Shipyard workers demand their unpaid wages in central Athens. Greece is now as close as it's ever been to leaving the eurozone.
I went on "The Patt Morrison Show" on Tuesday to join NPR "Planet Money" correspondent Zoe Chace and travel expert Terry McCabe to discuss the ongoing, seemingly neverending eurozone crisis. As you probably know, there are now serious conversations happening in Europe about Greece exiting the euro. Spain and Italy could be in trouble. Ireland and Portugal already are. Governments have fallen; most recently French President Nicholas Sakozy lost his re-election bid to socialist François Hollande.
Despite all this, it's easy to talk yourself into a false sense of calm. After all, the eurozone crisis feels as if it's been going in for years — because it has been going on for years!
At the Financial Times, Martin Wolf doesn't think we should be calm. He thinks we should acknowledge reality: that post-financial crisis, the world is in a "contained depression." And we're unprepared for the consequences of a eurozone meltdown:
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An elderly man feeds pigeons on Syntagma Square on November 3, 2011 in Athens, Greece. Greece stands on the brink of economice collapse as political disagreements continue concerning the financial aid package proposed by the EU.
At this point, the Greek debt crisis probably seems like it's been going on forever. It hasn't, but it seems to defy resolution. Last Friday, the country finally defaulted, in a strictly technical sense, on part of its sovereign debt — an outstanding slice of private bondholder debt that was insured by the dreaded credit default swaps. The agency that determines whether those swaps — which amount to a bet that a country won't be able to keep up with its bond payments — should pay out said, "Yep, Greece has defaulted." Felix Salmon and John Carney provided a good explanation on Marketplace at the end of last week.
The main issue for Greece is just how long it's going to have to suffer. The austerity measures that are being forced upon it in exchange for more bailout money from the European financial authorities are setting it up for a decade of pain. On the plus side, Greece stays in the eurozone and has access to financing through the currency union; something can always be worked out...however...s-l-o-w-l-y. On the minus side...well, there's all that austerity and aforementioned pain.
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ATHENS, GREECE - NOVEMBER 03: A general view of the building of the Greek Parliament on the Syntagma (Constitution) Square is pictured on November 03, 2011 in Athens, Greece.
I've been steering clear of the euro crisis for the past month or so, but given the latest frenzied spate of negotiations about how to prevent Greece from defaulting on its debt, I figured it was time to jump back in. The latest news is pretty straightforward: over the weekend, the Greek parliament voted to accept a new set of austerity measures, in exchange for a new round of bailout money — $171 billion, roughly.
This hasn't gone down well with the population, according the the New York Times:
[C]haos on the streets of Athens, where more than 80,000 people turned out to protest on Sunday, and in other cities across Greece reflected a growing dread — certainly among Greeks, but also among economists and perhaps even European officials — that the sharp belt-tightening and the bailout money it brings will still not be enough to keep the country from going over a precipice.
Angry protesters in the capital threw rocks at the police, who fired back with tear gas. After nightfall, demonstrators threw Molotov cocktails, setting fire to more than 40 buildings, including a historic theater in downtown Athens, the worst damage in the city since May 2010, when three people were killed when protesters firebombed a bank. There were clashes in Salonika in the north, Patra in the west, Volos in central Greece, and on the islands of Crete and Corfu.
Greece and its foreign lenders are locked in a dangerous brinkmanship over the future of the nation and the euro. Until recently, a Greek default and exit from the euro zone was seen as unthinkable. [my emphasis] Now, though experts say that the European Union is not prepared for a default and does not want one, the dynamic has shifted from trying to save Greece to trying to contain the damage if it turns out to be unsalvageable.
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CANNES, FRANCE - NOVEMBER 03: US President Barack Obama is welcomed by the French President Nicolas Sarkozy to the G20 Summit on November 3, 2011 in Cannes, France. World's top economic leaders are attending the G20 summit in Cannes on November 3rd and 4th, and are expected to debate current issues surrounding the global financial system in the hope of fending off a global recession and finding an answer to the Eurozone crisis. (Photo by Dan Kitwood/Getty Images)
The world's ninth largest economy is now joining the first largest in the unhappy doghouse of Standard & Poor's downgrades. Just as the U.S. was busted down from AAA (S&P's highest rating) to AA+, so, too will France see its "credit score" fall.
A downgrade by S&P signals that the latest pledges by European leaders to clamp down on deficits and step up cooperation won’t be enough to end the region’s debt crisis and curtail the rise in France’s borrowing costs. The country’s benchmark 10-year bonds now yield 130 basis points more than debt of AAA rated Germany.
A downgrade of France may further complicate Europe’s efforts to stem the crisis by threatening the rating of the region’s bailout fund. The European Financial Stability Facility, which is funding rescue packages for Greece, Ireland and Portugal partially with bond sales, owes its AAA rating to guarantees from the euro region top-rated nations. A French downgrade may prompt investors to demand higher rates on the fund’s debt.
My latest appearance on "America Now with Andy Dean," this time to talk about yesterday's relatively positive economic news, which caused the Dow to rise almost 500 points. As always, a lot of fun to go back and forth with Andy and a good chance to summarize my DeBord Report post from Wednesday about the eurozone crisis, central banks, the impending jobs report, housing data, and whether China will be able to hold its own economy together.
I'm on at about the 31:00 mark. Enjoy!