Just What Is The Real Level Of Government Debt In Europe?

“If you don’t fully understand an instrument, don’t buy it”.

To the above advice from Emilio Botin, Executive Chairman of Spain’s Grupo Santander, I would simply add one small rider: Don’t sell it either, especially if you are a national government trying to structure your country’s debt.

In a fascinating article in today’s New York Times, journalists Louise Story, Landon Thomas and Nelson Schwartz begin to recount the mirky story of just how the major US investment banks have been able to earn considerable sums of money effectively helping European governments to disguise their growing mountain of public debt.

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting. The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

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Few Surprises As Greece’s Economic Contraction Accelerates

Well, I may say there were no surprises, but in fact the Greek economy contracted more than many observers expected in the fourth quarter, while downward revisions to the rest of 2009 converted the present recession into the country’s worst since 1987. Evidently the latest numbers offer the first warning that all may not be as simple as it looks on paper for the Greek government’s plan to set their finances straight. As far as I am concerned the latest numbers simply confirm what should already have been abundantly evident – correcting the fiscal deficit without straightening out the rest of the economic distortions is going to make economic growth something which is very hard to come by. Continue reading

Eurozone Q4 GDP Growth Disappoints

GDP releases are, by their very nature, lagging indicators and thus do not tell us a whole lot about the current momentum in an economy. Moreover, the immediate focus of attention in the Eurozone remains, and rightly so, the situation in Greece (and Spain), and what precise plans are likely to emerge from the busy schedule meetings which is taking place between Eurogroup and EU finance ministers and heads of states. Yet, despite all the known shortcomings, GDP data remains our basic source of information about the health and progress of our economies, and with the Q4 data out today and the 2009 GDP summary we are able to arrive at some sort of interim conclusion [1] on what was obvioiusly an absolutely abysmal 2009. More importantly we are also able to take stock of a recovery which permanently promises to arrive, but never actually seems to do so, much to the chagrin, I am sure, of the various Eurozone policy makers (click for better viewing)

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Kosovo: waiting for the ICJ

So Kosovo and Serbia are now waiting for the International Court of Justice to rule on whether Kosovo is independent or not.

Except, not really.

Back in October 2008, the new Government of Serbia asked the ICJ to rule on whether Kosovo’s unilateral declaration of independence (“UDI”) in March 2008 was legal. This was clever in several ways. Internally, the new, relatively liberal and pro-Western Serbian governmnent shored up its flank against certain sorts of nationalist attack. Externally, it showed Serbia being a good, reasonable international citizen by submitting its problem to the highest body of international justice. And tactically, it invited the Court to rule on a narrow issue — was the UDI, done in that way at that time, legal? — rather than the much broader and more fraught question of whether Kosovar independence itself could be legal.

The case went before the Court for several days in December of 2009, with 25 countries submitting oral or written testimony. A decision is expected in summer.

But here’s the thing:the ICJ is very unlikely to deliver a clear opinion. Continue reading

The Italian Economy Contracts Again in Q4 2009

Well, it isn’t only my German economy Q4 call, or my Japanese economy one which look OK right now, this Italian one also now seems very much to the point.

In fact, as I suspected it might, the Italian economy went back into contraction mode in the last three months of 2009.

Italy’s economy shrank by 0.2 percent in the fourth quarter of 2009, inverting the growth it had experienced in the third quarter, according to national statistics agency Istat in a preliminary forecast. Italian gross domestic product (GDP) shrank by 0.2 percent compared to the third quarter when adjusted for seasonal variations.

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Chart Wars

A new kind of battle is going on out there at the moment. In what must surely be a new twist to the old dialectic of blow against blow argument, a combination of the internet age and sophistocated data management software is adding an additional and striking dimension to the current crisis debate, let’s call it the birth of the “charts war”. I think you could safely say Paul Krugman kicked off the latest round off, with this simple blog image post.

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Estonia’s Economy “Only” Contracts By 9.4% in Q4 2009

Hard on the heals of yesterday’s Latvian GDP numbers we now have news that Estonia’s economy shrank at the slowest annual pace in a year at the end of 2009 as a modest recovery in exports and one-time stock-building helped offset the impact of the continuing decline in consumer spending. In fact gross domestic product fell 9.4 percent, which compares with a 15.6 percent drop in the third quarter, and a 16.1 percent decline in the second one. So the recession is evidently easing.

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Latvia’s Economy Contracts Almost 18 Percent in Q4 2009

Well, as we say in English, it never rains but it pours. Latvia, which has had the deepest recession of all 27 European Union member states, contracted by nearly 18 per cent in the fourth quarter of 2009. ‘Compared to the same period of 2008, gross domestic product (GDP) value has decreased by 17.7 per cent,’ according to the national statistics office statement.

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Wehrkunde guest list bingo

It’s Wehrkunde time! The annual festival of military-industrial thinkery, held in Munich for NATO bigwigs of all kinds, is coming around again. Laura Rozen notes that a surprising number of John McCain’s campaign foreign-policy team are coming in the US delegation; that would be the team that included some of the least diplomatic people in the history of diplomacy. There’s Scheunemann, a Kagan or two, and Ross Douthat. Fortunately, there are also quite a lot of sane people; apparently the final list will be considerably less heavy on the kool-aid.

Does this imply that they’re regaining influence? I doubt it; whatever the talk about a “reset” of transatlantic politics, this just looks like it’s not very high priority. Shindiggery is one way of managing troublesome senators, after all. And Europe isn’t really a problem; even the spike in tension with Russia has eased off. Not only has the first NATO-Russia meeting since Georgia gone off well, it even came up with something constructive.

However, some Europeans have succeeded in getting the Americans’ attention, between some rather enterprising protestors and some rather impressively hopeless Belgian security guards. (It took them 40 minutes to respond to a report of people hanging around the nuclear bombs, after they left the gate open to stop it freezing shut.)

The last man in East Germany

What must it have been like to be a Stasi case officer in the autumn of 1989? What did they do? The answer, in this fascinating piece in Der Spiegel, was that they kept going to the office. In fact, they kept on going about their spooky business – questioning detainees, trying to recruit informers – until the evil day when the mob stormed their headquarters in the Normannenstraße. This weird transition is captured in the testimony of the last prisoners left in the MfS detention centre.

Take the case of Manfred Haferburg. Haferburg, a reactor engineer from Greifswald who was a shift supervisor on East Germany’s only nuclear power station, was arrested in May, 1989 trying to flee the DDR via Czechoslovakia. His Slovakian girlfriend was in the next compartment on the train and got away. He, however, was extradited back to East Germany and dumped in a secret prison. It was within the Hohenschönhausen detention centre in Berlin, but the prisoners were deliberately kept in ignorance of where they were. The lights were switched on and off at 15 minute intervals, 24 hours a day. One day, in November, he was dragged from his cell, punched in the guts, and thrown into a van. He expected to be shot, but eventually he was left on a street corner to ask passers-by where he was.

There is a classic Berlin joke about the drunk who gets lost and asks a policeman where he is. The cop tells him he’s on Leipzigerstraße, Berlin-Mitte. Spare me all the details, he says – can you just tell me which country? In fact, he was in the Köpenick district of Berlin, but the first passer-by he asked of course gave him the street name, and he had to press them to find out he was in Berlin, thus playing out the joke for real.

Round about the same time, another prisoner suddenly received a TV set in his cell. Uwe Hädrich had been arrested for attempting to emigrate on the 13th of September, 1989. The TV could only be tuned from outside the cell, so he could only watch official TV; of course, the famous press conference with Günther Schabowski was very official indeed. But that didn’t affect the charges against him. The wall gone and the borders open, he remained detained, accused of espionage and illegally crossing the border, subject to constant interrogation and solitary confinement. (Hädrich was an executive with the DDR’s consumer goods system, and therefore presumably a show-trial candidate.) Eventually, on the 7th of December, the new Modrow government announced that there were no political prisoners in East Germany.

Except for Herr Hädrich, of course. He was suddenly released that afternoon, as if he’d been forgotten about in all the excitement and only now remembered. According to the files, he was the last political prisoner. He went home; back in jail, the Minister of Security himself, General Erich Mielke, had just been booked in and assigned the very cell Hädrich had left.

But the revolution, the emptying of the jails, and the mere arrest of its chief didn’t stop normal operations at the Stasi. At precisely eight o’clock the next morning, a Stasi case officer called on Hädrich to ask him questions about whether he had contacted the Federal German embassy in Hungary. Every day, the case officer arrived to quiz Hädrich, and presumably wrote up his findings back at the office.

Hädrich’s family had begun to go shopping in West Berlin. But Hädrich didn’t dare cross the line, still less refuse to speak to the case officer. The further questioning carried on deep into December, after citizens’ committees had moved into some of the regional Stasi directorates to stop them destroying the files, while Hohenschönhausen itself filled up with disgraced communists. The East German PTT was renting mobile phones to journalists, devices they had to borrow from Deutsche Telekom’s Berlin operation, and whose very existence in East Germany would have been unimaginably illegal a few weeks before. Every day up to and including the 22nd, the Stasi man made his clockwork appearance and Hädrich answered the questions.

There is something grimly theatrical about this setting. In a sense, Hädrich and his interrogator were the last men still living in East Germany.

Finally, four days after the sack of the Stasi headquarters, he moved to southern Germany and never came back. Well, he did come back once, wishing to speak to the diligent case officer. It turned out that the last spook was now running a souvenir stand on the Alexanderplatz. Hädrich couldn’t speak to him.