Tag Archives: European Union

IMF Won’t Eat its Words: Greek Debt Relief in Need

greek debt crsis third memorandum july 15 2015

International Monetary Fund (IMF) Greece Debt Relief is Needed

The dramatic deterioration in debt sustainability points to the need for debt relief on a
scale that would need to go well beyond what has been under consideration to date—and what
has been proposed by the ESM. There are several options. If Europe prefers to again provide
debt relief through maturity extension, there would have to be a very dramatic extension with
grace periods of, say, 30 years on the entire stock of European debt, including new assistance.
This reflects the basic premise that debt cannot be assumed to migrate back onto the balance
sheet of the private sector at interest rates close to the current AAA rates before debt levels have been brought to much lower levels; borrowing at anything but AAA rates in the near term will bring about an unsustainable debt dynamic for the next several decades. Other options include explicit annual transfers to the Greek budget or deep upfront haircuts. The choice between thevarious options is for Greece and its European partners to decide.

See also The Deep Deformation of Europe by Elli Louka

The Deep Deformation of Europe

deep deformation of europe book cover

The Deep Deformation of Europe: Economic Conflict in the European Union

The Deep Deformation of Europe: Debt Bondage under the German Hegemony

Greek Debt Unsustainable: the Wikileaks Cables

Greek protests in front of Greek parliament

2011 Euro-crisis, Wikileaks Cables

Discussing the Greek financial crisis with her personal assistant on 11 October, German Chancellor Angela Merkel professed to be at a loss as to which option–another haircut or a transfer union–would be best for addressing the situation. (The term “haircut” refers to the losses that private investors would incur on the current net value of their Greek bond holdings.) Merkel’s fear was that Athens would be unable to overcome its problems even with an additional haircut, since it would not be able to handle the remaining debt. Furthermore, she doubted that sending financial experts to Greece would be of much help in bringing the financial system there under control. Within the German cabinet, Finance Minister Wolfgang Schnaeuble alone continued to strongly back another haircut, despite Merkel’s efforts to rein him in, while France and European Commission President Jose Manuel Barroso were seen to be in favor of a gentler approach. European Central Bank President Jean-Claude Trichet was solidly opposed, with IMF Managing Director Christine Lagarde described as undecided on the issue. Finally, Merkel believed that action must be taken to enact a Financial Transaction Tax (FTT); doing so next year, she assessed, would be a major step toward achieving some balance in relief for banks. In that regard, the Germans thought that pressure could be brought to bear on the U.S. and British governments to help bring about an FTT.

Euro-crisis Wikileaks Cables: EU Summit: Germans Prepared to Oppose Special Solutions for Greek Financial Crisis

…German Chancellery Director-General for EU Affairs Nikolaus Meyer-Landrut provided on 14 October, 2011 an overview of what Berlin planned to ask for and would be prepared to support. First, the German government wanted solutions that work within the context of current European legislation; accordingly, it would not agree to giving the European Financial Stability Facility (EFSF) a banking license, establishing a joint EFSF-European Central Bank Special Purpose Vehicle, or any other measures that would require legislative changes among the member states. On the other hand, the Germans would support a special IMF fund into which the BRICS (Brazil, Russia, India, China, and South Africa) nations would pool funds for the purpose of bolstering eurozone bailout activities. Meyer-Landrut also believed that a resolution of the Greek crisis will require greater private-sector involvement than was first thought, and that the eurozone must look beyond the technical aspects of a deal and focus instead on the actual progress that Greece will have to make, as regards both legislation and implementation. It was his further opinion that a full-term team will have to be ensconced in Athens for the purpose of monitoring the situation.

Big and Rich: the US-EU Trade

Beef suet raw beef or mutton fat.  It is used to make tallow. Tallow is used to make biodiesel.

The guns of the long transatlantic beef war are silenced. Last year the European Union more than doubled its quota of American beef imports (so long as it is not treated with hormones) and America removed punitive duties on imports of Roquefort cheese. The Americans should soon ease a ban on beef imports imposed in 1997 to prevent the spread of mad cow disease. In November the EU accepted the American practice of decontaminating meat with lactic acid. A final skirmish, over American beef fat, could soon be settled through plans to allow imports of tallow for biodiesel (but not for cosmetics).

After decades of trade rows and lawsuits, the truce is meant to clear the air for an ambitious transatlantic free-trade deal. EU officials speak of creating “something approaching a transatlantic single market in goods”. Even a less grand pact could help to re-energise struggling economies on both sides of the Atlantic. It could also help America and Europe to set international trade rules in the face of a fast-rising China.

Big business wants a deal. Trade unions and greens are no longer so worried about a race to the bottom. The ever-protectionist French and Italians are on board. And yet there is genuine wariness, particularly on the American side. The report of a high-level group that is expected to recommend the start of talks has been delayed. Perhaps, think some, President Barack Obama is trying to squeeze concessions out of the Europeans; or, Europeans worry, he cares more about a transpacific deal?….American officials say they want to ensure that any negotiation is both unusually ambitious and unusually fast. The deal, they say, has to be done “on one tank of gas”, by which they mean in the next two years. Neither side wants a repeat of the moribund Doha round, now in its 12th year.

America and the EU make up the world’s biggest and richest trading partnership, accounting for about half of global GDP and one-third of trade. They are the biggest investors in each others’ economies. But this very closeness makes progress harder. Easy deals have mostly been done; what is left is complicated. Tariffs are low (below 3% on average, though higher on farm products) but non-tariff barriers abound. Many have to do with consumers, public health, the environment or national security. Governments are not usually elected to compromise on such matters.

One European aim is to open up America’s public-procurement market, which is more protected than Europe’s; one reason is that the federal government cannot force states to open tenders to foreign bidders. Another is to dismantle restrictions on services, which represent the lion’s share of output but a relatively small part of exports. European airlines cannot take over American carriers or carry passengers between American cities. Similar restrictions apply to coastal shipping under the 1920 Jones Act. Yet the EU market in services also remains fragmented. A transatlantic deal could spur further integration. Other difficulties include France’s insistence on the “cultural exception” to protect French-language audio-visual products, and the EU’s wish for America to respect hundreds of “geographical indications” on everything from Parmesan cheese to French wines.

For some officials, the biggest prize and the hardest brainteaser will be greater “regulatory convergence”, ie, to get both sides to move towards common rules, or at least regulations that are close enough that each can accept the other’s. There could be big savings if, say, pharmaceutical firms did not have to submit new drugs to two sets of safety tests. The EU has tried to pursue global standards for decades, often acrimoniously, by relying on supranational bodies. Yet across the Atlantic, successive dialogues between regulators have yielded little. The Transatlantic Economic Council was created in 2007 to increase political pressure. Rather than trying to redesign past rules, attention has shifted to new technologies such as electric cars and nanotechnology. Even so, after a year of negotiation on electric cars, one forlorn American official moans that “we have a common standard on the plug.”

Any trade deal will have to be broad to maximise the possible trade-offs. And it will, inevitably, have to address the minor but contentious subject of agriculture. Congressional leaders in America will not support a deal that excludes farming, to which European officials retort that the best way to kill one would be for America to ignore consumers’ fears of “Frankenfoods”, such as hormone-treated beef and genetically modified crops. Part of the answer is to have clear labelling and let consumers choose what they want to buy.

Excerpt from Transatlantic trading, Economist, Feb. 2, 2013, at 44

Enough is Enough: Europe should find a place to safely dispose of its nuclear waste

The European Union has given member states four years to come up with plans to permanently store their nuclear waste, a problem that continues to vex all nuclear energy-producing nations.  One hundred and forty-three reactors in the EU produce 7,000 cubic meters of highly radioactive waste every year. No country in the union, in fact no country anywhere in the world, has facilities to store this waste permanently and safely – more than 50 years after the first nuclear power plants were switched on.  “Governments have been passing the problem on for decades now – to the next administration, the next generation,” said Mr. Oettinger. Critics don’t fail to notice the irony: Before going to Brussels, Oettinger was prime minister in the German state of Baden-Württemberg, home to four nuclear power plants. He did not stand out for attempts to find a solution to the waste problem.

The directive obliges member states to present timelines for the construction of disposal facilities, and to identify sites where legally binding safety standards can be implemented. Currently, it takes 40 years to develop and build a so-called deep geological repository. EU countries can team up to create common facilities; the export of waste to non-EU states is allowed only if the destination country operates a suitable repository. Exports to African, Pacific, and Caribbean countries and to Antarctica are ruled out.

Environmental campaigners criticize the directive for not being clear enough. “Lots of recommendations, but in the end, member states can decide themselves on the implementation,” says Rebecca Harms, leader of the Green party in the European Parliament. “The commission doesn’t even give a clear definition what constitutes nuclear waste. What we’ll see in the end is going to be not the safest but the cheapest solution.”  One requirement in the directive could prove to be the most problematic one: the general public should be given the opportunity to participate effectively in the decisionmaking process.

“It’s been the same story all over Europe,” says Gerhard Schmidt of the Institute for Applied Ecology in Darmstadt, which advises the German government on nuclear safety issues. “Nuclear industry and government are secretly looking for disposal sites, but as soon as the public gets wind of the plans, they are withdrawn. It’s political poison.”

Problems similar to those in Europe have hampered the search for nuclear-waste repositories elsewhere. In the US, lawmakers continue to struggle over the Yucca Mountain repository, a project the Obama administration has decided to shut down after decades of political wrangling and scientific doubts over its suitability.

A transparent procedure could help in finding adequate sites, says Mr. Schmidt, adding that the research into safe nuclear-waste management has made huge progress. “Scientifically, we are almost there. But we haven’t been able to create public acceptance, with the exception of Sweden and Finland, maybe.”

Michael Steininger, Can Europe find a safe place for nuclear waste?, Christian Science Monitor, July 20, 2011

Fracking in the European Union

Poland may have western Europe’s largest reserves of shale gas. A dozen global gas-exploration companies have promised to drill as many as 120 test wells over the next few years to find out. The prize could be trillions of cubic metres of gas. It is “a huge and expensive gamble”, says Tomasz Maj, the head of Polish operations for Talisman Energy, one of the exploration firms….But the extraction of shale gas is controversial. It requires fracking: blasting fissures in subterranean rock and pumping in water and sand, and occasionally nasty chemicals, to force out the gas. France won’t do it. There is local resistance in the Netherlands. Yet other countries’ qualms may make fracking more attractive for Poland. If others won’t frack, they will probably buy Polish gas.

European energy policy is in turmoil. Germany decided last month to abandon nuclear energy. A referendum in Italy on June 12th also said “no thanks” to nuclear power. Reliable sources of energy are inadequate to meet future demand. Poland sees an opportunity.  “We’ll never be an oil state, but we could become a Norway,” says Andrzej Kozlowski of PKN Orlen, an oil company in which the government has a 28% stake. The Polish government is keen to attract firms with experience of fracking in North America, such as ExxonMobil and ConocoPhillips. It has awarded nearly 90 concessions so far. These are cheap, and production royalties will be low. But firms will be penalised if they fail to drill the promised test wells…Fracking is a completely new industry for Poland, so the government is anxious to get the rules right. Taxes must be low enough to encourage investment, but high enough to raise revenues. Getting neutral advice on the environmental risks is not easy. Fracking can damage the water table, disrupt communities and even cause earthquakes. (In Britain on May 31st Cuadrilla Resources said it was halting a fracking operation near Blackpool, pending investigation of two small earth tremors which it may have triggered.)

The French government imposed a moratorium on fracking on May 11th. In Britain, by contrast, a parliamentary committee was friendly to fracking. EU law allows member states to exploit their natural resources as they see fit, but subject to minimum environmental standards. The European Commission is due to roll out its long-term energy strategy in November, which could affect fracking. But Poland, whose six-month presidency of the European Council begins in July, is in a good position to influence what it says. On June 21st Poland was the only EU member to vote against a proposed tightening of carbon-emissions targets for 2020.

Energy in Poland:Fracking heaven,Ecomomist, June 25, 2011, at 79