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"And I beheld, and heard the voice of one eagle flying through the midst of heaven,
saying with a loud voice: Woe, woe, woe to the inhabitants of the earth....
[Apocalypse (Revelation) 8:13]

Thursday, February 9, 2017

Economic Crisis: EU faces crisis as IMF warns Greek debts are on ‘explosive’ path

Economic Crisis: EU faces crisis as IMF warns Greek debts are on ‘explosive’ path  

Greece's debts are going to mount unsustainably,  the IMF believes, unless the country undertakes serious reforms - and receives more bailouts from its eurozone neighbours Credit: Marko Djurica/REUTERS
The EU faces a looming crisis which could threaten the sustainability of the eurozone as the International Monetary Fund has warned Greece’s debts are on an “explosive” path, despite years of attempted austerity and economic reforms.

Global financiers at the IMF are increasingly unwilling to fund endless bailouts for the eurozone’s most troubled country, passing more of the burden onto the EU – at a time when Germany does not want to keep sending cash to Athens.
The assessment opens up a fresh split with Europe over how to handle Greece’s massive public debts, as the IMF called on Europe to provide “significant debt relief” to Greece – despite Greece’s EU creditors ruling out any further relief before the current rescue programme expires in 2018.
Jeroen Dijsselbloem, the Eurogroup President repeated that position on Tuesday, saying there would be no Greek debt forgiveness and dismissing the IMF assessment of Greece’s growth prospects as overly pessimistic.
"It's surprising because Greece is already doing better than that report describes," said Mr Dijsselbloem, who chairs meetings of eurozone finance ministers, adding that Greece was on track for a “pretty good recovery at the moment”.
The renewed divisions over how to handle the Greek debt crisis has raised fresh questions over whether the IMF will be a full participant in the next phase of the Greek rescue – a key condition for backing from the German and Dutch parliaments.
As Angela Merkel, the German chancellor, fights a tough reelection battle, Germany is particularly reluctant to send funds directly to Greece, with populist parties in Germany arguing that the payments amount to an unfair bailout from hard-working Germans to less deserving Greeks.
The IMF split came as Mrs May last night comfortably defeated a Brexit rebellion in the Commons as MPs rejected Labour plans to give Parliament a "meaningful" vote on the terms of a final deal.
Despite suggestions that up to 30 Tory MPs could defy their party whip and back the Labour amendment just seven chose to do so.
Mrs May stemmed the rebellion after the Government pledged to hold a vote in Parliament on the deal before it is sent to the European Parliament.
However ministers said that MPs would have to "take or leave it", meaning that Mrs May is prepared to walk away from Europe without a deal if Parliament rejects it.
A fresh crisis over Greek debt could be triggered as soon as in July when Greece is due to repay some 7bn euros to its creditors – money the country cannot pay without a fresh injection of bailout cash.
Beyond the long-running concerns over Greek debt, Europe is currently locked in a fierce internal struggle over how to “refound” the European Union in the wake of Brexit and the apparent hostility now emanating from White House.
Mrs Merkel, the German chancellor, acknowledged the calls for change from within the EU yesterday while on a trip to Poland, but said she would argue that the EU should “proceed very cautiously” on the question of treaty change as it faced down a growing number of existential threats
Reluctant EU members, led by Poland, are calling for a return to the union's founding principles, asking for a fundamental overhaul of treaties that would return power back to nation states.
An EU ‘concept paper’ launched last week ahead of the 60th Anniversary celebrations of the Treaty of Rome next month has deepened divisions after it emerged that it did not contain a single mention of the member states, only the EU institutions, according to a senior diplomatic source.
Greek GDP has started to grow, expanding by an estimated 0.4 per cent last year, but it is on a very weak path. IMF economists expect the country to grow at less than 1 per cent per year over the long-term, which is too low for it to pay down its debts.
That means Greece’s “public debt remains highly unsustainable, despite generous official relief already provided by its European partners,” the IMF believes.
Even if the country successfully implements all of its planned financial and economic reforms – which has been a struggle so far – its debt is projected to fall to from 179pc of GDP a year ago to 160pc of GDP by 2030 “but become explosive thereafter”.
“Greece cannot be expected to grow out of its debt problem, even with full implementation of reforms,” the IMF warned on Tuesday.
Despite Eurogroup protestations that the Greek bailout was sustainable, the IMF estimates that by 2060 its debts will amount to a crushing 275 per cent of GDP.
The IMF said progress to date in turning the crisis around has been “significant” but also acknowledged that the deep cuts to public services and pensions had come “at a high cost to society, reflected in declining incomes and exceptionally high unemployment.” Unemployment is currently still stuck at above 23 per cent.
The IMF is very clear about who it believes should give Greece more money to try to turn this situation around. “Greece cannot restore debt sustainability through its efforts alone and needs significant debt relief from its European partners,” the IMF said.
Greek finance minister Euclid Tsakalotos said the IMF’s report “fails to do justice” to the strength of the economic recovery and the improvement in the government’s books.
The IMF also gives a “misleading representation” of the government’s reform efforts, he said.

Out of pocket, Italians fall out of love with the euro

By Gavin Jones | ROME
When the Italian central bank's deputy governor joined a radio phone-in show last week, many callers asked why Italy didn't ditch the euro and return to its old lira currency.A few years ago such a scenario, that Salvatore Rossi said would lead to "catastrophe and disaster", would not have been up for public discussion.
Now, with the possibility of an election by June, politicians of all stripes are tapping into growing hostility towards the euro. Many Italians hold the single currency responsible for economic decline since its launch in 1999.
"We lived much better before the euro," says Luca Fioravanti, a 32-year-old real estate surveyor from Rome. "Prices have gone up but our salaries have stayed the same, we need to get out and go back to our own sovereign currency."
The central bank is concerned about the rise in anti-euro sentiment, and a Bank of Italy source told Reuters Rossi's appearance is part of a plan to reach out to ordinary Italians.
Few Italians want to leave the European Union, as Britain chose to do in its referendum last year. Italy was a founding EU member in 1957 and Italians think it has helped maintain peace and stability in Europe.
And the ruling Democratic Party (PD) is pro-euro and wants more European integration though it complains that the fiscal rules governing the euro are too rigid.
But the three other largest parties are hostile, in various degrees, to Italy's membership of the single currency in its current form.
The PD is due to govern until early 2018, unless elections are called sooner. The PD's prospects of victory have waned since its leader Matteo Renzi resigned as premier in December after losing a referendum on constitutional reform, and polls suggest that under the current electoral system no party or coalition is likely to win a majority.
Italians used to be among the euro's biggest supporters but a Eurobarometer survey published in December by the European Commission showed only 41 percent said the euro was "a good thing", while 47 percent called it "a bad thing."
In the Eurobarometer published in April 2002, a few months after the introduction of euro notes and coins, Italy was the second most pro-euro nation after Luxembourg, with 79 percent expressing a positive opinion.
Italy is the only country in the euro zone where per capita output has actually fallen since it joined the euro, according to Eurostat data. Its economy is still 7 percent smaller than it was before the 2008 financial crisis, and youth unemployment stands at 40 percent.

The right-wing Northern League, the third biggest party, is the most critical of the euro. Party leader Matteo Salvini calls it "one of the biggest economic and social crimes ever committed against humanity."
The party has promised to pull Italy out of the euro if elected but it only has about 13 percent of voter support.
The anti-system 5-Star Movement may pose a bigger threat to Italy's membership of the currency club. Polling roughly level with the PD at about 30 percent, 5-Star says it will hold a referendum on euro membership.
But Italy's constitution forbids referendums on matters that are governed by international treaties such as euro zone membership. 5-Star says it could organize a non-binding "consultative" ballot to gauge public opinion.
A post last week on its official mouthpiece, the blog of founder Beppe Grillo, was headlined "A referendum on the euro before it's too late".
"I would vote to leave the euro as it stands," lower house deputy Luigi Di Maio, who is widely expected to be 5-Star's candidate for prime minister at the election, told Reuters.
"We should return to a sovereign currency or, if there is an agreement with the other countries, form a new common currency with new rules."
Italy's other significant party, Silvio Berlusconi's center Forza Italia, is not pushing for outright euro exit, but he has argued that Germany should leave instead, or that Italy should use the euro and the lira at the same time, an idea that many economists say is unworkable.

Economists in favor of leaving say a devalued currency would revive Italy's exports and that by throwing off the shackles of the EU's fiscal rules the country could ramp up public spending to boost growth and create jobs.
Those wanting to stay in the euro say an exit would trigger a surge in interest rates and inflation, capital flight, a banking crisis and possibly a default on Italy's public debt.
The central bank warns Italians that leaving the euro would sharply erode the value of their savings.
However, after repeated banking crises it is widely blamed for not preventing, and years of over-optimistic economic forecasts, the Bank of Italy no longer commands the respect among Italians that it used to.
Northern League and 5-Star politicians also point to the British vote in June to leave the European Union and Italy's ballot in December that threw out Renzi's constitutional reform. They say they did not lead to the chaos that some mainstream economists forecast.

This Is Not A Drill! The Economic Crisis Will Start This Year & Last For 5 Years