Eurozone Blog

El Confidencial has a report on personal bankruptcy in Spain. Spanish law allows natural persons access to the same bankruptcy procedure as legal persons only since 2003, but the number of people who took advantage of the possibility was exceedingly small prior to 2008-9. Now, 15% to 20% of all cases taken on by bankruptcy lawyers involve legal persons. However, because any remaining debt after liquidation of assets remains according to Spanish law, bankruptcy is not as beneficial to individuals as it is for firms. In the first quarter of 2013, just under 200 people declared personal bankruptcy, which is less than 7% of all bankruptcies. Bankruptcy can be favourable to families with substantial unsecured debt (typically consumer debt), which can usually be written down, and would be able to pay their mortgage if the rest of the debt went away. Another favourable case is when the bankruptcy has been precipitated by the failure of a firm that the person had provided a loan guarantee to. It is also relatively common to fold personal debt into a refinanced mortgage with a longer maturity and notional than the original mortgage, as this typically lowers the interest payments.

Antonis Samaras sought to defuse tensions with coalition partners over his surprise shutdown of the state broadcaster last week by offering to quickly relaunch programming—with a reduced staff, the WSJ reports. But his offer was rejected by the coalition partners demanding that the broadcaster remains fully operational while restructuring take place. However, both have said they would continue to support the government, and most analysts expect some kind of compromise to be reached at a meeting of the three party leaders today evening, after the ruling of the Supreme Administrative Court whether or not to hear an appeal from ERT staff, which could prompt the judges to order the broadcaster to resume service until a final verdict, Kathimerini reports.

A poll by Metron Analysis for the Ependytis newspaper found that 68% disagreed with the decision to shut down ERT. 49% said the coalition government should remain in place against 47% preferring snap elections. According to the Kapa poll there is a clear preference for political stability, with 57% saying that there should not be another early election. Both polls show New Democracy and SYRIZA would be neck and neck, with a slight 0.3pp advantage for ND, Reuters reports.

The turbulence created by the ERT decision has also sparked speculation about Samaras’s future. It has been reported that his position within New Democracy might be insecure. On Saturday, Foreign Minister Dimitris Avramopoulos issued a statement on ERT, interpreted by some as a symbol of distancing himself from Samaras.

Hundreds of ERT workers, meanwhile, extended their days long sit-in at the company's headquarters north of Athens over the weekend, sending out live programming over the Internet. Private-sector journalists also went on strike, causing a nationwide news blackout, although some returned to work on Saturday after a court ruled the strike illegal.

It is not looking good for the SPD ahead of the September elections. In a Spiegel interview, Peer Steinbruck criticised SPD party leader Sigmar Gabriel for failing to support him, a conflict Suddeutsche Zeitung said had overshadowed the party convention over the weekend. Gabriel tried to paper over the cracks, with some embarrassing remarks about his political marriage to Steinbruck. What triggered the latest spat was a dispute within the party’s parliamentary faction about whether the SPD should support banking union, or not. Steinbruck was in favour. Gabriel was sceptical. Gabriel also attacked Steinbruck for not showing enough engagement in the election campaign. Suddeutsche writes the party’s grandees are absolutely aghast at this internal fight between the SPD’s two most important leaders.  

The Wall Street Journal seems impressed by an OECD study claiming large-scale emigration from southern to northern Europe. 34,000 Greeks and 28,000 Spaniards moved to Germany between September 2011 and September 2012, according to preliminary data, apparently the highest immigration numbers in 17 years. The total number of immigration into Germany is 116,000 in the 12 months to September 2012 – which is a bit more than 0.1% of the German population. The OECD noted this was somewhat less than an exodus. The article quoted László Andor, EU commissioner for labor, as saying that Greeks and Spaniards should not just be looking at migration as a solution. 

Frankfurter Allgemeine has an article about an Ifo study, showing that the US and the UK would benefit most from the setup of a free trade zone. Germany would be a minor beneficiary. For the US, GDP per capital would increase by 13.4% over 10 to 15 years. For the UK, the benefit would be 9.7%, for Spain 6.6%, and for Germany 4.7%. A free-trade union would also have a negative impact of intra-eurozone trade. German trade with the southern eurozone countries would decline by 30%, with France by 23%. 

Simon Wren-Lewis has a blog post on multipliers based on a paper by Farhi and Werning. He discusses the difference in the multiplier between a closed economy and a monetary union. The closed economy result is clear. The multiplier at the ZLB is larger than one. But he says you cannot extend this logic to a monetary union. In a closed economy, nominal interest rates are fixed at the ZLB. An increase in government spending would thus generate inflation, reducing real rates, which in turn will increase current consumption relative to its steady state. That measn the multiplier is larger than one.

The logic in a monetary union is different because nominal exchange rates are fixed, and you have to take into account the price level relative to the monetary union. And in that case the multiplier might actually be below one. However, as the Farhi and Werning paper shows, once consumers are credit-constrained, the multiplier may also exceed one.

His post also discussed the effect on the multiplier by various monetary policy regimes, such as price-level target. He concludes that the of the policy regime for the multiplier is crucial.

We like his concluding remark: “But of course they all know that, don’t they!” 

Frankfurter Allgemeine has an interview with Klaus Regling, in which he accuses the IMF of failing to understand the rules of the eurozone. He says it would be best to get rid of the troika in the long run. The paper notes that Jose Manuel Barroso also supports the idea of getting rid of the IMF – though Regling adds the important detail that the IMF was (unfortunately) the only institution with any experience in crisis resolution.

Regling was particular furious about the IMF’s paper. “The IMF pokes fun at the stability pact, and declares itself responsible for economic growth,” he said. That shows that it does not understand and respect the rules underpinning the monetary union. 

Jan Fleischhauer has a good column in Spiegel Online, in which he tries to explain why Steinbruck’s campaign is not taking off. The fundamental problem with Steinbruck, he writes, is a deep arrogance, an almost total lack of interest in what others are sayings. Despite some recent attempts to appear a little softer, this arrogance does not work for a candidate who is trying to gain power from opposition – as opposed to defending power. He said it is no surprise that Helmut Schmidt backs him. He sees in Steinbruck a politician of similar ilk to himself. But Schmidt, too, never gained power from opposition, since he inherited the throne.

On Project Syndicate Barry Eichengreen looks at the lessons of a Greek Tragedy arguing that if Greece had written down its debt by two-thirds at the onset of the crisis, it would have been able to recover quickly, with luck within a year. But the European Commission opposes debt restructuring as did the IMF under Dominique Strauss Kahn, given the influence of French and German governments, which adamantly opposed debt relief. Eichengreen says that Greece should have acted unilaterally. Presenting the decision for restructuring as a fait accompli to its EU partners would have enabled Greece to shape the dialogue with the ‘troika’ and gather support for reforms inside Greece, working together rather than against social partners. Instead Greece has chosen to heed troika’s advice, ending up eroding the trust even further. Greece does the best it can under the situation but the lesson from this example should not be lost for others.

Pasok and Dimar, the two junior coalition parties in the Grand Coalition, submitted to Parliament on Wednesday a proposal for the legislative act permitting ERT’s immediate closure to be scrapped. They said they agreed that reforms are necessary but that it should be done while ERT is still broadcasting. In their remarks the two coalition partners fall short of threatening to pull out of coalition. Kouvelis said “The government can carry on and complete its work if it can secure some common ground.”

Sources close to the prime minister insisted he has no intention of triggering early elections. At the same time, though, it is not clear what kind of compromise could be found, writes Kathimerini. Antonis Samaras appears far from willing to compromise. He said yesterday he said that the closing down of ERT was justified because it had become “the symbol of waste and lack of transparency.”

In the meantime the government presented a draft law for the new public broadcaster it wants to set up, under the name of NERIT. As opposed to more than 2,600 staff employed by ERT, the new service would have close to 1,000 employees and would cost €100m to run compared to the €300m ERT absorbed.

Some ERT journalists occupied the broadcaster's building in defiance of government orders and continued broadcasting over the Internet. Trade unions threaten open end strike actions while thousands of protesters gathered in front of the ERT building.

The European Commission said it did not seek ERT's closure under the bailout but did not question the decision, Reuters reports. France's Socialist government voiced outright condemnation, calling it "very worrying and regrettable". Opposition leader Alexis Tsipras called it "a coup, not only against ERT workers but against the Greek people", and accused Samaras of the "historic responsibility of gagging state TV".The far-right Golden Dawn party was the only one that openly welcomed the closure, with lawmaker Ilias Panagiotaros tweeting: "ERT, that Socialist-Communist shack, is finally closing."

As the Spanish parliament debated social policy, the discussion turned to child hunger, reports El País. The ruling PP used its majority to block all amendments to the government’s draft legislation, for instance a proposal by the PSOE to create a €1bn fund to fight against poverty and social exclusion. Opposition parties such as Catalan CiU asked for a plan to offer school meals through the summer, which was rejected by the PP as an “ill-thought patch” and said the opposition parties should do it through the regional governments they control. The PP instead urged the government to introduce, within 6 months, a plan to fight child poverty and social exclusion. Over the past three months, the press has reported that thousands of school children from the Canary Islands or Andalusia to Catalonia are malnourished and only eat school meals. The PP acknowledged that, according to European Union statistics, only Romania and Bulgaria have a higher proportion of children living in households at high risk of poverty.

Daniel Gros writes in Project Syndicate that the fight against youth unemployment is part of an unfocused activism by policymakers who must be seen to be “doing something” at their special summit on youth unemployment. He writes that there are several reasons to doubt that youth unemployment merits special treatment. He points to a number of statistical and definitional aspects – the category of 15-24 years olds is ill-defined, and because high non-participation rates, the unemployment rate is meaningless. More important is the unemployment ratio, which is somewhat less alarming. He also makes the point that youth unemployment contributes much less to total unemployment in Spain, than it does in the UK or Sweden. He concludes that the real issue is unemployment, not youth unemployment. 

It came out of the blue: Antonis Samaras ordered the immediate closure of its state broadcaster ERT as of Tuesday, 11 June, to be reopened later with fewer staff. At midnight, the three channels produced by Greek Radio and Television, known as ERT, were to go off the air and remain dark during the overhaul. “We cannot accept refuges of poor transparency and public waste," said government spokesman Simos Kedikoglou.

The ERT employees learned at noon that they will be out of job at midnight. The blog Keep talking Greece called it an “information coup d’ etat”.  Journalists unions declared a strike for all private TV and radio stations starting today, some even proposed a total media blackout. ERT employees occupied the building and want to keep on broadcasting on 24-hour basis.

The two junior partners in the coalition protested that they had not been consulted. PASOK linked ERT's closure with a demand by the troika for 2,000 layoffs in the state sector by August, and called for an immediate meeting of party leaders, Reuters reports. The decision was made by ministerial decree, meaning that it could be implemented without reference to parliament.

ERT currently employees 2800 people. It is not clear how many employees will be but sources indicated it would be a fraction of those in work at the moment, Kathimerini reports.

Jean Claude Juncker, meanwhile, shows sympathy to Greece telling an audience in Athens that “It was our (eurogroup) mistake to listen to the market gurus”. The prime minister of Luxembourg expressed his respect for Greece but also his discomfort to the “arrogance exhibited by Northern Europeans towards” the debt-ridden country, according to Keep Talking Greece.

Enrico Letta decided to pass a decree featuring urgent measures before the next EU summit, as Il Corriere della Sera reports. According to Minister Dario Franceschini, the decree would include measures for the simplication of bureaucracy, lower taxes, and measures to help SMEs. In addition, there would be a "bonus" for firms who put young people on long-term contracts, he said. The PdL Lower House Whip and former finance minister Renato Brunetta said tax breaks and lower contributions for new hires were aimed at recovering the 500,000 jobs lost because of the economic crisis over the last two years. Brunetta also said the funding will be provided through public spending cuts. A government decree becomes law as soon as it is passed by the cabinet although it has to be ratified by Parliament within two months or it stops being valid. 

La Repubblica reports that Beppe Grillo asked a senator to leave the party on the grounds that she criticised him. Senator Adele Gambaro had said the biggest problem with the movement is Beppe Grillo and his poor political proposals. According to Gambaro the majority of Italians are beginning to lose confidence in M5S. Grillo should spend less time blogging and instead get a sence of what Italians want from the M5S. Grillo’s tone and communications are unsustainable, Gambaro said. Grillo retorted on his blog that Gambaro has made false and damaging statements about him and M5S.

Marco Sarti writes on Linkiesta that the outcome of the latest local election, especially in Sicily, is dramatic for Grillo. The M5S continues to fall in the polls and risks an implosion. In addition, Grillo’s dispute with Gambaro could prove to be the trigger. The M5S was largely absent from the ballots after suffering a big fall in support in the first round of voting two weeks earlier. In addition to Gambaro, other M5S members have also complained about Grillo’s leadership style. During the last months, Grillo expelled seven dissidents from the movement, after they accused him of running affairs in an undemocratic manner, Sarti writes. Now the major risk for M5S is an implosion due the internal fights, Sarti writes.