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Jens Bastian – IMF, beyond stereotypes

Bastian Jens — Sat, 10 Jul 2010 08:20:28 +0000

As the Greek government continues to implement the three-year Stability and Growth Program agreed to with the International Monetary Fund, the European Central Bank and the European Commission, the nature of the emerging working relationship with what is called the “troika,” deserves some additional attention.
While cooperation with the ECB has been well established from the time Greece joined the eurozone a decade ago, and is even stronger with the European Commission, the nature of collaboration with the third entity in the troika, the International Monetary Fund (IMF), must be subject to a comprehensive reassessment.
Let us work through this argument for a moment. For starters, Greece is Exhibit A in a process where, for the first time, the IMF is involved in the financial rescue operation and in imposing adherence to a structural reform agenda for an existing eurozone member. While the IMF has assisted other EU member states with multiyear financial facilities, such as Hungary, Romania, Poland and Latvia, it has never before intervened in the fiscal affairs and public debt management of a sovereign member of the eurozone.
This IMF intervention came of necessity and by political design. While Greece increasingly lost creditworthiness on international bond markets earlier this year, the government of Chancellor Angela Merkel in Germany conditioned its participation in any international financial rescue operation for Greece on the inclusion and participation of the IMF. Much to the initial dislike of the ECB in Frankfurt and considerable embarrassment for the Commission in Brussels, the arrival of the Washington-based IMF in eurozone policymaking has not only challenged the established institutional geography in Europe but it has also drawn attention to manifest deficits in the continent’s problem-solving capacity.
Read the entire article in ATHENS PLUS / page 9

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Jens Bastian – Time to challenge credit rating agencies’ monopoly

Bastian Jens — Fri, 25 Jun 2010 13:19:59 +0000

Jens Bastian – Time to challenge credit rating agencies’ monopoly

Last week, Moody’sdowngraded Greece’s credit rating by a staggering four notches, slashing the country’s sovereign credit rating from A3 to Ba1. In practice, this demoted Greek bonds from investment grade to junk status. Moody’s was the second of the three leading international credit rating agencies to reduce its rating on Greek bonds to junk.

With its unexpected and highly controversial downgrade, Moody’s followed the decision of its US-based peer Standard & Poor’s, which downgraded Greek sovereign bonds to BB+, equivalent to junk status, in

April 2010. S&P’s action against Greece was the first time that a eurozone member lost its investment grade rating since the introduction of the common currency in 1999. The third international credit rating agency, Fitch, currently has a BBB- rating on Greek sovereign bonds, the lowest investment grade.

Moody’s argued in its June rating report that uncertainty over the Greek government’s capacity to reduce its public debt levels had increased the agency’s risk assessment of the country. Greece’s creditworthiness is seen as incorporating a greater, albeit low risk of default.

What is particularly striking about Moody’s decision – and it is not the first time that this has happened – is the issuance of a downgrade while Greece is being monitored by the so-called troika of the International Monetary Fund, European Central Bank and European Commission.

Read the entire article in ATHENS PLUS / page 9

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Jens Bastian – Germany joins Europe’s austerity club

Bastian Jens — Fri, 11 Jun 2010 13:27:09 +0000

The government of German Chancellor Angela Merkel agreed this week on a sweeping list of spending cuts and someextra taxes to reduce Germany’s growing budget deficit. What is the significance of these austerity measures? The package of spending cuts and revenue increases addresses constitutional requirements and seeks to curtail 10 billion euros a year from the federal budget from 2011 until 2016.

The major issue on the coalition government’s agenda concerned how and where to make substantial spending cuts and identify revenue increases in order to reduce the growing budget deficit in Germany. The need for this action is determined by the so-called “public debt brake” (Schuldenbremse). This legal requirement forms part of the German constitution and was adopted by the parliament in 2009. According to this provision, by 2016 – and adjusted for cyclical effects – the federal government is only permitted to have a national debt ratio that corresponds to 0.35 percent of annual gross domestic product.

Read the entire article in ATHENS PLUS / page 9

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Jens Bastian – Stopping the dominoes from falling

Bastian Jens — Fri, 28 May 2010 12:00:42 +0000

What started as a Greek fiscal and public debt crisis in October 2009 has matured over the past seven months into a fully fledged crisis in the eurozone. It extends well beyond the immediate causes – collective irresponsibility in Athens during the past decade and a lack of effective policy intervention and coordination in Brussels. The crisis now fundamentally affects the stability of the 11-year-old currency.
It also shines a bright spotlight on the eurozone’s delayed and conflict-ridden crisis resolution capacity. Finally, the crisis has catapulted onto the continent’s agenda the issue of political leadership in the European Union. What was unthinkable only a month ago has quickly become unavoidable a few weeks later. Between agreeing to a 110-billion-euro international rescue package for Greece and a 750-billion-euro emergency package to stabilize the euro, hardly 36 hours had passed in Brussels, Berlin and Paris.
Roots of the crisis
The underlying reasons for the crisis in the eurozone have not been tackled with these extensive and expensive rescue packages. These sources of risk in 2009/10 are….

Read the entire article in ATHENS PLUS / page 13

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Jens Bastian – When solidarity with Greece is in high demand but low supply

Bastian Jens — Fri, 09 Apr 2010 09:18:59 +0000

The government of Prime Minister George Papandreou had hoped that the European Union Council meeting at the end of March in Brussels would provide an unambiguous political statement of solidarity with Greece. This statement of intent sought to send a clear signal to international capital markets that forthcoming sales of Greek sovereign bonds during the crucial months of April and May could be priced at lower interest rates than during the past six months.
If we take the sale of 5 billion euros’ worth of seven-year bonds to refinance Greek debt on March 29 priced to yield 5.9 percent and the additional 390 million euros of sovereign bonds sold a day later during the reopening of an existing 20-year bond, then the conclusion is rather sobering. Neither has the hoped-for signal of solidarity been received nor has the Greek government been given a vote of confidence by international bond markets.
The immediate consequences of this unsatisfactory situation are politically and economically highly charged: Concerns are rising within the government in Athens that the positive effects of the initiated budgetary corrections, expenditure cuts and tax increases risk will be neutralized. The exorbitantly high and multiyear interest rates that have to be borne by the government for the sale of short-, medium- and longterm debt obligations on international bond markets are eating away at the government’s austerity efforts and structural reform initiatives.
Read the entire article in ATHENS PLUS / page 10

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JENS BASTIAN – Don’t Forget the Real Economy

Bastian Jens — Wed, 07 Apr 2010 13:24:32 +0000

Published in BUSINESS PARTNERS / MARCH-APRIL 2010 /page 6, OBSERVATORY

WHILE THE POLITICAL AUTHORITIES IN GREECE CONTINUE TO SEARCH FOR SOLUTIONS TO THE COUNTRY’S FISCAL AND PUBLIC DEBT CRISES, THE EFFECTS OF THE DOWNTURN ARE INCREASINGLY BECOMING VISIBLE IN THE REAL ECONOMY
Indeed, the focus on spending cuts, allowance reductions and wage restraint places a high degree of attention on the immediate challenges and possible solutions to the current crisis. But what about the real economy, its performance during the past year, and the outlook for 2010?
A number of economic indicators point to the severity of the emerging situation and the depth of the challenge. Greece is consistently losing economic competitiveness in key economic sectors. While it may be possible to achieve some level of fiscal deficit reduction and bring down debt ratios in the course of 2010/11, the country’’s economy could risk ending up confirming the medical assessment: “operation successful,patient dead”.
There are serious underlying problems in the economy, which have only magnified in reaction to the fiscal and public debt crises. Consider five indicators for 2009:
- Greek exports declined by 17.8 percent
- The current account deficit reached 11.2 percent of GDP
- Foreign direct investment in Greece dropped by 21.3 percent
- Receipts from tourism declined 13 percent, from shipping by 7.8 percent
These indicators have considerable impact on the government’s fiscal revenue raising capacity, employment levels in sectors such as tourism and shipping as well as their overall contribution to annual GDP performance for 2010 and beyond.
Any country having to confront the magnitude of fiscal and public debt burdens as Greece does would try to limit the adverse consequences on the real economy. But the numbers for 2009 suggest that this is proving almost impossible to achieve. And the outlook for 2010 does not offer any consolation or a prospective turnaround.
Furthermore, the absence of resources for stimulus spending in areas most needed—higher education, green technology and public infrastructure investment—leaves the country’s real economy at a crossroads. Existing imbalances in the labor market cannot be corrected and corporate investment is delayed because government resources cannot supplement specific private sector initiatives.
Most alarmingly are the consequences on a younger generation of labor market entrants and business innovators in Athens, Thessaloniki and elsewhere. What prospects can they expect? What conclusions should they draw from the fact that, for months, every evening news bulletin suggests more cuts, rising costs and higher debt? Should they stay and get involved or vote with their feet, using the exit option to explore opportunities elsewhere? The risk of contributing to a brain drain of highly educated, motivated and talented young people is real and has already begun.
These developments in the real economy could initially escape the radar of public attention. But over the medium term they cannot avoid being addressed by the political authorities and economic elites. Fundamental issues are at stake: the nature and configuration of two contracts (i) the social contract, and (ii) the inter-generational arrangements in Greek society.
Moreover, regaining economic competitiveness rests not only on sound fiscal policy making and disciplined public debt management. It also entads targeted and efficient investments in minds and bricks, roads and business infrastructure as much as in universities and start up finance for young entrepreneurs.
Does the Papandreou government have the resources and strategic focus for such endeavors? Only time will tell. But there is no time to lose to start focusing on the challenges at hand for the real economy in Greece.

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Jens Bastian – Why the Greek crisis matters to Southeast Europe

Bastian Jens — Fri, 26 Mar 2010 12:29:53 +0000

As the twin fiscal and public debt crises unfold in Greece, neighboring countries in Southeast Europe are anxiously trying to determine how they will be affected by developments in Athens. In light of Greece’s track record of foreign direct investment, its foreign policy focus on the region and its growing trade volumes with neighboring Serbia, Albania, the Former Yugoslav Republic of Macedonia (FYROM), Romania, Bulgaria and Turkey, these countries cannot remain indifferent to the magnitude of the crisis next door. Nor can they cast a blind eye to the possible solutions being addressed in Athens or advocated in Brussels, Berlin and Washington. Both Serbia and European Union member Romania currently have International Monetary Fund-led standby agreements. These facilities have been in place since early 2009. In the case of Romania, the IMF program is being supplemented by financial assistance from the European Union, the European Bank for Reconstruction and Development (EBRD) in London and the World Bank. Turkey has been in negotiations with the IMF about possible financial assistance. To put it otherwise, as the discussion and controversy over possible IMF support for Greece continues, some of its neighbors have extensive experience with the Washington-based institution. The same holds true for Hungary and Latvia, two EU members with multiyear, IMF-led macroeconomic stabilization programs in operation.
Read the entire article in ATHENS PLUS/ page 11

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Jens Bastian / European solidarity – economic governance in Europe

Bastian Jens — Sat, 13 Mar 2010 14:43:17 +0000

A specter is haunting the European Commission in Brussels and the European Central Bank (ECB) in Frankfurt. Greek Prime Minister George Papandreou has repeatedly stated during the past weeks that he would not rule out turning to the International Monetary Fund (IMF) for possible financial assistance should the need arise and European solutions prove futile. The Fund has been actively cooperating with Greek authorities since January 2010. It is providing technical expertise in matters such as budgetary transparency, revenue-generating capacity and statistical reporting requirements. What the IMF has not done to date is offer financial assistance. Nor has the Papandreou government asked for it. However, it is an option that Greece, as a member of the IMF, has at its disposal – albeit with considerable strings attached.

Read the entire article in ATHENS PLUS / page 9

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Jens Bastian – Who’s calling for a Greek bailout?

Bastian Jens — Fri, 26 Feb 2010 13:35:30 +0000

The events of the past weeks have shown us that the loudest advocates of “rescue” packages for Greece are analysts and economists from the financial sector. Although they usually prefer singing from the hymn sheet of free market liberalism, they are now reciting the lyrics of “supporting” and “rescuing” Greece.
Their sudden clarion calls come in different colors and notes. They are praising European Union intervention, recommending German bilateral assistance or campaigning for International Monetary Fund-financed bailouts of Greece.
Whatever the specifics of their interventions may look like, they are a mirror image of these advocates’ special interests and one-sided view of financial affairs.
What these clarion calls by financial sector representatives are definitely not are expressions of mutual solidarity with Athens.
The immediate losers from a sovereign default of Greece would be commercial banks, hedge funds and mutual funds across Europe. These financial institutions hold large volumes of government bonds from Greece, Portugal, Spain and Italy on their balance sheets. In particular, French, Swiss and German financial institutions are most concerned about a default scenario in Athens and therefore rather vocal when favoring external bailouts.

Read the entire article in ATHENS PLUS / page 9

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Jens Bastian – All on board: The EU, ECB and IMF go to work with the government in Athens

Bastian Jens — Fri, 19 Feb 2010 12:32:07 +0000

When Prime Minister George Papandreou announced after the special European Union Council meeting in Brussels last week that the International Monetary Fund is providing “technical expertise” to the government, some commentators inside and outside Greece seemed to be caught by surprise.
They should not have been. There was great speculation during the past weeks over when and how the IMFm should be called in to assist Greece. The IMF has been firmly anchored in Athens since mid-January, when a delegation from Washington first arrived in Greece. Then the Fund assisted the government in drafting the budget deficit-reduction program and provided technical advice on improving the controversial state of Greek statistical services.

Read the entire article in ATHENS PLUS / page 5

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