Tag: sovereign debt

  Ireland did everything right, according to the bankers of the world. They slashed wages, services, and public employment. After two years of sacrifice what do they have to show for it?

 Wages have fallen and unemployment is around 13%. That much was expected. What wasn’t expected is that the markets would punish the nation for crushing the domestic economy because of the austerity measures.

 “We do not really see how Ireland is going to be able to ‘hold on’ without EFSF help,” one euro zone source with knowledge of the talks said.

  “Obviously since this implies a pretty tough programme for the government and to some extent a loss of sovereignty, they want to think twice…” the source said.

 In other words, things are going to get even harder for Ireland. What will Ireland get in return? The ability to go even deeper into debt.

   Discussion of the economic crisis in Europe has been largely confined to Greece and how it effects the Euro. All that changed this week.

   It all started with the Spanish banks at the start of the week.

 CajaMurcia, Caja Granada, Sa Nostra, and Caixa are joining together in a SIP (System of Integrated Protection), which will combine bank reserves and result in a firm worth €100 billion, according to Cotizalia.

  This comes after yesterday’s announcement that four banks, Cajastur, Caja de Ahorros del Mediterráneo, Caja Extremadura, and Caja Cantabria were merging under a similar agreement.

  All of this started with the weekend’s €530 million bailout of CajaSur, and is sure to continue as Spain tries to sure up its banking sector under IMF pressure.

 Sudden mergers of major banks, following a major bank bailout, is very suspicious. The markets noticed, and two days later the Spain’s central bank was forced to act.

  Events are rapidly coming to a head in Greece, and the consequences could ripple through all of Europe.

 Leading Greek economists and bankers yesterday warned George Papandreou, prime minister, that he had to announce bold initiatives to rescue the country’s collapsing bond market and avert the possibility of defaulting on a rising public debt.

…

 Yannis Stournaras, an Athens University economics professor and former chief adviser at the finance ministry, said: “Other countries in trouble have already taken measures. If we don’t quickly follow suit the adjustment will be imposed by markets and it will be violent.”

 How violent? Maybe not as violent as the protests in the streets of Athens. Already there are student, pensioner, and public worker protests and strikes. Remember that the current government is only two-months old, after the old government nearly collapsed under the pressure from street riots.

  This puts the current government in an extremely difficult situation. The public debt is set to rise next year to 124 per cent of GDP, with a fiscal deficit of over 12%. Meanwhile, the public pension fund is expected to go into the red as early as 2011. The fiscal squeeze requires draconian cuts, but the public workers of Greece are not a wealthy group. They will have no choice but to turn out into the streets en mass.

  Premier George Papandreou recognizes that.

 “Salaried workers will not pay for this situation: we will not proceed with wage freezes or cuts. We did not come to power to tear down the social state,” he said.