Archives for category: IIMF – Obsolete proposals most of time

It has taken me nearly six years but I have now arrived at the conclusion that this European Union (EU) and the Eurozone have proven to be real failures and that if one went down to brass tacks it would show that having this “Union” (sic) and the euro did not really make a positive difference; that the “whole shebang” should be scrapped, leaving only “pieces” (to be defined) to regroup  differently and basically  keep a “customs’ union”.

I have spent six years trying to understand and analize in as much depth as possible all this, written sinceApril 2011 – 2 000 post in my blog:“macrovolatility.com”, written in 2014 / 2015 two books in self-edition with Amazon with self-explanatory titles: “Why Obsolete Macro Governance Is Killing the World Economy” and “Growth through Structural Reforms” (With Leadership and Competence Great Opportunities Exist).

I am not agreeing anymore with what I had written many times in this blog, the last one on 06/25/2016 in my post: “Eurozone Governance Radical Change Needed to get to a “2 Speed” Area Organization“, it will not work either…(please refer to this by clicking on above link).

In fact the last drop was when reading several times these last days that Greece’s situation was still being discussed by all “the powers to be” – re The Guardian‘s 02/11 /2017 article:No crisis’ on Greece bailout deal, says eurozone chief”…!!!
All these European/Eurozone “top officials” are such great techno bureaucrats that reality has totally  escaped from their pseudo “thinking” (sic), in six years they have not been able to decide on Greece’s situation which only represents 1 to 2% of EU’s GDP!!!

In this blog I have written since at least 5 years that Greece should leave or be exited from the Eurozone for its own sake, it would now be quite rich with a low valued drachma hugely expanding tourism, the number one wealth item, instead it has cost the Eurozone a “fortune”, protected corrupt local politicians who refused to exercise the results of the June 2015 referendum where the bailout conditions were rejected by a majority of over 61% , with the “No” vote winning in all of Greece’s regions, the Greek people wanting Greece out of the hands of the totally incompetent Eurozone leaders, IMF, ECB and German Chancellor Merkel, the real Eurozone leader.Greece has 180% indebtedness vs GDP!!!

Greece is just the tip of the iceberg, add Italy (3rd Eurozone economy) with a huge debt (135% of GDP) and only 1% growth, Spain (4th Eurozone economy), probably the most competent and growing (3%!) mediterranean country, still hampered with huge unemployment, with banks not passing on ECB’s continued  flow of printed liquidity to credit facilities to the biggest employer, the SME/TPEs, its indebtedness as % of GDP having grown to be 100%.

France 2nd biggest Eurozone economy, with miserable 1.1% growth, huge unemployment, is under great political stress and  the Number one, by far, Eurozone economy, Germany (1.9% GDP growth and “only” 71% indebteness as % of GDP) continues with is parochial self-serving Eurozone policy, nobody in Brussels will interfere…

The Eurozone has been conceived as an erratic type of puzzle / potpourri of countries with totally different mentalities and ‘usus”, great differences in social-economic macrostructures, no real EU / Eurozone “Governance and with Germany having benefitted from the euro creation in 1999 onwards with a 20-30%  favorable euro/DM parity which has helped considerably to boost their economy to the detriment of the rest.

There is, finally no way all this will work (what, in reality?)

Let each country solve its own problems, they are all countries with a long history which will serve as the backbone, they need to adapt far more rapidly to all the past, present and future innovations in “technology” and its meteoric evolution, in other words the entire political class needs to change ASAP, let each nation’s government be responsible for their own situations and not anymore EU / Eurozone “Governances” (sic) which have no power and are Germany’s slaves.

Belatedly, as usual, European Union (EU)’s President warns against US President elect divisive tactics to the detriment of the EU’s stability.

US President elect decrees are mostly unacceptable to the civilized world and a (very bad) first in US’s “governmental” (sic) policies, especially the now nearly universally decried anti-immigration decree which this blog is denouncing for the fourth day in a row.

EU has not managed to construct a “working” political, social economic and not even even financial area (the latter beacuse of the erratic policies of ECB) because it has done mostly everything wrong from the beginning of the instauration of the Eurozone and has also accepted totally disparate membership of 28 member countries who do not ressemble each other in mentality and usus and were prone to be a fiasco, which it is, being unable to agree on practically any important topic and subjecting some nations to undue austerity instead of pushing for badly needed structural reforms .

In the 2000 posts I have written in my blog from April 2011 until October 2016 and my two books I have consistently proposed and described the change from the current EU “mammoth” to a radically new compact European Guidance Unit with a division between Northern countries and Southern ones who have nothing in common, with France somewhat in the middle, and due to huge past erroneous political expansion policies continuing with the inadequate integration of ex-satellite Communist countries which have created havoc with totally different remuneration, taxation and social protection “policies”.

I now, finally, feel that this renewed construction of Europe is also doomed and that it is preferable to go back to a customs’ union and abandon the euro, thus leaving each country to devise its own political and social economic systems, own deficit and indebteness ratios to GNP and be able to take its own eventual financial corrective actions.

If individual countries are having such a hard time governing themselves, blocs of countries will not be able to do their job plus a comprehensive “area” job with an umbrella as the euro which was devised far too early and totally unprepared with countries who had no harmony whatsoever in basic social economic policy structures.

The world has changed enormously and in a meteoric way technologically / innovationwise.

Governances need to adapt to these formidable changes which is very difficult for what seems to be a “lost political generation”.

Lets’count on and turn to the current young one who is in phase with these changes, it’s  a worthwhile bet I believe (as a “senior”…)

Please read below, under More,  NYT‘s 01/31/2017 article:”Trump Threatens Europe’s Stability, a Top Leader Warns”

Read the rest of this entry »

Differences between all intervening “organizations” (sic) – EU / EC / Germany / Eurogroup / ECB / IMF, et al, continue dividing supposed “policymakers on the Eurozone – Greece matter.

The Guardian‘s 07/28/2015 article: “IMF warns of gloomy eurozone outlook”, which I copied (colored lettering is mine) and precede with my own comments.

My Comments

IMF once more shows it has reached its level of incompetence,when it continues to push ECB to increase  its already far too high QE (with ECB printed money) of 1.14 trillion euros over 3 years  (60 billion euros per month) at zero  or negative interest rates, not “understanding” that this ECB “monetary move” increases already close to 100% of GDP Indebtedness in the Eurozone and helps most “politically undecisive” Eurozone countries to avoid implementing complete and real social-economic structural reforms, starting with Labor flexibility.

IMF continues requesting Debt Relief for Greece, once more, avoiding that “Grexit” takes place, which is the real “solution” for both Greece and the Eurozone, since Greek governments cannot adapt to the Eurozone Rules (which are mostly wrong anyhow) and the Eurozone so called “Governance” cannot “manage” a small country like Greece.

Quotes

Reforms and action needed urgently as fears over Greece, high unemployment, structural flaws and a still-shaken bank sector slow growth.

The International Monetary Fund has warned the eurozone faces a gloomy economic outlook thanks to lingering worries over Greece, high unemployment and a banking sector still battling to shake off the financial crisis.

The IMF’s latest healthcheck on the eurozone found it was “susceptible to negative shocks” as growth continues to falter and monetary policymakers run out of ways to help. It called for an urgent “collective push” from the currency union to speed up reforms or else risk years of lost growth.

“A moderate shock to confidence – whether from lower expected future growth or heightened geopolitical tensions – could tip the bloc into prolonged stagnation,” said Mahmood Pradhan, the IMF’s mission chief for the eurozone.

The IMF’s review said: “The recovery is strengthening, underpinned by lower oil prices and the ECB’s expanded asset purchase programme. But the medium-term outlook remains weak, weighed down by the legacies of insufficient demand, lagging productivity, and weak bank and corporate balance sheets.

“As one-off factors driving the cyclical recovery fade, there is a risk that low growth and limited policy space leave the euro area vulnerable to shocks.”

Stagnation worries

GDP
The IMF warns the per-capita growth rate for the eurozone has fallen well below its pre-crisis level. (1991=100) Photograph: WEO; and IMF staff calculations

The IMF “mission” to the eurozone took place between 18 May and 3 June, long before an apparent stopgap to the the Greek debt crisis was hammered out this month. Since that deal to start talks on a new bailout for Greece, the Washington-based Fund has been fiercely critical of what eurozone leaders have offered to Athens and has called for substantial debt relief.

The Fund’s eurozone report, published on Monday, described the situation in Greece as “fluid” and as still “a key source of uncertainty”.

“To manage contagion risks, policymakers should stand ready to deploy, and if necessary adapt, the full arsenal of available instruments; the ECB in particular should ensure that banks continue to have access to ample liquidity and maintain orderly conditions in sovereign debt markets,” the report said.

It urged the ECB to stand ready to expand its quantitative easing (QE) programme, where it buys eurozone governments’ bonds using electronically created money, if financial conditions get significantly tighter and also said the scheme might need to go beyond September 2016, currently pencilled in as the end-date.

High unemployment

Unemployment
The IMF raises concerns about eurozone unemployment, with long-term and youth unemployment near historic highs. Photograph: IMF/Haver Analytics

The IMF is forecasting eurozone GDP growth of 1.5% this year and 1.7% next year. It expects inflation to remain close to zero this year and rise to 1.1%. The forecasters are gloomy about the prospects for a strengthening economy to lift employment in many eurozone countries. In the meantime, the unemployment rate remains high, above 11% for the whole eurozone and near 25% in Greece and Spain.

“The share of long-term unemployed continues to increase, raising the risks of skill erosion and entrenched high unemployment. High youth unemployment could also damage potential human capital, and give rise to a “lost generation’. While weak demand plays a major role, more spending on active labour market policies would help increase employment opportunities, especially for the young,” the report notes.

Bad loans

Bad loans
The IMF says high non-performing loans (NPLs) in some banks are eroding profitability and discouraging new lending. Photograph: IMF, Financial Soundness Indicators

The IMF’s other policy recommendations include helping to clean up bank balance sheets, which have in many cases been left with non-performing, or “bad”, loans after the financial crisis where the borrowers are no longer keeping up interest payments.

The Fund urges eurozone policymakers to do more, such as shake up insolvency rules, to get bad loans off banks’ balance sheets and so free up the financial sector to lend more. Stronger banks would also amplify the benefits of QE, the report says.

Benchmark or bust?

Benchmarks
The IMF says using benchmarks, such as this one, would better measure how countries are performing and “reduce excessive discretion”. (EA stands for euro area) Photograph: IMF using OECD

The Fund also urges eurozone officials to find ways to better measure and encourage progress in areas of structural reform. For example, it wants the currency bloc to use benchmarks, such as how long it takes to launch a business or the number of days it takes to enforce a contract.

“Shifting to outcome-based benchmarking, stronger EU oversight with less discretion in applying existing rules, and better financial incentives for delivering on reform commitments could help accelerate progress on reforms,” the report says.

In a plea to better-off members of the region, the IMF calls for more measures to stimulate demand.

“Those countries with fiscal space, including from lower interest costs due to QE, should use it to raise investment and pursue structural reforms,” the report said.

 

Le Figaro -News – Eco Situation’s 07/03/2015 interview of Philippe Dessertine (*) on Grexit: “Investment and growth will fall”, which I will quote and interject in blue italics my own comments into the quoted text.

(*) Professor at the University of Paris I and member of the High Council of Public Finance.

Quotes (colored lettering is mine) and My Comments

Interview –  Philippe Dessertine warning about the dangers of a Grexit.

LE FIGARO (LF) – Can the Grexit trigger a chain disaster?
Philippe DESSERTINE (PD) – I disagree with moderation.Chain disasters appear in every crisis and are contradicted by the facts. When Lehman Brothers went bankrupt on 15 September 2008, we were told that the bank was not so important, that the global financial system was not threatened. The rest is history … As always, the problem happen where we least expect it.
LF – But this time, the euro area firewall solid …
PD – I do not think so. The European Central Bank (ECB) will not have the weapons to keep interest rates at a low level when the financial markets decide to reevaluate the risk premium following the Grexit. Moreover, the quantitative easing policy has not prevented the German and French rates climb since April. Moreover, such a shock would occur while the global financial system already shows great weaknesses.

ECB’s QE is filled with flaws, it is a 1.14 trillion euros liquidity injection over 19 months (average monthly issue of printed money – 60 billion euros) at zero and… negative interest rates, which filled markets with untargeted liquidity and creating artificial markets increases (Central Banking’s main “mission”)  at a time when most of the  the Eurozone member countries had not even initiated badly needed  social-economic structural reforms, which would have induced – gradually – investments of ex- Eurozone countries.

ECB’s stated objective to increase private banks’ lending has not been achieved because of great lack of credibility on Eurozone’s future. It was and is as giving a not thirsty donkey water to drink…,it put the cart (money)  before the horses (demand)…

LF – Which ones? (referring to “weakneses”)
PD – The very low level of interest rates, which is itself the consequence of policies pursued by central banks, prompted large investors – asset managers, European insurers – to take too many risks in their investments, to find performance. This is an element of fragility for the entire global financial system. The rise in interest rates is inevitable and desirable futures. But it must be done in an orderly manner under the aegis of central banks. And not anarchically in shock against a Grexit. “In case of rising interest rates, the French government will have to make huge cuts to not see the deficit skidding”.

PD is making the same argument than I just did about Central Banking “policies”but does not carry it to its logical conclusion. Greece ‘s issue is not that relevant anymore, it is a political issue where Creditors refuse to pay for the “Mess” they, the ex-troika (EU/ECB/IMF), created by “helping”, with misguided and untimely directives, Greece’s successive bad governments to …decrease Greece’s GDP by 25% over the five years “help”, making Greece’s Indebteness reach being close to double its GDP, leaving the country bankrupt and the population impoverished!

Had the Creditors really wanted to keep Greece in the Eurozone, they should have, long ago (my blog, created in April, 2011 recommended a “Grexit” already in 2011) , five years ago, restructured a debt that Greece could never pay back, and in the meantime, the whole situation has greatly worsened! In other words, the “Mess” was and is already there.

LF – The Spanish economies, Portuguese and Italian, are they not stronger that four years ago?
PD – Italy is mired in low growth. In Spain, unemployment remains very high, so the risk of “the “Podemos ”  party coming to power is real. France is not in good shape, because of its very high level of public debt. In the event of rising interest rates, the French government will have to make huge cuts to not see the deficit skid.

The irresoluteness of Eurozone / European (non) Governance and Germany’s parochial attitude have largely increased and will continue doing so potential voting power will continue increasing for” Front National” in France, “Podemos “in Spain, “Five Star Movement ” in Italy, etc…,until  EU / EC Governance changes drastically its whole approach, which it is not willing (acquired benefits) and unable/incapabe (techno  bureaucrats) to do, which begs for a radical change in the “Executive” and their profiles…

LF – Is the euro under threat?
PD – If Greece out of the euro, the single currency would fall abruptly. It took the central bank intervenes heavily Switzerland Monday for the single currency to be held. However, an economy needs a strong currency.

Economists lately argued that the Eurozone needed a weak euro to increase growth through exports, “thinking” changes rapidly, apparently…

LF – Can we expect an immediate market reaction?
PD – Falling bond markets and stock exchanges will not happen suddenly. They are bound days – 2% – 3% for several weeks. But in the end, losses will be very important. In addition, a Grexit would undermine the long-term vision of European households and businesses. With relapse of  investment and growth. And accentuate tensions between strong countries and weak countries in the euro zone – France being, I fear, in the second group. An IMF report had estimated in 2011 to 1 000 billion dollars the cost of a Greek exit from the euro zone for the rest of the global economy. A 2012 report was the same at 1,200 billion euros. Huge sums.

The price paid for the last five years’  European / Eurozone / ECB / IMF / Germany’s “Governance Mismanagement” is about 500 billion euros (accumulated Grece debt – 320 billion euros, plus 2013 “haircut” of 105.7 billion euros, plus “others). Is is “wise” (sic) to “throw good money after bad one” ? – Gresham’s unbeatable law.

LF – Should we restructure the Greek debt?
PD – It even took to the end of 2014, under the previous government. Today, it is necessary that Greece adopts an executive that restores investor confidence. We can then consider restructuring the debt, in exchange for a real plan “pro-business”, the savings on debt service for example to lower corporate taxes.

Sorry, this a typical French “conclusion” ( il n’ y qu’ à.., just make it happen..), go find a “an able manager” for Greece!…

 

IMF – Now – comes out with a last minute recommendation, which should have been made Years ago (as this blog did) if EC, IMF, ECB etal “Institutions” really wanted to keep Greece in the Euurozone, which I considered and continue doing so, since April 2011 date of creation of my blog, to be a “Big Mistake”. It should have done well before this provocative, shameless left radical populist Government took over in late January 2015, getting elected by making totally untenable promises to a stressed and impoverished Greek population.

Please refer back to my 07/02/2015 post: “Greece – Eurozone – Choice is not “Best”, but “Lesser of Two Evils”, which shows that things have gone too far in absurd so called ” negotiations”  to arrive at a credible solution, and at best an artificial and temporary type of “deal” might be reached after election resuls, which will anyhow be meaningless since the Greek population, called to vote this Sunday in the Referendum, is not capable of differentiating between two widely  unsatisfactory positions.

My personal stance, since April 2011 was and is to Exit Greece from the Eurozone, but the battle was lost from the beginning because the Eurozone was and continues being badly construed and could not “manage” Greece, and Greece was and is badly governed and could / would not respect “Eurozone’s directives”, even if such directives, my opinion once more, were misguided and untimely, and continue being so at present.

If the EU/ EC – really wanted to keep Greece in the Eurozone – a Big Mistake to me (mil repetita) –  they needed to allow for Greece’s Debt Restructuration which means taking the following decisions:

Either forego part, at least, of the Greek Debt or allow for a “100” (or whatever) years repayment period, because Greece will Never be able to repay their debt. It will, also, require a third Bail-Out (say, 50 billion euros) to keep Greece “alive” to start implementing Structural Reforms and not only Spend Cuts, Reforms which are NOT made ASAP (the big troika continued error!)

To continue – Germany and IMF – insisting on further cuts is absolutely meaningless, downright wrong and totally unrealistic, proof is that the “one track minded” troika did exactly this for five – six years, failing totally and obtaining the contrary.

Greece’s “government” (sic) needs to “sign in blood” a firm and unequivocal agreement, to – gradually – following a set agenda which requires great follow-up, implement the necessary Social-Economic Structural Reforms, which by the way, most OTHER larger Eurozone member countries, like France, second in size Eurozone economy, have not implemented either during four decades at least.

Now, last minute (!), one of the “Institutions”, in this case IMF, does like Grece, make eleventh hour “announcements” to obtain a “Yes” vote in Sunday’s Greece’s referendum. This is how, all these “Instutitutions” have lost all Credibility!

I am now referring to  Reuters for “News”.

I translated these news – colored lettering is mine:

“The IMF suggests an extension and debt cancellation”.

After months of taking “tough” positions on Greece and imposing reforms / austerity / cuts in spend programs (pensions) and tax increases (VAT to hotels), IMF now warned – Thursday, yesterday – that Greece would need an extension of loans from the European Union and a large cancellation of debt if economic growth is weaker than expected, which it will (five-six years of misguided directive by ex- troika (EU, IMF, ECB) can prove it) and if some reforms are not implemented (which will be the case too – recent, above mentioned history proves it.

This last minute “warning” (sic) is contained in a draft report on the viability of Greek debt which is issued as Greece prepares for this Sunday’s referendum on the reforms proposed by its Creditors. Prime Minister Alexis Tsipras urged his compatriots to vote “No.”

IMF, being with the European Commission (EC)  and the European Central Bank (ECB) one of the three institutions overseeing the implementation of economic reforms in Greece, considers that even if the policy of the Greek government complies with creditors “directives”, loans byEuropean countries “will have to be extended significantly” and Greece will need new loans at lower rates than the market rate (concessional loans).

This report was drafted on the basis of assessments carried out last week, before the temporary closure of Greek banks and non-repayment Tuesday by Greece of 1.6 billion euros due to the IMF.

The Greek government and its Eurozone partners fail to agree on a set of reforms to redress public finances of the country in exchange for further financial assistance.

This blockage that prevented the extension of a financial assistance program -the second bail-out, which expired Tuesday and exacerbates liquidity shortage of Greece,with the  eventual threat of  Greece leaving the Eurozone.

During a conference call, an IMF official has held that debt relief should be an essential element of any crisis program.

The IMF estimates that Greece will need another 36 billion euros of EU funding on a global need for additional financing of 50 billion euros, an amount this blog has forecast since weeks.

Cancel Bilateral Loans?

Even under the most optimistic scenario of the current IMF and concessional loans until 2018, the Washington-based institution considers that the Greek debt will represent 150% of its GDP in 2020 and 140% in 2022. The ratio was 177% at end of 2014, according to Eurostat.

“Based on the thresholds that were agreed in November 2012, a haircut involving debt reduction of over 30% of GDP is needed to meet debt targets in November 2012,” the IMF said.

The reference to November 2012 corresponds to a Eurogroup meeting at which was decided a set of measures to ease the burden of Greek debt with the goal of returning to 124% of GDP in 2020.

Given the current trajectory of the Greek debt, the IMF believes that a solution would be to raise to 20 years the moratorium on repayments and a 40-year amortization period on current European loans and to provide, according to these same terms , new loans for future needs of the public sector at least until 2018.

The IMF official speaking on a conference call said that the analysis had been communicated both to Greece and the European Commission, although the European forecasts of funding requirements are lower than those of the Fund.

“An extension of maturities is a spectacular initiative,” he insisted.

In the scenario where the IMF real growth forecast for Greece is lower, only 1%, Greek debt would remain above the threshold of 100% of GDP over the next 30 years, even with longer maturities and new concessional loans.

“Primary surplus means lower term of 2.5% of GDP and real growth of GDP lower by 1% a year, not only require concessional loans to fixed interest rates until 2020 to fill gaps and a doubling of the grace period and maturities of existing debt but also a significant discount of the debt, “the IMF. “For example, a full cancellation (bilateral loans under) the device GLF (€ 53.1 billion), or similar transaction.”