Greece's secret plan to hack its own tax system

Greece's former finance minister was ready to hack into the country's tax collection system as part of contingency planning for a possible exit from the euro.

It's Time for the Eurozone to Let Greece and Tsipras Go

NEW YORK (TheStreet) -- Fish or cut bait, Alexis Tsipras, your 15 minutes of headline fame are up. The Greek Prime Minister Tsipras needs to decide whether he is serious about linking arms with the rest of the Eurozone and, if not, move on to handle the fallout of leaving it.

Global economy one shock away from another crisis

The world is sliding towards another debt-ridden disaster, with the eurozone and China one shock away from a fresh crisis, according to a leading economics consultancy.

Bank of England raises UK growth forecast

The Bank of England's Monetary Policy Committee (MPC) has increased its UK economic growth forecast for the first quarter of the year, from 0.9% to 1%. Minutes from the latest MPC meeting showed the revised estimate.

Securing global economic security

Inflation is a significant factor of global economic security and has the innate capacity to upend carefully laid plans

Sir, Further to the article by Sam Fleming, “Incomes will plummet as inflation soars, report claims” (May 3), I agree that the erosion of earnings by inflation should move higher on the economic agenda.

Alexander Mirtchev

Greece must remain in eurozone, says Finance Minister Yannis Stournaras

ATHENS: Greece must remain in the eurozone, Finance Minister Yannis Stournaras said in an interview published Sunday ahead of a week of crucial meetings between the prime minister and EU officials.

Angela Merkel calls for 'more Europe' as response to crisis

GERMANY: German Chancellor Angela Merkel called Thursday for more powers to be transferred to the European Commission as a response to the debt crisis that threatens to tear apart the eurozone.

Europe reforms 'hard' without growth, says Robert Zoellick

WASHINGTON: World Bank president Robert Zoellick said Tuesday that Europe would struggle to achieve needed economic reforms without growth to support them.

Christine Lagarde says IMF needs less new funds than thought

WASHINGTON: International Monetary Fund chief Christine Lagarde said Wednesday that the Fund probably needs less new money for crisis intervention than the $500 billion earlier anticipated, crediting action by the eurozone for the change.

ECB may act to bring down Spanish borrowing costs

The European Central Bank may intervene to pull down Madrid's borrowing costs as prime minister Mariano Rajoy warned that debt had created a "vicious circle that strangles Spain".

ECB leaves key eurozone rate unchanged at 1%

The European Central Bank (ECB) has left its benchmark interest rate unchanged at 1%.

Greek euro exit less damaging now; eurozone much stronger: Dutch PM

THE HAGUE: A Greek exit from the eurozone now would be less risky than if it had happened in mid-2010 when its debt crisis first broke, Dutch Prime Minister Mark Rutte said on Tuesday as bailout talks in Athens went to the wire.

Debt crisis not over says Trichet

Outgoing president of the European Central Bank (ECB) Jean-Claude Trichet has warned the eurozone debt crisis is "not over".

Euro zone to raise EFSF guarantees, effective by summer

BRUSSELS - The euro zone is likely to agree on details of bolstering its bailout fund next week, and the reformed European Financial Stability Facility should be operational by the summer, euro zone officials said on Tuesday.

Euro zone leaders agreed on Saturday that the capacity of the European Financial Stability Facility should be raised to its full 440 billion euros from the current 250 billion, but left it up to finance ministers to work out how.

Eurozone not in financial crisis, says French minister

France's economy minister Christine Lagarde denied the eurozone was in crisis.

She said only certain countries in the single currency bloc were in financial trouble, and that European governments were looking at an increase in the EU's bailout fund.

“This crisis is not a crisis of the eurozone, it is a crisis in a certain number of states,” she said.

“The increase in the European Financial Stability Facility is one option which we are looking at, of course.”

Worries about whether the EFSF is large enough focus on estimates that only about €250 billion of the €440 billion fund is effectively available to eurozone countries because of a complex loan guarantee system.

Analysts say that will not be enough to rescue both Spain and Portugal if they bow to debt market pressure and seek aid, although German finance minister Wolfgang Schaeuble said yesterday that the debate about boosting the size of the rescue fund was not realistic.

Lagarde also cut her 2010 growth estimate for the French economy to 1.5% from 1.6% last month, but said she was not worried about inflation despite December consumer price figures being higher than expected.

“Our growth outlook is good. We will finish the year (2010) with at least 1.5%. According to the last estimates of the Bank of France, the fourth quarter should come in at 0.6%,” Lagarde said.

Source: London everning standard
www.thisislondon.co.uk

Europe split over debt crisis fund

BRUSSELS: A divided Europe wrestled Wednesday over how to tackle a debt drama threatening to take down Portugal as Germany and France rejected a plea for a rapid boost to a eurozone crisis fund.

Commission President Jose Manuel Barroso called for an increase in the size of the 440-billion-euro European Financial Stability Facility (EFSF) to reassure nervous markets the stability of the eurozone "is not in question."

"We believe that the financing capacity must be reinforced, the scope of activities of the EFSF should be widened," Barroso said.

"And in fact I see no reason why we should not take a decision on these matters at the latest by the next" European summit on February 4, he told a news conference on the launch of a new economic governance programme.

Barroso made the surprise plea after an unannounced meeting Tuesday with IMF chief Dominique Strauss-Kahn in Brussels, and a phone call with European Central Bank President Jean-Claude Trichet, who both share his views on the fund, an EU official told AFP on condition of anonymity.

But Berlin and Paris immediately hit the brakes, saying there was no need to expand the fund.

"The German government finds at the moment that it makes no sense, and first and foremost that it is unnecessary, to talk about expanding the rescue mechanism," government spokesman Steffen Seibert told reporters.

French government spokesman Francois Baroin said the fund was "sufficiently big to meet requests" and that it would not be on the agenda at a meeting of EU finance ministers next week.

The temporary fund was created last May to provide cover for countries in financial distress after Greece became the first eurozone country to be rescued from the threat of bankruptcy, followed by Ireland in November.

But analysts have repeatedly warned that the war-chest needs to be bigger to calm nervous markets concerned the debt crisis could spread to even larger economies such as Spain, Italy or Belgium.

Belgium, itself hit by higher borrowing costs due to a marathon political crisis, has called for the fund to be given "unlimited" resources.

Talk of boosting the EFSF came amid growing fears that Portugal might need a bailout, which the country has resisted.

In a test of Portugal's ability to remain financially independent, the country managed to raise 1.25 billion euros at a bond issue Wednesday which attracted strong demand.

European economic affairs commissioner Olli Rehn said talks were underway with EU states on the possibility of increasing the EFSF, which expires in 2013, and a mooted, permanent successor -- the European Stability Mechanism.

"We must ensure that the financial support mechanisms that were put in place last May are fit for the purpose," Rehn said.

He said discussions with member states about increasing the fund were "currently going on" and that "progress is being made."

The bailout facility's total capacity on paper is 750 billion euros (one trillion dollars) when contributions from the entire EU and the International Monetary Fund are added.

But the EFSF's effective funds are considerably less its 440 billion euros.

Its lending capacity is estimated at 250 billion euros as the EFSF in fact borrows money on the markets and in order to secure a top rating and low interest rates it must keep part of funds raised in reserve.

Europeans are weighing the possibility of bringing the EFSF's effective capacity up to 440 billion euros, which would mean a significant increase in the fund and guarantees from eurozone states, media reports said.

Another idea being invoked is to allow the fund to buy the public debt of troubled economies to ease the burden on the European Central Bank, which has been buying sovereign bonds to keep the rates of countries like Portugal low.

Source: Economic times
http://economictimes.indiatimes.com

2011: A Year of European Potential

Brussels - In 2011 Europe has to be smart, great and ambitious to achieve quick recovery from the crisis, fiscal discipline and international competitiveness, whereas all the Eurozone countries focus on safeguarding the stability of the common currency. The recent financial and economic crisis has clearly indicated a number of inadequacies of the current legal and political framework, which are currently being tackled by the EU. Hence, 2011 is expected to be a year of challenges for the European Union in developing a new framework that will improve financial supervision, enhance economic governance and establish a permanent crisis mechanism. In parallel, the challenges imposed by the ageing population, climate change and the lack of innovative funding instruments remain at the forefront of European, as well as international discussions.

2011 marks the beginning of the new European framework for financial supervision. The measures include a European Systemic Risk Board to oversee the health of Europe's economy, while other supervisory bodies will overlook banking, financial markets, insurance and pensions. It is expected that the new framework, adapted to the level of financial market integration, will enhance financial stability in the European Union and, consequently, contain potential risks to the real economy and public finances.

The system will safeguard the interests of consumers, investors, and other users and stakeholders of financial services, or at least prevent the magnitude of the effects of a potential crisis. Eventually, it aims to make EU financial markets more competitive and foster integration, while supporting their sustainable development. It is clear that in the future there will be no place for fragmented, national responses, with a lesser effect to the globalized markets, but rather a single and clear answer to external risks. In addition, the recent economic crisis has indicated that national policies have to be better coordinated to avoid similar crises in the future. 2011 will be a decisive year regarding the exact form of the new economic governance package, as well as its effectiveness. This new legislative framework is expected to deliver increased fiscal discipline, broader economic surveillance, deeper coordination and stronger institutions. It is worth mentioning that budgetary consolidation alone cannot ensure neither sovereign debt sustainability nor the correction of the observed imbalances.

There are fears that expenditure cuts and higher corporate taxes may discourage investment, reduce demand and raise unemployment. Moreover, the tough sanctions proposed may exacerbate the situation of already heavily indebted countries and thus the degree of automaticity is being debated. Europe needs a strategy that will allow growth acceleration both in the core and the periphery. Hence, European leaders are confronted with the challenge of achieving fiscal discipline without hampering growth.

2011 will also be a year of decision for the establishment of a permanent mechanism which will replace the temporary European Financial Stability Facility and aim at preventing, managing and resolving future crises, although it will probably not be implemented before mid-2013.
The purpose of such a mechanism is to safeguard financial stability in the euro area and its implementation requires a limited Treaty change. It has to be stressed that this proposal encompasses two new features; the potential participation of private creditors in the financial assistance programs and the possibility of debt restructuring or "controlled default".

The implementation of such proposals has to take into serious consideration the development agenda and the social and economic specificities of Member States which are facing fiscal problems and above all the European solidarity and cohesion.

In this direction, the internal market's advantages should be fully exploited for it to achieve its potential. The extent of economic and political integration lies behind the efforts of EU leaders in supporting the common currency. It is the right time to push market integration to new levels targeting the significant persistent imbalances across Member States as a well-functioning Single Market is the only way to ensure long-term growth for jobs. In this context, opening up market access for European - particularly small and medium sized - businesses, modernizing public procurement administration rules, reforming tax systems and regulating cross-border debt recovery are all necessary steps that have to be taken. Structural reforms, such as liberalizing the services sector, can promote productivity, innovation and investment as well as attract valuable human resources. Furthermore, it is essential that European institutions and national governments put increased efforts into designing and implementing an ambitious agenda for economic, social and territorial cohesion that supports a well-balanced development of regions and localities. 2011 also calls for greater emphasis on the "knowledge triangle" of education, research and innovation which can speed up recovery and employment in a time of globalization and growing international competition. Combining high growth rates with poverty reduction is the major challenge in achieving "inclusive growth".

The consolidation efforts by Member States put further pressure on public expenditure during an era of population ageing and rising cost of healthcare provision and social protection. Hence, delivering adequate and sustainable pensions for European citizens is a critical issue. In conclusion, dealing with the economic crisis and building the momentum of recovery, sustainable development and jobs requires well thought-out solutions at both national and European level in addition to building an area of freedom, justice and security, launching negotiations for a modern appropriate EU budget and pulling EU's weight on the global stage. Unilateral approaches seem not be sufficient in overcoming the difficulties countries are facing in establishing sound public finances and growth, finding innovative sources of funding the national and European projects and facing the strong international challenges.

2011 is expected to be a promising year for European citizens and states, and making the best use of the opportunities ahead will allow Europe to broaden its horizons and move towards new directions.

Source: www.neurope.eu

Bailout bonds on sale

THE EUROPEAN Union is to sell off the first round of bonds to raise funds for Ireland's financial aid package.

The financial aids for distressed states will sell off bonds to raise up to €34.1bn for Ireland next year and then a further €14.9bn in 2012.

The EU will issue bonds under the auspices of the European Financial Stability Mechanism (EFSM) and European Financial Stability Facility, which will sell a total of seven to eight benchmark bonds.

Ireland's €85bn rescue last month includes €22.5bn from the EFSM -- which is managed by the commission -- and €17.7bn from the EFSF, overseen by euro-area governments.

Source: www.herald.ie

ECB Trichet: EMU Govts Must Do More Individually,Collectively

PARIS (MNI) - European Central Bank President Jean-Claude Trichet reiterated Monday that the Eurozone does not face a currency crisis but rather "a problem of financial stability due to the fact that some countries have not managed their budgets as they should have."

"For a long time we have determined that the problem is not the currency," Trichet said in a radio interview. "The currency has retained its value, the currency is credible, it inspires confidence."

"The problem is thus the credit rating of several states," he explained. "This is not astonishing. We have always said: 'Respect the Stability and Growth Pact, pay close attention to your deficit budgets. They are a weakness that absolutely must be corrected'."

"We are experiencing at this moment a very serious crisis, that has intensified over the past two and a half years," he stressed. "Thus everyone must take the necessary measures."

Trichet urged the Eurozone governments to monitor each other collectively via "much better governance" and to establish "a stabilization fund capable of assuming all its responsibilities."

"That means, concretely, to do more individually and do more collectively," he insisted, adding that this message applied to France as well.

Trichet reiterated that the ECB had fulfilled its mandate for price stability -- "an essential element of stability in a very difficult period."

Concerning Ireland's consolidation program, the ECB believes "this plan must be applied in a very rigorous manner," he said.

Trichet again rejected the notion that a country could leave monetary union as "an absurd hypothesis."

Source: Imarketnews
www.imarketnews.com

Leaving the euro: how would it work?

Nils Blythe
Business correspondent, BBC News

Would Ireland be better off if it left the euro and revived the Punt? Would the Greek economy recover more quickly with a new Drachma?

Much has been written about the theoretical attractions for financially troubled countries in exiting the euro-zone.

But the question of how a country would go about it is less well explored.

And the more closely you examine the question of "how" - as opposed to "why" - a country might leave the euro, the clearer it becomes that the practical difficulties are huge.

Capital flight

To establish a new currency a country would have to convert all existing euro-denominated savings at a fixed rate on a given date.

But savers and businesses would not wait passively for that date to arrive.

The main reason for creating a new currency would be to increase the country's competitiveness by making its exports cheaper.

So savers and investors would assume that the new currency would depreciate against the euro - probably very rapidly - and want to keep their savings in euros, or transfer them to another well-established currency such as the US dollar.

The first practical problem, then, is that if it becomes clear that a country is seriously thinking of leaving the euro a huge amount of money will leave the country.

This is sometimes referred to as "capital flight".

The overall effect would be to trigger huge transfers of deposits out of the country and wreck the banking system.

The government in question would almost certainly try to impose controls to prevent this kind of capital flight, but senior policy-makers are very sceptical about whether such controls would be effective in 21st century Europe.

But if a prolonged national debate about leaving the euro creates a risk of capital flight, would the alternative be to prepare in secret and announce it suddenly?

Such a plan might work in a totalitarian state, but does not allow for parliamentary debate, legislation and all the other processes of a modern democracy.

And the idea that huge numbers of new bank notes could be prepared and distributed in secret - ready for the appointed currency conversion date - is absurd.

Risky approach

However, suppose for a moment that these practical problems could be overcome, where would the country leaving the euro stand financially?

It would have a large national debt denominated in euros.

Remaining committed to paying interest on that debt in euros while tax revenues are generated in the new currency would be a big risk.

The alternative would be to announce that national borrowings have been converted into the new currency.

For overseas bond investors, this would amount to a default.

When the country wanted to borrow more it would almost certainly have to pay punitive interest rates to persuade bond market investors to participate.
Unbreakable currency?

The counter-argument to all this is that currency conversions have been achieved successfully in the past.

The euro came into circulation without too many hitches, albeit with many years of preparation.

East Germany's Ostmarks were converted into Deutschmarks.

But the key difference is that in these cases the currency into which savings were being switched was perceived to be stable. The incentive for capital flight did not exist.

This does suggest that if the fundamental problem is substituting a weak currency for a strong one, the most practical solution would be for the strongest members of the euro-zone to leave the currency union.

It means that - in purely practical terms - Germany could leave the euro while weaker countries could not.

But while some Germans clearly feel nostalgic about the Deutschmark, it seems massively unlikely that a German government would initiate the break-up of the euro.

The euro was not designed with any possibility of break-up in mind.

Governments can choose to shadow another currency and then change their minds - the UK did just that in 1992.

Governments can create a supposedly fixed link to another currency which - in extreme circumstances - can be unfixed.

But the point of a currency union is that it is supposed to be unbreakable.

And whatever the theoretical attractions of breaking up the euro might be, the practical difficulties of doing so should not be under-estimated.

Source: BBC
www.bbc.co.uk