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O recente agravamento da componente pública da dívida externa é em larga medida resultado do abrandamento da actividade económica, da consequente significativa diminuição da receita com impostos, do aumento da despesa com protecção social, de juros que se tornaram imorais e da socialização dos prejuízos no BPN. Em Portugal, o Estado pode e deve gastar melhor, mas não é a razão do impasse económico a que chegámos. A componente privada da dívida externa, recebendo muito menos interesse dos mesmos eternos comentadores que o sistema lhe oferece for free, é consideravelmente maior que a pública.

Como muitos previram, as medidas pró-cíclicas de austeridade afundaram a economia e aprofundaram a divergência europeia entre o centro e periferia. Mas o quadro, de qualquer modo, estava há muito criado. Moeda única concebida à imagem e segundo os interesses da economia mais forte num espaço económico altamente heterógeneo. Credo liberal segundo o qual uma moeda comum pode existir sem orçamento comum. Tudo isto com o aprofundamento da desregulação e privatização que hoje permite aos tais ‘mercados’ condicionar profundamente as decisões dos governos que elegemos.

Trichet e FMI dizem-nos que a solução é mais do mesmo.

A pressão é enorme. Mas, como se sabe, nas coisas humanas, excepto para o fim da vida, há sempre alternativa.

Stiglitz opõem-se a este tipo de solução para a Irlanda.

Krugman diz que é má ideia para Portugal.

Munchau afirma que a Europa deve recusar globalmente esta solução: “(…) a presente negociação gira à volta de 4 pilares: gestão da crise actual; o Mecanismo de Estabilidade Europeu; um novo pacto de estabilidade que inclua supervisão orçamental; e coordenação de políticas económicas e sociais. As negociações acerca dos financiamento do Mecanismo de Estabilidade Europeu têm avançado bem, assim como as discussões acerca do pacto de estabilidade. O menos robusto dos quatro pilares é a coordenção política. A Chanceler Angela Merkel insiste num pacto de competitividade como troca pela prontidão Alemã para disponibilizar garantias de crédito. Mas como devem responder os outros países? A minha resposta é: rejeitem. Eu recomendaria aos estados membros da zona Euro que vetassem o pacto de competitividade ainda que isso coloque em causa o pacote global. Se a Alemanha não pode garantir o seu lado nesta troca, não é claro para mim por que é que alguém aceitaria uma perda de soberania – que é o que efectivamente implicaria a coordenação de políticas (…)”.

Em Portugal mais razões há para dizer não; a remuneração do trabalho não tem cessado de minguar (parcela de retribuição do trabalho em percentagem do rendimento nacional diminuiu 10% entre 1975 e 2009) e a desigualdade de rendimentos é inaceitável.

Ao contrário de anuir com a imposição de injustas medidas austeritárias, precisamos de reclamar liberdade. É necessário defender o acesso universal ao serviço nacional de saúde, o subsídio de desemprego, as pensões de reforma e demais direitos do trabalho, para poder dizer não à coerção de senhores e patrões. Caso contrário, prepara-te, isso de tu não teres classe social é engano; um lugar de caixa, trabalho à noite e fins de semana e 400 eurinhos por mês estão à tua espera. Se te portares bem.

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It is time to stop pretending that we are about to see a “grand bargain” for the eurozone in March. Last week, the political developments in Germany shifted dramatically in the wrong direction. The Bundesbank, the parliament, the small business community and influential academics have all come out openly against an extension of the various support mechanisms. German society as a whole is in open revolt against the eurozone.

The single most important event was the decision by the three coalition parties in the Bundestag to reject, categorically, bond purchases by the European stability mechanism. The ESM will be the permanent anti-crisis institution from 2013. The Bundesbank came to a similar conclusion in its monthly report. On Thursday, 189 German economists wrote a letter to a newspaper denouncing the ESM, calling for immediate bankruptcy proceedings of insolvent eurozone states. It is no longer just the constitutional court that puts a break on the process.

In last week’s column, I tried to explain the origins of that sentiment. Today, I will focus on the consequences. The best outcome, in my view, would be a failure of the current crisis resolution strategy, followed by a complete rebooting. The worst would be a never-ending stand-off, followed by a financial cardiac arrest. The most likely outcome is a very small compromise of the kind that resolves nothing.

The current bargaining revolves around four pillars: current crisis management; the ESM; a new stability pact with budgetary surveillance; and co-ordination of social and economic policies. Negotiations on the ESM’s funding have been going well, as have discussions on the stability pact. But there is no agreement on bond purchases, and no progress at all on current crisis management.

The least sturdy of the four pillars is policy co-ordination. Chancellor Angela Merkel insists on a German-inspired competitiveness pact as a quid pro quo for Germany’s readiness to provide credit guarantees. But how should other countries respond?

My answer is: reject it. I would recommend eurozone member states to veto the competitiveness pact, even if that jeopardises the entire package. If Germany cannot deliver its side of this quid pro quo, it is not clear to me why anybody would accept a loss of sovereignty – which is effectively what policy co-ordination would imply. The only reason to accept such a loss of sovereignty would be the prize of an ever closer economic union. But that would have to include a common eurozone bond at one point. Through bond purchases the ESM would eventually mutate into a European debt agency, the financial counterpart of an economic union. But if the ESM has its wings clipped from the outset, this will never happen.

There is also the problem inherent in the purely inter-governmental system of policy co-ordination that France and Germany are offering. In such a system, the large countries impose their will on the small. Just witness the arrogance with which Ms Merkel and French president Nicolas Sarkozy presented their six-point competitiveness pact at the last European Council.

But would the financial markets not panic at a failure to agree a deal? Quite possibly. But nobody should fool themselves into thinking that the reaction to a fudged deal would be better. It might come a little later, but it would come. And then you are in a much worse position. Once you get a bad deal in March, there is no way you can crawl back to the Bundestag for a top-up loan in May.

The reason we are in this pickle is, ironically, the lack of market pressure. With their enthusiasm about a deal, the financial markets might have killed it. Eurozone countries only act when under immediate pressure. Germany, for example, has a massive problem in its state-owned banking sector, but apart from a reluctant restructuring of WestLB, this is currently no policy priority. The Bundesbank tells everyone that it is not happy about transparency in stress tests, and there is no law in place to force recapitalisations. The relatively calm market situation also explains why 189 economists find the time to write a long letter, criticising what they clearly consider to be the resolution of someone else’s crisis. I am afraid that without a force majeure event, there will be no crisis resolution. A good example is the Spanish recapitalisation of the savings banks. The Spanish government would never have had the courage to force this without the fear of being next in line for a speculative attack.

The EU’s crisis resolution strategy is to draw attention away from the underlying causes of the crisis: that you cannot have nationally controlled and undercapitalised banking systems in a monetary union with structural current account imbalances. The difficult job is to translate this technical statement into a language understood by politicians and their constituents, and to do so without lying. This is not a fiscal crisis. It is not a crisis of the south. It is a crisis of the private sector and of undercapitalised banks. It is as much a German crisis as it is a Spanish crisis. This acknowledgement must be the starting point of any effective resolution system. A veto in March is thus a necessary first step in crisis resolution.

Wolfgang Münchau, February 27 2011, FT

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Vodpod videos no longer available.

In this short RSA Animate, renowned philosopher Slavoj Zizek investigates the surprising ethical implications of charitable giving.

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Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

Op-Ed Columnist – The Third Depression – NYTimes.com.

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The aim of the rescue package agreed for Greece cannot conceivably have been to prevent a default. For all the daunting austerity and structural reform it requires, the numbers do not add up. The main purpose I can detect is to reverse the rise in Greek bond yields and stop contagion.

We should not knock this deal from Athens. The eurozone might not have survived otherwise. This column would have been an obituary. I am also glad to note that those in charge gave a positive answer to a question I posed last week, which was whether the authorities would ever get ahead of the situation. They did, and they deserve credit.

But in spite of the readiness to accept extreme austerity, Greece will not get by without some form of debt forgiveness. I can understand why the International Monetary Fund and the European Union did not want to open that can of worms at this point. It would have prolonged the negotiations. In the middle of an acute bond market crisis one has to manage expectations very carefully.

A debt restructuring will eventually be necessary, however, because Greece’s debt to gross domestic product ratio is going to rise from its current 125 per cent to about 140-150 per cent during the adjustment period. Without restructuring, Greece will end up austere, compliant, and crippled.

The decision to take Greece out of the capital markets for three years will prevent immediate ruin but has only a marginal impact on the country’s future solvency. The underlying assumption of the agreement is that Greece can sustain austerity beyond the time horizon of the accord, without falling into a black hole. The latter is particularly optimistic. Standard & Poor’s, the rating agency, last week estimated that Greece would not return to its 2009 level of nominal GDP until 2017.

Last week gave us an inkling of the vicious circles at play in such a crisis. First, a country’s financial situation deteriorates. Then a rating agency downgrades the debt, which in turns triggers a rise in market interest rates. That leads to a further financial deterioration.

Another such loop goes via the banking sector. If a government’s solvency is in doubt, so is the solvency of the banks, whose liabilities are guaranteed by the government. Last week, the banking sector in large parts of southern Europe was in effect cut off from the capital markets.

Angela Merkel and her inexperienced economic advisers have no idea about the dynamics of sovereign crises. They never bothered to look at the experience of other countries, notably Argentina. Waiting until the moment a country is about to fail – which is how the German chancellor interpreted the political agreement she accepted in February – constitutes an abrogation of leadership that is bound to end in financial ruin. It means that everybody, Germany especially, has to pay billions of euros more than would have been the case if the EU had sealed this in February.

On my estimate, the total size of a liquidity backstop for Greece, Portugal, Spain, Ireland and possibly Italy could add up to somewhere between €500bn ($665bn, £435bn) and €1,000bn. All those countries are facing increases in interest rates at a time when they are either in recession or just limping out of one. The private sector in some of those countries is simply not viable at those higher rates.

As I have argued before, three things are required if the eurozone is to survive in the medium term: a crisis resolution system, better fiscal policy co-ordination, and policies to reduce intra-eurozone imbalances. But this is only the minimum necessary to get through the next few years. Beyond that, the eurozone will almost certainly need both an embryonic fiscal union and a single European bond.

I used to think that such constructions would be desirable, albeit politically unrealistic. Now I believe they are without alternative, as the experiment of a monetary union without political union has failed. The EU is thus about to confront a historic choice between integration and disintegration.

Germany can be relied on to resist every one of those measures. In the meantime, European leaders will treat each new crisis with the only instrument they have available: an injection of borrowed liquidity. But this instrument has a finite lifespan. If it is not blocked by popular unrest, it will be blocked by constitutional lawyers.

On one level, I agree with those lawyers. There can really be no doubt about what the “no bail-out” rule was intended to mean. It meant that Greece should not be supported. The EU had to resort to some unseemly legal trickery to argue that advancing junior loans at a massive scale to an effectively insolvent country does not constitute a bail-out. The clause – Article 125 of the Lisbon treaty – is irresponsible. If you follow it, you end up breaking the eurozone. So far, the choice has been to break the clause instead, and now would be the right moment to change it.

So what is the endgame of the eurozone’s multiple crises? For Greece it will be debt restructuring, a polite term for negotiated default. The broader outcome is more difficult to predict: it will either be deep reform of the system or a break-up.

Wolfgang Münchau, FT, May 2 2010

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The crisis facing the eurozone looks at first sight as German efficiency clashing with Portuguese, Irish, Greek and Spanish sloppiness. But in many respects Germany has performed worse than the “peripheral” countries in the last decade. The largest economy of the eurozone has been marked by slow growth, poor domestic demand, weak investment, high unemployment, and minuscule productivity gains.

The only area in which Germany has excelled is exports, where it has chalked up large surpluses, while peripheral nations have had large deficits. But this imbalance is due to the skewed nature of the European monetary union. The eurozone has imposed a single monetary policy and tight fiscal policy. Member countries have applied systematic pressure on wages and working conditions across the zone; in Germany, wages have barely risen in real terms for 15 years, helped by the absence of unions in the old East Germany and easy access to the labour markets of other eastern countries.

However, German investment has been weak, and productivity generally rose less than in peripheral countries. In the past the exchange rates of these countries would have fallen, allowing them to improve their exports. But the euro makes this impossible.

In addition, during the 2007-09 crisis, European banks faced big problems because of speculative investments in mortgage-backed securities. The European Central Bank (ECB) provided abundant liquidity to banks and kept interest rates very low. But when countries faced heavy borrowing needs, it behaved very differently.

Public debt rose in 2009 mostly because states rescued the financial system and tax revenue collapsed as the recession unfolded. Profligacy and public inefficiency had little to do with it. But, unlike banks, countries were left to fend for themselves. The ECB simply watched as financiers proceeded to bite their saviour by speculating on public debt.

Dealing with the crisis so far has revealed policy chaos at the heart of the eurozone. Statements by the German chancellor, Angela Merkel, her finance minister and others are incoherent and vacillating, not to mention replete with moral posturing. Does the German establishment comprehend what is at stake?

The policy that has emerged almost by default is to impose austerity on the peripheral nations, while refusing to lend fresh money to ease the transition. This is unsustainable for Greece and possibly for Portugal, Spain and others. Greece has applied an enormous squeeze on its workers, exacerbating the recession. The state gathers money through new taxes and wage cuts, and uses it to pay exorbitant rates of interest to the financial markets. The eurozone, meanwhile, tells Greeks to liberalise and reduce bureaucracy. This has no prospect of leading to sustained growth.

A fundamental problem of the policy of austerity for the periphery is that it does not deal with the structural imbalance within the monetary union. As long as Germany stagnates and squeezes its workers, much of the eurozone will remain in trouble. Recent comments by the French finance minister, Christine Lagarde, indicate though that the French establishment has begun to sense the danger to its own interests.

And there are two strategic alternatives: the first is to aim for a “good euro”. Several steps could be taken, for example, restoring some fiscal freedom to member states, expanding the European budget, instituting fiscal transfers from rich to poor, and introducing a minimum wage and unemployment insurance. The ECB might also be allowed to buy state debt. The “good euro” relies on creating a radical cross-European political alliance, the prospects of which are slim. And it would probably weaken the international role of the euro.

The other strategy is “progressive exit” from the eurozone. This more radical approach would involve devaluation, restructuring of foreign debt, and capital controls. The productive sector would benefit but the initial shock would be substantial. To protect the economy there would have to be public control of banks and other key areas of the economy, including transport, energy and telecommunications. Peripheral economies might then be shifted in a more productive direction – for example, supporting the transition to low-carbon activities.

Finally, exit by the periphery might also help German workers appreciate the extent to which the eurozone has been tormenting them, leading to much-needed corrective action at the core.

Germany: a euro laggard | Costas Lapavitsas | Comment is free | The Guardian.

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