The danger of a Greek exit and why it matters to Canada

By Erica Alini - Thursday, November 22, 2012 at 2:57 PM - 0 Comments

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Updated: Wells vs. Geddes on the Euro and the new Jim Flaherty

By Paul Wells - Friday, June 22, 2012 at 5:38 PM - 0 Comments

A transcript of an email exchange between two guys who sit eight feet apart in our Ottawa bureau.

Paul Wells: John, I see it’s going badly between Angela Merkel and François Hollande. He’s Mr. Growth, she’s Ms. Austerity. Each has repeatedly endorsed the other’s political opponents. And this roundup in Le Figaro shows that both at a human level and a policy level, Europe’s most important relationship is in trouble.

Hollande’s determination to follow through on some of his more exuberant election promises is amazing to the Germans, who don’t just want spending restraint, they want the kind of structural labour-market reforms they went through in a decade ago. So when Hollande lowered France’s retirement age to 60 for some workers, “we were floored,” a senior German official tells Le Figaro. “We don’t understand Hollande’s determination to join the PIGS (the crisis-racked southern club of Portugal, Italy, Greece and Spain).” I’m also enjoying the German headlines. Süddeutsche Zeitung: “François, Nightmare of Business.” Financial Times Deutschland: “Mr. President, Break Your Promises!”

So the Germans may be irritated with Canada, but they’re furious at France. What do you make of it all?

John Geddes: As a hopelessly parochial Canadian, my initial reaction is that I’m glad the Germans don’t have time to dwell on their quite understandable irritation with us. At a deeper level, the Merkel-Hollande, austerity-vs.-growth tension makes me think of debate that’s played out here in recent times.

We learned that you need both. I’ve argued before that the key to Canadian deficit-eliminating success in the 1995-1999 period was tax-generating growth; but the Liberal formula included real restraint, too. It would be more rhetorically satisfying to argue for one over the other, but you need both when a serious debt crunch looms.

The problem is that concocting a policy blend that includes short-term pain with medium-term gain is going to be far harder in Europe circa 2012 than it was in Canada circa 1995. As Royal Dutch Shell CEO Peter Voser, no less, told Maclean’s recently, there’ s no quick solution to be had.

And, by the way, on Hollande’s lowering of the retirement age, isn’t it fascinating the Finance Minister Jim Flaherty managed to nudge up the eligibility age for Old Age Security to 67 from 65, albeit not until 2023, has gone over pretty smoothly. You can do things in this country without filling the streets with protestors. Well, sometimes.

Paul Wells: Indeed it should be possible to reconcile growth with the kind of structural reform that can keep these countries fiscally sustainable. The Europeans are getting no end of advice on this front. Robert Zoellick and Stephen Harper are saying a lot of the same things, and the leader they sound the most like is Merkel. But she won’t get far without a France-sized ally, and as long as Hollande is busy replaying the worst of early François Mitterrand, they’ve got trouble.

But enough about Europe. Why is Jim Flaherty suddenly containing the ardours of the Toronto condo market? Since we work at Maclean’s, I’ve always felt a little proprietary about housing-bubble speculation and I hope Flaherty hasn’t managed to ruin our fun.

John Geddes: It’s hard to remember now that back in 2006 Flaherty was all for blowing bubbles, or at least for making it easier to get mortgages for very long terms. But after introducing 40-year mortgages [very sloppy of me to phrase it like that; I've added an update at the bottom for more detail] opening the Canadian market wider to private mortgage insurers,  he’s spent the six years tightening, tightening, tightening.

This week, he reduced the  maximum mortgage amortization to 25 years. And that’s after he said in April that he wanted to avoid tightening the rules for the fourth time (since he first loosened them), hoping for “the market itself to correct to the extent correction is necessary.”

Apparently the market didn’t do its job. (The market can be lazy that way.) Hence Flaherty’s move to discourage marginal house hunters won’t buy unless they can really spread those payments out. Yet this powerful fear of an overstimulated housing market—especially the Toronto and Vancouver housing markets—comes against the backdrop of an economy that shows no sign of revving up, and is considered vulnerable to the interminable threat of a “shock” from Europe.

Bank of Canada Governor Mark Carney recently issued this warning (and woe betide us if we fail to pay heed to this giant who strides among us): ”Given the reality of global finance, it’s not enough to have our house in order unless we seal ourselves off from the world,” he said. “And, of course, if we seal ourselves off from the world, we would end up much poorer.”

So the policy trick is to cool an overheated housing market without choking our economy just as it might be hit hard by a European setback. That’s no easy matter. It’s why the spring budget looked so delicately—some might say awkwardly—balanced between austerity and let’s-not-go-overboard-with-the-austerity-here.

Note that Carney stresses the need not to view our problems in isolation, which brings us back to the dance of Merkel and Hollande. It would be silly to suggest Canada can do anything decisive to aid the EU. But shouldn’t we be doing something? The only something in play was the International Monetary Fund’s plan to bulk up its resources to help shore up EU economies, and Harper refused to contribute.

Maybe that’s justifiable: not our problem, fix it yourself. The other viewpoint (argued well here) is that anteing up to the IMF would have been a rather low-cost way to ensure our traditional Canadian place at the table. Why have the likes of Carney hanging around Basel, Switzerland, if our national policy doesn’t lend him as much clout and credibility as possible?

Paul Wells: For what it’s worth, I think there’s a strong case for keeping Canadian money (even loaned, even if from foreign-currency reserves and not from general revenues) out of a European solution, and it’s the case Bob Zoellick makes in the piece I linked to above. Europe needs reform; reform is hard; and constant lifelines don’t concentrate the minds of national European leaders who would prefer not to concentrate. The nativist “Don’t bail out rich European socialist” rhetoric the Conservatives are peddling doesn’t help, but just because they are oafish in selling their policy doesn’t mean it’s bankrupt policy.

I do wish Harper would simply explain his viewpoint to some actual Europeans. I continue to wonder why this prime minister, who was briefly so eager to get on U.S. television when the Fox-obsessed Kory Teneycke was his communications director, has not bothered to write an op-ed for the Financial Times or some German tabloid now that the fate of Europe is the biggest cloud on Canada’s horizon. But that’s the columnist in me talking, not the realist. The realist says it’s the weekend and we should enjoy it. Have a good one.

UPDATE:

John Geddes: Finance Minister Jim Flaherty’s office rightly points out by email that he did not introduce 40-year mortgages, as I originally and incorrectly phrased it in my exchange with Paul. The 40-year amortization was introduced to the Canadian market by a private mortgage insurer in the fall of 2006. That was my mistake, for which I’m sorry; I’ve corrected it in the text above.

What Flaherty did do in his first budget, back in the spring of 2006, was double the amount available, to $200 billion from $100 billion, as a government guarantee for private companies that insure mortgage loans. That move was plainly intended to pave the way for a big expansion of private mortgage insurance in Canada, and unequivocally signalled the government’s aim of stimulating the housing market.

Flaherty’s undisguised hope at the time was that private insurers would make it easier for would-be home owners to buy. Here’s how his May 2, 2006 budget explained the purpose of encouraging more private insurers to join the Canadian residential real estate game: “These changes will result in greater choice and innovation in the market for mortgage insurance, benefiting consumers and promoting home ownership.”

By way of innovation, private insurers introduced 35-year- and 40-year amortizations in the spring of 2006, even before the budget was tabled. The federal Canada Mortgage and Housing Corp., in step with the government’s policy bent, also began backing 30-year and then 35-year amortizations that spring. In that email note to me today, Flaherty’s office says there was no reason at the time to worry about any of this. “In 2006,” the minister’s officials write, “risks relating to mortgage markets were not top of mind.”

Evidently such risks were not top of mind around Flaherty’s office. However, the danger inherent in those spring 2006 “innovations” in the Canadian mortgage insurance business certainly worried David Dodge, the Bank of Canada governor of the day, and arguably the most respected voice in Ottawa on economic issues.

Canadian Press broke the story of Dodge’s urgently worded, promptly written June 30, 2006, letter to the head of CMHC.  ”I read with interest and dismay your press release of June 28 which indicated that CMHC would offer mortgage insurance for interest-only loans and for amortizations of up to 35 years,” Dodge wrote.”Particularly disturbing to me is the rationale you gave that ‘these innovative solutions will allow more Canadians to buy homes and to do so sooner.’”

Beyond Dodge’s remarkable blunt and prescient intervention, the recollection of Flaherty’s staff regarding the worry-free atmosphere regarding mortgage risks in 2006 seems to me a bit off. Just to cite just a couple of mainstream examples from the same month as Flaherty’s first budget, BMO economist Douglas Porter warned of worrisome “bubble-like activity” in Canadian real estate, and, down in the U.S., Fortune reported: “The great housing bubble has finally started to deflate.”

Free advice from Jim Flaherty

By Aaron Wherry - Wednesday, May 2, 2012 at 8:45 AM - 0 Comments

The Finance Minister may have been told to stop dumping on the Ontario government, but he apparently remains free to lecture Europe.

Since 2008, and throughout the European debt crisis, I have been telling my international counterparts that it is important to overwhelm the problem and get ahead of the markets. This is what the United States did in 2008, and it is what Canada did in 2009 by deploying a fiscal stimulus of roughly 4 per cent of GDP over two years in response to a crisis originating outside our borders. These bold actions paid off. Rating agencies have reaffirmed Canada’s strong AAA credit rating, and we are now on track to return to balanced budgets over the medium term. By contrast, actions taken by the eurozone have fallen short of overwhelming the problem. The “muddle through” approach has led to an erosion of confidence in public leadership and too many missed opportunities.

Ultimately, the adequacy of the actions taken will be judged by the markets. Repeated expressions of confidence by politicians are futile if the markets continue to cast their vote of non-confidence. The markets’ confidence in political leadership will only be restored when it is clear that politicians are willing to see the full scope of the problem, to focus on the key issues instead of pursuing sideshows such as the financial transactions tax, and to set out and implement a plan for tackling these issues.

Greece: When democracy is denied, people take to the streets

By the editors - Tuesday, February 21, 2012 at 10:00 AM - 0 Comments

Yannis Behrakis/Reuters

Ancient Athenians made no distinction between themselves and their government. Official pronouncements attributed decisions to “the citizens of Athens” and left it at that. Such an inclusive sense of democracy is sadly absent in the modern city.

This week in Athens tens of thousands of protesters, angered by severe new austerity measures proposed by the unelected caretaker government of Prime Minister Lucas Papademos, set fire to scores of buildings and rampaged throughout town. They were met by riot police lobbing tear gas and stun grenades. And after the package passed, Papademos quickly expelled members of his government who voted against it. This is apparently no time for dissent or debate.

The turmoil in Greece is well earned. Many decades of lavish but unsupportable welfare state spending have left Greece impossibly burdened; its sovereign debt stands at 160 per cent of GDP. And yet the new austerity package could accelerate the already precipitous fall in living standards. The economy shrank by seven per cent last year and unemployment among the volatile 16-24 age group is 46 per cent.

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Economic orphans are Greece’s youngest victims

By Alex Ballingall - Wednesday, January 11, 2012 at 10:45 AM - 0 Comments

Louisa Gouliamaki/AFP/Getty Images

A note was left recently at a daycare in Greece. As the Guardian reported, it read: “I will not return to get Anna. I don’t have any money, I can’t bring her up. Sorry.” Signed: “Her mother.”

This sad case of abandonment isn’t unique. Greece is mired in economic decay. Growth is contracting as welfare services are gutted and transformed in accordance with the austerity conditions attached to a massive EU-IMF bailout package (the sixth installment of which—worth more than $10.5 billion—has been secured by the cross-partisan transitional government in Athens). Financial insecurity is haunting families across the country, even creeping into the lives of the middle class. And many parents say they can no longer care for their kids.

Before 2011, nearly all kids taken in by SOS Children in Greece, a charity group for abandoned youth, were victims of abuse. Now, “nearly 100 per cent of new referrals are as a result of a financial crisis in the family,” the organization said in a recent press release.

With an election in the offing, Greek legislators are trying to juggle the demands of their creditors with the needs of the people. It’s a grim compromise, as the country’s children know all too well.

How Germany finally took control of Europe

By the editors - Wednesday, December 14, 2011 at 8:00 AM - 0 Comments

Remy de la Mauviniere/AP

Among the many desperate calls for help during the current European crisis, that of Polish Foreign Minister Radek Sikorski stands out for its sheer lack of precedent. “I may be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity,” Sikorsky said last week in Berlin to his hosts. “You have become Europe’s indispensible nation . . . nobody else can do it.” Only Germany can save Europe now.

It’s hard to argue against Sikorksi’s logic, at least in the short run. Ireland and Portugal have been bailed out at great expense. Investors were forced to take a massive loss on Greek bonds. Now even major European states such as Italy and Spain are teetering on the edge of insolvency. If these governments lose the ability to continue borrowing, the entire continent could be plunged into complete economic collapse, with grim implications for the rest of the world, including Canada.

Throughout this two-year-long crisis, only Germany has retained the financial and moral clout sufficient to save the day, thanks to its low unemployment rate, reasonable debt levels and robust financial sector. (France, for all its bluster, remains a necessary but junior partner in this project.) After decades of backstopping the European experiment by buying bonds and, more recently, providing the bulk of the recent bailout packages, Germany has begun to exert a new sense of authority. In particular, German Chancellor Angela Merkel has been demanding strict new rules over spending in individual countries as the price for continued German intervention.

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Franc talk about a money deadline

By Alex Ballingall - Wednesday, December 7, 2011 at 12:00 PM - 0 Comments

Nearly 10 years after France officially adopted the euro, a staggering amount of the old currency, the French franc, is still waiting to be exchanged—about 600 million euros’ worth, according to the country’s central bank. Now, even as the ongoing euro crisis puts the future of the common currency in question, time to trade those old bills in is running out. After Feb. 17, the central bank will no longer exchange any franc banknotes for euros.

To get the word out, la Banque de France has kicked off a public awareness campaign. Two television commercials ask viewers if they remember where they put their remaining francs (in one, an actor is shocked to hear that his friend put them through the wash a decade ago). There’s also a website, jechangemesfrancs.com, with information on where to exchange the old currency and how many euros one can expect in return (a 20-franc note gets 3.05 euros).

Countries that adopted the euro have varying timelines to switch currencies. Spain, Germany and Ireland, for example, have no set deadlines. Belgian francs were only accepted until the end of 2004. The Netherlands, meanwhile, will allow people to trade in their guilders until Jan. 1, 2032.

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In conversation: Mark Carney

By Andrew Coyne - Monday, December 5, 2011 at 11:10 AM - 2 Comments

Blair Gable

He’s among the most respected voices anywhere on financial regulation and monetary policy, and the Canadian closest to the centre of efforts to solve the European debt crisis. Governor of the Bank of Canada since 2008, Mark Carney, 46, was also recently named head of the Swiss-based Financial Stability Board. He’s a leading figure in the struggle to shore up a fragile world economy.

Q: Let’s talk about Europe. You hear people saying we may be in the last days of the euro. What is the way out of this crisis?

A:Let me say two things. One, there are longer-term issues that absolutely have to be addressed. They have to rework the way the monetary union functions—fundamental questions of competitiveness in these economies—which require multi-year reform programs. Those absolutely have to be done for this thing to work in the medium term—and there’s no point saving it in the short term, if it’s not going to work in the medium term. But in terms of creating the bridge so there’s time to do all of that, we have long advocated that they create a mechanism—a firewall—that ensures that all eurozone countries can fund themselves at sustainable rates for the next two, three years. And that is a requirement that is at least on the order of a trillion euros.

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Spain’s Mariano Rajoy isn’t popular—but he’s way ahead

By Jane Switzer - Friday, November 18, 2011 at 9:20 AM - 3 Comments

Cesar Manso/AFP/Getty Images

Spaniards think he’s boring, but anger over Spain’s economic crisis is expected to propel opposition leader Mariano Rajoy to victory in the country’s Nov. 20 election.

Rajoy’s conservative People’s Party is expected to win a landslide parliamentary majority with 47.6 per cent of the votes, according to a Nov. 13 poll published in Spain’s centre-right El Mundo newspaper. The second-place Socialist Party, led by Alfredo Pérez Rubalcaba, trailed the People’s Party by 17.8 percentage points, with a predicted 29.8 per cent. Various polls also widely declared Rajoy the winner of a Nov. 7 televised debate against Rubalcaba, the sole face-to-face exchange of the campaign.

Rajoy, 56, and Rubalcaba, 60, squared off on how to solve Spain’s debt crisis and kick-start its stagnant economy. Rubalcaba accused Rajoy of hiding plans to cut benefits and pensions to curb Spain’s growing deficit: “If you tell people the plans you have in your head, not even your own party members will vote for you,” he said. But Rubalcaba’s interrogation did little to stop Rajoy, who rebuffed his rival by evoking the spectre of Spain’s debt crisis: “I think Spain needs a change and needs it urgently.”

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A troubled EU is nothing to snicker at

By Paul Wells - Friday, November 18, 2011 at 8:00 AM - 12 Comments

Christian Hartmann/Reuters

The good news is that when the cover of Canadian Business magazine says “Europe’s Still Doomed,” they don’t actually mean tens of millions of Europeans are about to die a horrible death. For centuries that was the standard for measuring a bad day in Europe.

France lost more of her citizens in the Franco-Prussian War of 1870-71, about 139,000, than Canada lost in the First and Second World Wars combined, and it was barely getting warmed up. Next came 1.7 million French deaths in the First World War, then another half-million in the Second World War. Maybe seven million Germans died in the latter war, and nearly six million Poles. Belarus, at the time a Soviet republic, lost a quarter of its population. It’s easy for us to be glib about these things. They remain present and felt in Europe.

Canadians who chuckle at Eurocrats and Brussels bean-counters don’t pay enough attention to what those tweedy legions of paper-pushers have replaced. They’ve replaced hell. That doesn’t mean they’ve brought heaven, far from it, but the distance travelled is worth remembering. Germany and France work far more closely together than Canada and the U.S. do. Europe’s attractive power has pulled a dozen countries away from Russia’s grasp and closer to prosperity. The European Union’s eastern border, even with quasi-failed states like Belarus, is at least peaceful.

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Acropolis now: Greece may be just the start

By Michael Petrou with Stavroula Logothettis - Friday, November 11, 2011 at 11:00 AM - 33 Comments

Orestis Panagiotou/Keystone Press

“We are finished as a nation,” says Marko Gjini, a 39-year-old unemployed construction worker in Athens. “The country has been sold off. We have no say in anything anymore. Greece is owned by the Germans.”

Like many Greeks these days, Gjini is bitter and despondent because of his country’s financial mess, and the austerity measures that have been imposed in an effort to contain it. His wife, Aleka, a public hospital nurse, has seen her income drop from 1,200 euros a month to 800 euros. Now, facing more taxes and cuts to public expenditures, the family expects to have a net monthly income of less than 500 euros. Marko and Aleka are investing whatever money they can toward English lessons for their twin eight-year-old boys in the hope that they might have a better future somewhere else. “Let the government fall,” says Gjini, “[German Chancellor Angela] Merkel is the boss now anyway.”

Greece’s financial troubles have been accelerating since 2008, and have now reached a crisis point. Unable to pay debts accumulated through years of wild spending and financial mismanagement, covered up by blatant cooking of the books, last May the country accepted a $150-billion bailout loan from the International Monetary Fund and other members of the eurozone—those European Union countries that use the common euro currency—in return for imposing harsh austerity measures. These weren’t popular among ordinary Greeks; strikes and street protests followed. Three bank officials died in May when rioters set fire to their bank branch in downtown Athens.

The Greek government, meanwhile, missed its financial targets. Rescue loans were delayed. And the recession got worse. Facing the very real possibility of defaulting on its enormous national debt, Greece last month negotiated another bailout package involving cash and a 50 per cent “haircut” off all its privately held debt, if Greece would agree to further cuts to public spending and increased taxes.

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Papandreou’s referendum bombshell

By Leah McLaren - Friday, November 4, 2011 at 11:20 AM - 0 Comments

Oliver Berg/EPA/Keystone Press

European markets again plunged this week after a surprise announcement on Monday by Greek Prime Minister George Papandreou that he would hold a referendum on the latest EU debt deal. The “comprehensive financial package” settled upon last Thursday in Brussels, after several days of agonizing negotiations between eurozone leaders, is the latest in a series of rescue plans intended to save the euro in the face of the deepening sovereign debt crisis. Its chief aim is the prevention of an uncontrolled Greek default, a situation many see as the economic death knell for a united Europe. To this end, eurozone leaders convinced private holders of Greek debt to agree to a 50 per cent loss, intended to shrink that debt down to a sustainable level. European banks will have to recapitalize to the tune of 106 billion euros in order to help them absorb the Greek losses with minimal fallout.

Though Papandreou eventually backed away from the idea of putting the bailout package to a vote, his announcement stunned European capitals and threw the future of the already shaky plan into even deeper doubt. While he did not set a date, response to the statement was immediate. In addition to the European nosedive, Wall Street and Asian markets took fright, and the Athens stock exchange plunged nearly seven per cent on opening Tuesday. Why would an embattled leader expose his faltering economy to even further danger, let alone risk being forever branded as The Man Who Toppled Europe? Simply because it may be the only way he can hold on to power.

The move is politically expedient because it will allow Papandreou’s socialist party, under increasingly hostile and volatile public criticism in recent months, to pass the buck on the nation’s future to the Greek people themselves. Either way, the choice isn’t easy: Greeks are facing more of the unpopular austerity measures they have been demonstrating against for months—or complete default. “The citizen will be called upon to say a big ‘yes’ or a big ‘no’ to the new loan arrangement,” Papandreou told parliament. “This is a supreme act of democracy and of patriotism. We have a duty to promote the role and the responsibility of the citizen.”

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Germany warns there’s no end in sight to euro crisis

By macleans.ca - Monday, October 17, 2011 at 12:24 PM - 2 Comments

Germany dampened investors’ hopes on Monday that an upcoming meeting of EU leaders would bring a comprehensive solution to the euro zone’s sovereign debt woes. “We won’t have a definitive solution this weekend,” German finance minister Wolfgang Schaeuble said in Duesseldorf today, in reference to the October 23 EU summit. The remark softened a rally in the financial markets that had pushed the euro to a new one-month high against the dollar and European stocks to a 10-week peak. A plan that will address not only Greece’s crisis but the full scope of the euro zone’s woes is what private European banks are demanding from policymakers in exchange for accepting steep losses tied to a planned restructuring of Athens’ debt. Meanwhile, Canada’s Finance Minister Jim Flaherty warned in a speech on Monday that “time is running out” on dithering European leaders. “What will it take for Europe to take decisive action and put an end to this crisis, once and for all?” Flaherty said. “Too much time has been wasted, too many opportunities have been missed.”

Reuters

Bloomberg Businessweek

Britain to the EU: I told you so

By Leah Mclaren - Tuesday, October 4, 2011 at 10:00 AM - 12 Comments

Suzanne Plunkett/Reuters

In his speech to a joint session of Parliament in Ottawa last week, British Prime Minister David Cameron lavished praise on our economic system. After commending Canada for getting “every major decision right” in the past few years of global market turmoil, he lauded the strength of both the Canadian banking system and our economic leaders, who, he said, “got to grips with its deficit” and were “running surpluses and paying down debt before the recession, fixing the roof while the sun was shining.”

Cameron’s admiration for Canada’s relatively peachy fiscal position stands in stark contrast to his dim view of his eurozone neighbours.

The British PM used his northern stopover to trumpet the message both he and his finance minister, George Osborne, have taken up even more loudly than usual as of late: Europe, and the U.S., must get their fiscal houses in order, or face disastrous consequences. “This is not a traditional, cyclical recession, it’s a debt crisis,” Cameron said of the world’s faltering economies. “When the fundamental problem is the level of debt and the fear of those levels, then the usual economic prescriptions cannot be applied.” It’s a statement that begs the obvious question: what now?

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Merkel under siege

By Michael Petrou - Tuesday, October 4, 2011 at 9:50 AM - 0 Comments

Eric Herchaft/Redux

Spare a sympathetic thought for German Chancellor Angela Merkel, leader of the most powerful country in the euro zone, and the one whose decisions will have a consequential effect not just on citizens of Germany, but the rest of the continent. “When Angela Merkel goes into a room at a summit meeting, it’s as if the headmistress has arrived,” says William Paterson, honorary professor of German and European politics at Aston University in Britain.

This is all well and good when the school—or a monetary union of 17 member states and 300 million people—is running well. But when half the students are wasting or hiding their lunch money, the teachers are overspending and asking the headmistress to cover for them, and—to stretch the metaphor—the headmistress’s own family doesn’t see why she should do so, it becomes a much more trying job.

This is roughly the position in which Merkel finds herself as the popularity of her Christian Democratic Union (CDU) party crumbles, and the governing coalition it leads shows signs of imploding. The eurozone is facing a financial crisis, driven by soaring sovereign debts of member states such as Greece, Portugal, Italy, Ireland and Spain. Greece’s situation is the most serious, with some observers predicting that a default on its debts is inevitable. Such an event would hurt all the economies in the union (not sparing those outside it) and dramatically weaken the euro. And so, multi-billion-dollar bailout packages have been pledged, with more on the way.

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Greece reveals deeper than expected deficit

By macleans.ca - Monday, October 3, 2011 at 11:14 AM - 2 Comments

Markets in Europe got off to a shaky start this week after Greece reported that its budget deficit is set to grow this year. The announcement added more clout to the widespread fears of a Greek debt default and an ensuing economic collapse. On Sunday, the Greek finance ministry revealed the Greek deficit will be 8.5 per cent of GDP this year, up from the 7.8 per cent originally expected. The ministry blamed a deeper-than-expected recession for the growth. The Greek economy is projected to shrink by 5.5 per cent this year. The government has been relying on EU and IMF loans to pay its bills for months. Representatives from the IMF, European Commission and European Central Bank are meeting this week in Athens to decide whether Greece will be able to repay the next round of bailout money. The government needs another 8 billion euros to survive past mid-October.

CBC News

Good news, bad news: Sept. 22-29

By macleans.ca - Monday, October 3, 2011 at 10:00 AM - 0 Comments

Good news

No longer for scholars' eyes only, the Dead Sea Scrolls are posted online. (Lior Mizrahi/Getty Images)

Steps in the right direction

The king of Saudi Arabia has granted women the right to vote, acknowledging they can make “correct opinions.” This in a place where females can’t travel without a male’s permission, and where one woman who drove, despite a ban, was sentenced to 10 lashes. King Abdullah’s decision also permits females to run for Shura Council. Meanwhile, in Afghanistan, President Hamid Karzai has approved draft regulations allowing women’s shelters to remain independent from government, and receive donations without state intermediation.

Weird science

It was an exciting week in space news: NASA’s Upper Atmosphere Research Satellite, deployed by the space shuttle in 1991, fell from orbit. A troublemaker on Twitter, armed with some Orson Welles quotes, managed to spread rumours worldwide that UARS had fallen near Okotoks, Alta. Fortunately, it appears the satellite crashed harmlessly somewhere in the Pacific Ocean. A few days earlier, space geeks were titillated with another report: physicists think they saw neutrinos travelling faster than the speed of light, which, if confirmed, would disprove Albert Einstein’s theory of relativity.

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Greek PM courts EU leaders in effort to prevent default

By macleans.ca - Friday, September 30, 2011 at 2:03 PM - 0 Comments

Greek Prime Minister George Papandreou was courting support for his country’s ailing economy Friday, meeting with EU leaders in Warsaw before flying to France for a scheduled talk with President Nicolas Sarkozy. Papandreou is hoping to reassure eurozone leaders that the Greek government is committed to meeting the obligations handed down by the European Council and the International Monetary Fund in exchange for bailout loans. Greece needs another 8 billion euros by mid-October to avoid a sovereign debt default; something many analysts fear would precipitate an economic recession in Europe. Papendreou’s tour comes a day after the German legislature approved expanding the eurozone’s bailout fund as a measure that will help contain the debt crisis threatening to spread to larger economies like Italy and Spain. All 17 eurozone members must approve the expansion of the fund, something the head of the group’s finance ministers says should be finalized by mid-October. Meanwhile, anti-austerity demonstrations continued apace in the Greek cities of Thessaloniki and Athens. Many Greeks feel the austerity measures are deepening the economic crisis and subverting the country’s sovereignty.

BBC News 

Germany approves increase of eurozone bailout fund

By macleans.ca - Thursday, September 29, 2011 at 10:49 AM - 0 Comments

A strong majority of German legislators approved a hotly debated measure to increase their contribution to the eurozone bailout fund on Thursday. The vote was widely seen as a key test of Chancellor Angela Merkel’s leadership and the unity of her centre-right coalition. Merkel loyalists reportedly lobbied fellow legislators deep into the night Wednesday, as some members of the coalition had publicly expressed their opposition to the motion. In passing the legislature, Germany will now commit 211 billion euros to the European Financial Stability Facility (EFSF), up from 121 billion euros so far. Of the 611 legislators on hand for the vote, 523 were in favour, 85 were against and three abstained. The vote marked the official approval of a July decision by eurozone countries to beef up the EFSF to 440 billion euros, signaling that more money will be needed to prevent a Greek sovereign debt default and the spread of the crises to larger European economies like Italy and Spain. All 17 eurozone members must approve the initiative in their own legislatures. On Wednesday, Finland voted in favour of the measure as well.

CBC News

Market volatility continues as EU leaders debate bailout

By macleans.ca - Wednesday, September 28, 2011 at 1:20 PM - 0 Comments

The prospect of a Greek debt default continues to fuel market volatility as leaders in Europe debate beefing up the eurozone bailout fund and seek ways to prevent the crisis from spreading into Spain and Italy. After hopes of a credible plan to ensure the continued delivery of loans to the beleaguered government in Athens rose earlier this week, disagreements over the burden private lenders should take in the endeavour emerged on Wednesday. Many economic analysts are predicting Greece will eventually default on its debt, regardless of what eurozone leaders end up doing. They say the Greek economy is shrinking while its debt is increasing, and it will soon have no choice but to neglect paying it off. On Thursday, the German parliament will hold a crucial vote on whether it will support the creation of a larger bailout fund. Finland already approved that notion in a vote Wednesday. Greece needs an additional 8 billion euros by mid-October in order to remain solvent.

The Globe and Mail

Stocks rise as talk of more bailout funds for Greece swirls

By macleans.ca - Tuesday, September 27, 2011 at 11:29 AM - 0 Comments

Speculation that European leaders will increase funds available for eurozone bailouts raised stocks Tuesday, despite resistance to the idea from many German politicians. The German parliament is set to hold a crucial vote on Thursday regarding the issue. Mindful of opposition to a beefed-up bailout fund, German Finance Minister Wolfgang Schaeuble denied any plans to directly inject more money into the fund, implying there may be a way to leverage more money into it, like an equity fund. German Chancellor Angela Merkel has been steadfast in her position that Greece will not default on its sovereign debt. She is scheduled to meet with Greek Prime Minister George Papandreou Tuesday night to discuss that country’s latest austerity legislation. Economic advisors to the German and French governments released an open letter recently that urged policymakers to allow Greece to write off 50 per cent of its debt. In order to remain solvent, Greece needs an addition 8 billion euros. But even if they receive the funding, most analysts are predicting a Greek default in the coming months.

Reuters

David Cameron comes to Ottawa

By Michael Petrou - Thursday, September 22, 2011 at 10:56 PM - 8 Comments

The invitation had been “dangling” for months but, British sources say, plans for British Prime Minister David Cameron’s first bilateral visit to Canada — and the first by a British prime minister since Tony Blair in 2001 — only got under way two weeks ago.

It was then something of a scramble to prepare statements and speeches. Quoting Churchill is always a reliable crowd pleaser on these occasions, and both sides were soon eyeing the great wartime leader’s “Some chicken! Some neck!” speech delivered in the House of Commons in December 1941. Continue…

Germany gets fed up with the European Union

By Erica Alini - Wednesday, July 20, 2011 at 9:47 AM - 3 Comments

Alex Domanski/Reuters

Germans are angry. Some of them are outright enraged. And almost anyone with a basic awareness of current affairs feels deeply frustrated.

Back in 1999, when the euro was born, Germany’s number one concern was that it would somehow have to cover up for the excesses and crooked ways of southern European governments. Now it’s happening. The European Union is about to sign a second hefty cheque for Greece, something politicians obstinately call a loan, but many suspect is plainly a cash handout. That comes on top of $150 billion the EU and the International Monetary Fund already started injecting into the Greek economy in 2010. In both cases, Germany, Europe’s economic powerhouse, gets to do most of the financial heavy lifting. “The Greeks are going to bankrupt Germany,” the Bild, a German tabloid with a daily circulation of three million, wrote last year in anticipation of the first bailout. The paper even sent a reporter to Athens to hand out bundles of drachmas, the old Greek currency, a stunt meant to persuade the country to drop out of the euro. It was a rude joke many condemned as irresponsible populism, but one that captured the riotous mood of German public opinion.

Even highly respected and normally poised German newspapers, such as the venerable Frankfurter Allgemeine, have been lashing out at “the failure” of the Greek bailout. “I find it embarrassing that we are paying so much money for other countries who have not been able to deal correctly with their money,” says Joachim Jahn, an editor at the paper. Not everyone feels as chafed as Jahn, but many are starting to question whether Europe is really all that good for Germany. A recent poll showed that 63 per cent of Germans have low to no confidence in the EU.

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The problems run deep

By Danylo Hawaleshka - Tuesday, March 23, 2010 at 12:00 PM - 1 Comment

Orestis Panagiotou/ EPA/ Keystone Press

Taxis are still reasonably priced in Greece, even though not much else is. In Athens, where an espresso can cost $6, gin and tonics $12.50, and the latest issue of Vanity Fair fetches $16, cab rides still cost about half of what they do in Toronto. It probably has a lot to do with how taxi drivers in Greece pay next to no income tax. Christos Kyriakousis, for instance, drives his own 2004 Mercedes-Benz E270 sedan. Under current tax law he simply pays an annual flat rate of less than $1,700 (1,200 euros). But now, the cash-strapped Greek government is insisting that taxi operators like Kyriakousis—horror of horrors—will soon have to issue receipts and pay tax according to how much they actually earn. In protest, drivers earlier this month staged a 48-hour work stoppage. “As far as I’m concerned, they can do it,” Kyriakousis says of the government’s intention to bring in tougher tax measures. “But we have to be able to trust them, and they have to trust us.”

Therein lies the great dilemma. Still very much a cash-based society plagued by frequently low household incomes, Greece remains terribly corrupt, with trust between taxpayers and politicians holding little or no currency. Transparency International’s corruption index last year placed Greece 71st out of 180 countries, behind Kuwait and Ghana, and only slightly better than Burkina Faso. Little wonder then that Greeks tend to look out for themselves—with a sense of entitlement that has often undermined efforts to improve the common good. And so necessary government reforms, like recently announced austerity measures, are often met by protests like the one on March 11, when as many as 50,000 public and private employees took to the streets. And yet it is difficult to imagine a nation, particularly one belonging to the European Union, more desperately in need of economic change.

This is, after all, a country of only 11 million citizens, where one in four workers is employed by the state (many of them tenured), and where generous state pensions and early retirement provisions have the country teetering on the edge of insolvency. The country’s financial problems are dragging down the euro, the currency used by Greece and 15 other EU member states. And so, earlier this month, the government was forced to institute 4.8 billion euros worth of tax hikes and cost savings ($6.7 billion), in addition to the five billion euros in spending cuts already announced in January as part of the so-called stability and growth program demanded by Eurocrats in Brussels. “This is by far the most austere and painful set of stabilization and austerity measures that has ever been adopted by a Greek government,” says George Pagoulatos, a political economist at the Athens University of Economics and Business. “There’s a lot of fat to be scraped off the public sector. There are far too many [state] organizations that could be abolished without any welfare loss. It is clear that the total wage and pension bill of the government is unsustainable.”

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