Europe's Populist Left

[The Larch]

As previously mentioned, Spain is taking an extreme hardline against Greece in these negotiations:

http://www.bloomberg.com/news/articles/2015-02-22/spain-said-to-lead-eu-push-to-force-terms-on-greece

Spain Said to Lead EU Push to Force Terms on Greece

(Bloomberg) -- As euro-region finance ministers turned the screw on Greece in Friday's talks, the group's usual enforcer, Wolfgang Schaeuble of Germany, was eclipsed by Spain's Luis de Guindos, according to two people with direct knowledge of the talks.

De Guindos took the toughest line with Greek Finance Minister Yanis Varoufakis as the bloc forced him to adhere to the terms of the country's existing bailout to retain access to official financing, the people said, asking not to be named because the conversations were private. When the group rejected Schaeuble's call for a Tuesday meeting to scrutinize Greece's plans to meet those conditions, De Guindos insisted, winning agreement for a teleconference, they said.

The Spanish government is particularly sensitive to the fortunes of the Syriza government in Greece because the party's Spanish ally, Podemos, has surged to the top of some recent polls. A victory for Varoufakis would have strengthened Podemos's argument that De Guindos's boss, Prime Minister Mariano Rajoy, was wrong to impose austerity on Spain.

The Spanish government "has always been constructive but it has to defend its interests," Guindos said on Friday. "A climate is developing in which the new Greek government is adapting to the rules that affect us all."

A spokeswoman for De Guindos said his ministry disagrees with the characterisation of the content and tone of the conversation. Spain is in favor of dialogue and flexibility within the existing rules and has shown its solidarity with Greece by contributing 26 billion euros ($30 billion) to its bailout at a time when its own financing conditions were not good, she said.

Struggling to fend off a sovereign default, the Greek government acceded to European demands that it respect the conditions of its existing bailout package at Friday's meeting in Brussels. The Greek government must submit a list of economic measures it will undertake by Monday and finance chiefs will then decide whether the proposals go far enough.
Dijsselbloem Successor

De Guindos, at times raising his voice, railed against Varoufakis in Friday's meeting, telling him he has to win the trust of his euro-region counterparts and learn how politics is conducted at the European level, one of the people said.

De Guindos's ministry denied that there was shouting or that the economy minister raised his voice, according to a spokeswoman.

De Guindos has been in the running to replace Jeroen Dijsselbloem of the Netherlands as head of the euro-region finance ministers' group when the Dutchman's term expires this year.

Spain's general election is due around the end of the year and Iglesias has pledged to restructure the country's 1 trillion euros ($1.1 trillion) of public debt if he wins.

[The Minsky Moment]

Okay. I was ignoring the tightness/looseness point because I've nothing to add to Minsky's point - not least because I don't understand it. . . . I think part of the reason Spanish yields are low (though again, look in the other thread to see how many negative interest bonds there now are in Europe) is possibly because the government's limited in how many they can issue but as growth is low, there's deflation and they're still capital for banks they are, tragically, worth buying.

Interest rates are not necessarily a reliable guide to tightness or looseness of monetary policy.  Milton Friedman famously referred to this as a "fallacy" and argued (in the context of Japan's "Lost Decade") that low interest rates were generally an indicator that monetary policy had been overly tight in the recent past.  His short 1998 editorial in Japan could be pretty easily rewritten for the present by taking all the references to Japan and the BOJ and changing them to Europe and the ECB.

http://www.hoover.org/research/reviving-japan

Initially, higher monetary growth would reduce short-term interest rates even further. As the economy revives, however, interest rates would start to rise. That is the standard pattern and explains why it is so misleading to judge monetary policy by interest rates. Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.

Japan's recent experience of three years of near zero economic growth is an eerie, if less dramatic, replay of the great contraction in the United States. The Fed permitted the quantity of money to decline by one-third from 1929 to 1933 . . . The Fed pointed to low interest rates as evidence that it was following an easy money policy and never mentioned the quantity of money. The governor of the Bank of Japan, in a speech on June 27, 1997, referred to the "drastic monetary measures" that the bank took in 1995 as evidence of "the easy stance of monetary policy."  . . .. Judged by the discount rate, which was reduced from 1.75 percent to 0.5 percent, the measures were drastic. Judged by monetary growth, they were too little too late, raising monetary growth from 1.5 percent a year in the prior three and a half years to only 3.25 percent in the next two and a half.

After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.

[Zanza]

http://www.bbc.com/news/world-europe-31580138

Greece will send a list of reforms aimed at securing a bailout extension to EU partners on Tuesday morning, missing a Monday deadline, officials say.

[Martinus]

 

[Sheilbh]

Though in fairness to the Greeks it's apparently held up in Brussels. They did submit it in time to the EC EcoFin DG.

Eh? Isn't that a completely meaningless distinction? The KfW is a government institution that is by law guaranteed by the German taxpayer. Whether the KfW takes a loan in the bond market or the Finanzagentur (which is another government agency that handles German government debt) seems to be a technicality.

As I say my understanding of 'put up' is paid for. Slovakia hasn't at all and Germany's done so in a way that, like the EFSF, it's only exposed if Greece defaults - whereas most other countries did it through general government.

There's nothing right or wrong about that, but it's useful to remember when all the rhetoric about the 'x taxpayer' is swirling around. For example why the Slovakian taxpayer who's got a lower minimum wage than the Greek should have to bail them out anymore - they haven't, unless the Greeks default. Or de Guindos' €26 billion of Spanish taxpayers' money that's been given to the Greeks, most of that EFSF. In terms of putting up taxpayers' money the US has arguably put more money in than Spain so far through the IMF and the UK more than Finland. De Guindos is correct - if a deal isn't reached.

[The Larch]

The "Spain gave 26 billion € of taxpayer money to the Greeks" is used more like a rhetorical club to bludgeon the Greeks and the Spanish public with, rather than a real economic worry. The Spanish government wants Syriza to eat as much crow as possible in order to prevent it looking good and pushing Podemos' electoral chances.

[Sheilbh]

I think that's true of everyone.

Sensible, solid set of SYRIZA structural reforms.

[Admiral Yi]

In terms of putting up taxpayers' money the US has arguably put more money in than Spain so far through the IMF and the UK more than Finland.

The IMF is not funded by taxpayer money.

[Jacob]

Galbraith on negotiating in Europe: http://fortune.com/2015/02/20/greece-germany-yanis-varoufakis/

[Martinus]

  @ Christine Legarde on the Daily Show.

God, I'm gonna miss John Stewart. There is no other show right now that is comedic and has actual non-pop-culture public figures of that calibre.

[Admiral Yi]

One thing that puzzles me is why Greek banks are holding any Greek bonds at all.  Why not other countries' bonds?

[Iormlund]

Healthy banks will avoid Greek bonds. Doomed banks are fucked anyway if Greece defaults, so why not profit from carry trade?

That's also something that happened in Spain.

[Admiral Yi]

I don't understand why Greek banks would necessarily be fucked if Greece defaulted.

[Jacob]

I don't understand why Greek banks would necessarily be fucked if Greece defaulted.

Don't countries normally underwrite their banks to a certain degree?

[Admiral Yi]

Don't countries normally underwrite their banks to a certain degree?

I don't know what you mean.