Threat of Snap Elections Shows Greek Leaders Delusional

The Acropolis of Athens, Greece at night
The Acropolis of Athens, Greece at night (Shutterstock)

Germany’s Bild reports that Greece could call snap elections if its European creditors refuse to relent in debt negotiations. “We have nothing to lose,” one cabinet minister told the tabloid newspaper. “If the EU remains hard, we must show that we stand firm.”

If true, the report shows that three months into government, Greece’s ruling parties still don’t understand that their problem isn’t one of legitimacy. Their problem is that the other twenty-seven nations in the European Union are democracies as well that would rather Greece kept its word.

Since winning the election in January, the far-left Syriza party and its Independent Greeks coalition partner have insisted that “democracy” triumphed over austerity and that the wishes of a majority of Greek voters should trump any commitments or promises previous Greek governments made.

The rest of Europe isn’t so sure.

Other European countries have loaned Greece €240 billion since 2010 and wrote off much of its debt in 2012 — on certain conditions. The Balkan nation was supposed to reduce its government spending and debt and liberalize its economy. It fell short of those commitments under previous governments. The incumbent administration has reversed some reforms altogether, by canceling privatizations, and intends to break more promises, by rehiring public sector workers and raising the minimum wage.

Greece’s leaders may have a democratic mandate for going back on their country’s word but then they must live with the consequences.

The Greeks signed up to the conditions of the bailout when they first elected parties that promised to honor them. Other European voters, in turn, agreed to help Greece when they elected, and reelected, leaders that supported the bailouts. This was the democratic compact the Greeks made with the rest of Europe.

If they insist on breaking it, they shouldn’t be surprised if other Europeans don’t hold up their end of the bargain. If the Greeks don’t want austerity anymore nor pay back in full the money they borrowed, they can’t honestly expect to still get financial help all the same.

Brazil’s Chickens Are Coming Home to Roost

Rio de Janeiro Brazil
Panorama of Rio de Janeiro, Brazil, January 14 (Beatriz Souza)

Dilma Rousseff’s failure to liberalize Brazil’s economy is finally catching up with her. After narrowly winning reelection last year, popular outrage is backing the left-wing president into a corner.

Earlier this month, more than a million protesters took to the streets of Brasília, São Paulo and other major cities, angered by revelations of embezzlement at the state oil company, Petrobras.

The inclusion of members from the Brazilian Democratic Movement Party (PMDB) in a Petrobras corruption probe caused this biggest party in Rousseff’s ruling coalition to threaten to block austerity measures, such as tightening access to pension and unemployment benefits.

The PMDB has almost as many seats in Congress as Rousseff’s Workers’ Party and a reputation for allying itself with whomever is in government in order to reap the spoils. Read more “Brazil’s Chickens Are Coming Home to Roost”

Greece Wants New Loan Without Conditions

Greek flags in Athens, February 16, 2015
Greek flags in Athens, February 16, 2015 (Lefteris Heretakis)

Greece’s new government made clear on Wednesday it wants a six-month loan extension from the European Union while dumping the bailout it campaigned against.

In a speech to parliament on Tuesday, Greek prime minister Alexis Tsipras, whose far-left Syriza party won the election last month, reiterated his commitment to rolling back many of the reforms that were enacted under the country’s bailout agreement with the European Union and the International Monetary Fund.

Tsipras said he would not accept an “ultimatum” from the rest of Europe and was in “no rush” to find a deal.

However, Greece’s current aid program runs out by the end of February, raising the fresh prospect of a sovereign default if it can’t find help before then. Read more “Greece Wants New Loan Without Conditions”

British Health Service Politically Sensitive for Conservatives

David Cameron
British prime minister David Cameron attends a meeting of the European Council in Brussels, March 20 (The Prime Minister’s Office)

For anyone who watched the opening ceremony of the 2012 Summer Olympics in London, the pride Britain takes in its National Health Service (NHS) is clear. Far from the apathy that most Americans feel toward government-provided services, the NHS has been a popular feature of British life since it emerged during the late 1940s as part of the Labour Party’s postwar government. That makes the debate about how to prepare the system for an expected rise in demand at a time of austerity politically sensitive.

The NHS is a public health provider that offers treatment “free at the point of use” and gets the majority of its operating income from taxes. But like health-care providers across the developed world, the organization is coping with strain as it balances Britain’s aging population against the country’s generally lower economic activity and rising health-care costs.

The Conservative Party-led coalition government has tried to improve the situation by privatizing an array of NHS services, creating a hybrid model in which most of the services that patients interact with are government-provided but many of the auxiliary services no longer are.

This has generally not been received well. The breakdowns in service provision directly attributable to this health-care delivery method have been documented in a number of recent studies. Polls show voters trust the opposition Labour Party more to improve the NHS than they do the Conservatives. This is not in itself new but alarming to Conservative Party strategists nonetheless. In response, George Osborne, the chancellor of the exchequer, announced a £2 billion funding increase for the NHS last week. Read more “British Health Service Politically Sensitive for Conservatives”

Belgian Premier Unveils Labor, Pension Reforms

Belgium’s incoming prime minister Charles Michel emphasized labor and pension reforms in his first speech to parliament on Tuesday as head of a coalition of right-wing parties.

Alternating between Dutch and French, Michel, whose liberal Mouvement Réformateur is the only Walloon party in the new government, called for structural reforms in order to modernize Belgium. “To do nothing is to regress,” he said. “We reject fatalism and paralysis.”

For a country that hasn’t seen unemployment below 8 percent in two years, Michel can ill afford not to liberalize a jobs market that is far more rigid than those of its neighbors. Read more “Belgian Premier Unveils Labor, Pension Reforms”

Britain’s Osborne to Freeze Benefits, Cut Pension Tax

British chancellor of the exchequer George Osborne attends a meeting in London, England, September 15, 2014
British chancellor of the exchequer George Osborne attends a meeting in London, England, September 15 (Cabinet Office)

Britain’s chancellor George Osborne on Monday promised a next Conservative Party government would freeze welfare benefits for people of working age and abolish taxes on pensions. In a conference speech, he positioned his as the “party of progress” and dismissed the opposition Labour Party as living in the past.

Speaking in Birmingham, Osborne said the freeze would not include disability benefits, maternity pay and pensions but save £3 billion — money he would put toward financing three million apprenticeships for young Britons, “three million more chances for a better life so we help our citizens get jobs instead of more immigration from abroad.”

The freeze would nevertheless be “a serious contribution to reduce the deficit,” said Osborne, who argued it was also fair. “Families out of work should not get more than the average family in work.”

According to the Treasury, some ten million households would be affected by the freeze, roughly half of which are working. Read more “Britain’s Osborne to Freeze Benefits, Cut Pension Tax”

To Halt Decline, Argentina Needs to Shake Off Perón’s Legacy

President Juan Domingo Perón of Argentina waves at a crowd during his inaugural parade in Buenos Aires, June 10, 1946
President Juan Domingo Perón of Argentina waves at a crowd during his inaugural parade in Buenos Aires, June 10, 1946

The “tragedy of Argentina” is not so much one of unfortunate economic circumstances as the failure of one particular ideology which the country refuses to shake off — Peronism.

The Economist this week studies the causes of the country’s century of decline as Argentina looks set for a repetition of the 1998-2002 financial crisis.

The newspaper notes that in the early twentieth century, the Argentinians were among the richest people in the world. Their income was 92 percent of the average of sixteen rich countries now in the Organization for Economic Cooperation and Development. In the four decades leading up to 1914, growth had averaged 6 percent per year. But, as The Economist puts it, “It never got better than this.” Today, income per head of the population is only 43 percent of those same sixteen countries.

One underlying cause is that even when Argentina was booming, it was overly reliant on commodity exports. It failed to educate its masses and build an industrial base of its own.

Argentina is still the world’s largest exporter of soy oil and a major supplier of corn and soybeans. High demand for agricultural products from Asia, especially China, fueled the country’s economic expansion in recent years. When growth there stalls, so does Argentina’s.

A vibrant economy could absorb such a bump. Argentina’s economy was still expected to grow 5.1 percent last year, after a disappointing 1.9 percent in 2012 — assuming these figures, unlike Argentina’s official rate of inflation, are accurate. But in a misguided quest for economic independence, the country has enacted numerous policies that hamper trade, the most recently example being a mandate from President Cristina Fernández de Kirchner that forces companies that bring goods into Argentina to match their value with exports.

This has forced a carmaker like Germany’s BMW to export Argentine rice. Hyundai sells Argentine soy flour in Vietnam. Porsche agreed to export olives and wine.

Goods are nevertheless backing up at the border as officials try to slow the impact of expensive imports. Trade on a major grains exchange has dried up as farmers stockpile their soybeans rather than taking pesos which are rapidly decreasing in value.

The government has deployed price caps and export curbs to try to reduce inflation, unofficially close to 25 percent. It has also imposed capital and currency controls, including a ban on dollar purchases — to little avail. The peso trades on the black market at a discount of more than 40 percent to the official exchange rate.

Argentina could have used the revenue from commodity exports to modernize its infrastructure and spent its time in the sun to thoroughly shake up its political system. Instead, the proceeds were used to pay for education, public housing and welfare. When growth inevitably stalled, as it had soon after Juan Perón first became president in 1946, the dictatorial tendencies of the political movement that is named after him, just as inevitably, surfaced again.

Perón jailed political opponents; Fernández persecutes economists who dare publicize inflation numbers that deviate from the government’s. Perón nationalized railways and utilities; Fernández nationalized Aerolíneas Argentinas in 2008 and relieved Spain’s Repsol of its majority share in the Yacimientos Petrolíferos Fiscales oil company in 2012.

Disregarding not only property rights but constitutional limitations on her executive power, Fernández toyed with the notion of seeking an unlawful third presidential term. She appears to have shelved those plans since her party nearly lost its majority in the Senate in last year’s election — for now.

The problem is not just one of poor leadership. Argentina’s political failures are institutional. “Short-termism is embedded in the system,” writes The Economist. “Money is concentrated in the center and the path to power goes via subsidies and splurging.”

Redistributive policies may help the poor but Peronism’s abiding confidence in the state’s ability to be an instrument of “social justice” has all too frequently led to thuggish government behavior when autarkic policies failed to produce the promised economic gains.

To escape this trap, Argentinians themselves must change. The Economist recognizes this will be difficult. “That is partly because the experience of the 1990s discredited liberal reforms in the eyes of many Argentines.”

At the time, President Carlos Menem tamed inflation, privatized industries and pensions and pegged the peso to the dollar. This restored confidence and brought back foreign investment and growth but when the dollar started to rise in value, and financial crises in East Asia, Mexico and Russia dampened growth globally, Argentina ended up in a depression.

But it is also difficult for Argentinians “because reform requires them to confront their own unprecedented decline. No other country came so close to joining the rich world, only to slip back. Understanding why is the first step to a better future.”

France’s Hollande Laments High Labor Costs But Unlikely to Act

French president François Hollande has recognized that his country should cut labor costs to bring down unemployment, but his leftist government is unlikely to enact comprehensive reforms.

Many in the ruling Socialist Party are wary of reducing social contributions for employers or increasing work hours, which they feel would erode the French social model. Read more “France’s Hollande Laments High Labor Costs But Unlikely to Act”

Budget Deal Gives Short-Term Relief, No Long-Term Improvement

Washington DC
The skyline of Washington DC at dawn (Shutterstock/Orhan Cam)

Democratic and Republican Party negotiators announced that they had reached a budget deal on Tuesday. If their compromise agreement is accepted in both houses of Congress, it could end some of the uncertainty about government spending and taxes that has dampened growth in the world’s largest economy this year.

The chief negotiators, Democratic senator Patty Murray and Republican congressman Paul Ryan, both described the compromise as a step in the right direction during a news conference in Washington DC. “This bill reduces the deficit by $23 billion, it does not raise taxes and it cuts spending in a smarter way,” said Ryan, who was his party’s vice presidential candidate in last year’s election. Read more “Budget Deal Gives Short-Term Relief, No Long-Term Improvement”

French Socialist Government Underwhelms with Pension Reforms

French prime minister Jean-Marc Ayrault answers questions from reporters outside the Elysée Palace in Paris, January 17
French prime minister Jean-Marc Ayrault answers questions from reporters outside the Elysée Palace in Paris, January 17 (PS/Mathieu Delmestre)

The pension reforms announced by the French prime minister, Jean-Marc Ayrault, on Tuesday do little to improve the retirement system’s solvability in the long term.

While the pension age remains at 62 — despite President François Hollande’s campaign promise to bring it down to sixty — the number of years of work required to collect a pension is set to rise by one and half between 2020 and 2035.

Starting next year, companies and workers will also be required to pay more into the system, which faces a €14 billion shortfall this year.

The pension fund’s deficit is projected to increase by €6 billion by 2020.

Nobody’s happy

Although the higher payroll contributions should be offset by unspecified reductions in other taxes, business groups have been quick to criticize the absence of structural reform.

“In truth, it is a non-reform,” Pierre Gattaz, the new head of the country’s largest employers’ confederation, told the Financial Times.

Labor unions were dismayed by the requirement to work longer and announced a strike for next month.

Support for reforms

Although French pensions are lower on average than in the rest of Europe, they are paid almost entirely by the state.

Public spending on pensions accounts for 14.4 percent of annual French economic output. The EU average is 12.9 percent.

Surveys suggest a majority would support raising the retirement age and bringing public-sector pensions in line with those in the private sector.

Many civil servants, like bus and metro workers, are able to retire in their early fifties, a source of grievance in a country where one in five people are employed by the government.

Powerful unions

The trouble for Hollande is that he has little political leeway in this area. Members of his Socialist Party would likely block reforms, given their reliance on support from public-sector workers and trade unions.

When the European Commission urged France to raise the pension age, Hollande responded that the body could not “dictate” policy.

“It’s up to us and us alone to decide what path to take to obtain the objective,” he said at the time.

Time bomb

Demographics are not on his side, The Wall Street Journal reports.

France had five people of working age for every one retiree in 1950. Today it has 1.4 and the ratio is expected to fall to 1.2 by the middle of this century.

“France’s somewhat higher birth rate might spare it from the worst of the pension crisis that threatens Germany and other European countries a few decades hence,” according to the American newspaper. “But given France’s consistent lack of economic growth, relatively favorable demographics can postpone the pension bomb’s detonation. It won’t defuse the bomb.”