching plans to extend the maturity of Greece’s debt so that some of it is not repaid until as late as 2080. Another idea is to hive off some of the debt owed to other eurozone countries to the European Stability Mechanism, which is more or less the same as mutualising it into Europewide debt.

While such proposals would be progress, they pussyfoot around the real issue, which is that Greece will never be able to pay off its debts. Quite simply, the liabilities have risen far beyond the country’s capacity to service and repay them.

Since the crisis began half a decade ago, the strategy has been “extend and pretend”: keep Greece on life support and hope that the country’s economy eventually recovers. In some cases, such plans work a treat, but in Greece it has clearly failed. Some 16 years of economic progress has been wiped out; national income has collapsed by 28 per cent — greater than anything witnessed in a developed economy. Now, once again, Greece is close to running out of money, unable to make its July debt repayments of €300 million to the IMF and €2.3 billion to the European Central Bank.

Yet there are at least two other ways of reducing the effective debt burden without forgetting it entirely, both of which originate not from Brussels but from the UK.

The first would be to do what Britain used to do when faced with enormous war-sized debts, and issue war loans. Consols, as they are sometimes called, are perpetual loans for which the borrower makes regular interest payments but does not repay the debt itself until they see fit, perhaps centuries later. George Osborne repaid some of Britain’s First World War debt only a couple of years ago.

Far better for Greece to convert its debts into consols and remove those painful capital repayments altogether than to pretend that they will be repaid in 2050 or 2080.

The second idea comes courtesy of the Bank of England, which for the past year or so has been quietly working on plans to create bonds linked to gross domestic product. Given that a country’s capacity to pay its debt often hinges on its national income, the attraction of such instruments is clear. Borrow in GDP-linked bonds and when your economy faces a recession, your liabilities shrink alongside your economy rather than ballooning out of control as they did for Greece.

Some countries, Greece included, have issued some primitive GDP bonds in recent years but they have been crude and niche. With the Bank poised to agree standards on such bonds, that might be about to change.

Such ideas might seem outlandish but finding a remedy for unsustainable sovereign borrowing is not just a Greek imperative. From the UK to the US and beyond, the world is more mired in government debt than it has been for decades. Either it will need to be paid back or, like Zeno, we must find a way of ensuring the arrow never reaches its target. Greece might be a useful test case for the rest of us.

I mentioned that Telefónica is bringing cable up ou hill: Here's a view or 2 from my eyrie above Pontevedra:

1 comment:

Sierra said...

Apparently it's not just expat. houses in the South: