As you will be well aware, the current debate engaging the Continent is that between austerity on the one side and fiscal expansionism on the other. What with the recent election results in France and in Greece (together with German state election returns from North Rhine-Westphalia), there seems to be a rising tide of popular opinion in favor of the former. The austerity party of the EU’s Northern European core, headed by Germany*, has been thrown on the defensive.

And so we have this, from the FAZ, Germany’s paper of record, specifically from that newpaper’s “Sunday economist” blogger Patrick Bernau, warning that Too much debt makes you poor. The lede:

There is a magic boundary: From 90 percent indebtedness it becomes dangerous for States. It is becoming clear: States then often get into decades-long problems.

His authority? That is mainly a recent National Bureau of Economic Research working paper by Carmen and Vincent Reinhart together with Kenneth S. Rogoff, entitled “Debt Overhangs: Past and Present.”

There you go, then: get yourself in debt in excess of 90% of your GDP, and you as a government are asking for trouble. That will show those who seem to just want to borrow-and-spend their way out of current economic difficulties.

In reality, of course, things are not quite so simple. To be fair, Bernau recognizes this. For one thing, that Reinhart^2-Rogoff study has to do with the sorows of States which exceed that 90% limit for five years in a row – a crucial distinction. There’s also the issue of exactly how punishment is delivered to those governments that stray over the line. Supposedly, the interest rates they pay for that debt start to skyrocket but, as Bernau readily concedes, that is hardly the case uniformly in the present world, particularly for governments which in sole charge of their own currency.

What we seem to have here is yet another case of a disconnect between an author’s fair-and-balanced article and those other people who are charged with writing the headline (and, often, the lede). Still, you get the feeling that Bernau does believe in that 90% thesis, even if he doesn’t manage to show in any definitive way why it should be true – and he definitely is worried for his own Germany, whose own government indebtedness is now at 81% of GDP and approaching that “magic boundary” fast.

*But also including the UK, which has been glad both to impose fiscal austerity on itself and live with the inevitably disappointing consequences.

ELSTAT: you know, it’s surprising this acronym is not better-known within the context of the economic crisis that has been raging since (roughly) 2008. And I mean in a negative sense, the way names such as Lehmann Bros., Goldman Sachs, Royal Bank of Scotland, Northern Rock, etc. now call up unpleasant associations among most economic observers.

For ELSTAT is the abbreviation (from the Greek) for the “Hellenic Statistical Authority,” the Greek government’s official statistical agency. If you are of the view that Greece never belonged in the Eurozone in the first place – and many are, including French President Nicolas Sarkozy – then ELSTAT is your villain, as it was the false statistics it submitted in the 2000-2002 time-frame which led Greece to be admitted into the club when it was not ready, and may never have been. Similarly, ELSTAT was involved back in late 2009 when Georgios Papandreou won the national elections and became Greek prime minister, only to announce shortly thereafter that his country’s fiscal situation was way worse than he, the EU, and the general public had been led to believe (by ELSTAT) – and that was what kicked off the long-running Greek sovereign debt imbroglio which even last Monday’s deal with the “troika” (EU, ECB and IMF) has surely not definitively solved.

Anyway, there’s a new ELSTAT scandal now, and Dirk Elsner over at @blicklog tips us off:

Staatsanwaltschaft erhebt Vorwurf, dass Griechenlands Staatsdefizit 2009 auf EU-Druck zu hoch angesetzt wurde http://t.co/dG4DPUPY

February 23, 2012 1:13 pm via HootBarReplyRetweetFavorite

@blicklog

Dirk Elsner

There’s also an article to the same effect in the Czech press, spotted by @Zpravy:

tiscali.cz: Řecký parlament bude šetřit údajné “nafukování” údajů o deficitu: http://t.co/NgrpIbe0

February 23, 2012 1:10 pm via twitterfeedReplyRetweetFavorite

@Zpravy

Zpravy

What is going on? Well, once again ELSTAT’s numbers are said to be in error, and that for a political purpose. This time, however, you can say that the alleged fraud is in the opposite direction: numbers not falsified to fool outsiders, but rather to fool the Greeks themselves! The Athens public prosecutor now asserts that the Greek budget figures were actually exaggerated back at the end of 2009 – just after Papandreou had taken office – and this at the request of the EU. Specifically, the EU wanted to see a budget deficit figure of 15.4% – and duly got it – rather than the 12% which was reality. Why? For ammunition to use to browbeat the Greeks into the tough austerity measures they passed/started to pass then.

A Greek parliamentary committee is going to look into this. For now, the suspicion remains that ELSTAT is an agency not to be trusted by anyone, whether on the home or the visiting team. There is also sure to be an additional, unpleasant political effect if the Greek electorate starts to feel it was misled into adopting the painful budget/pension/wage cuts the government undertook to mollify the EU and to deal with its fiscal situation.

Amid all the brouhaha about S&P downgrading its rating for US Government debt, the parallel ongoing crisis in Europe should not be forgotten. “Crisis”? Take it away, Nouriel:

Definition of “crisis”: when officials need to huddle up on a weekend before Asia opening to take decisions & do statements a turmoil rages

August 6, 2011 1:43 pm via webReplyRetweetFavorite

@Nouriel

Nouriel Roubini

The Czech daily Mladá fronta dnes, as caught by the @Zpravy Twitter-feed, has the details on this particular edition:

iDnes: Lídři EU chtějí rychle realizovat závěry summitu. Uklidní tak trhy: Vlády musí urychleně dokončit dohody … http://bit.ly/oLaqvt

August 6, 2011 11:30 am via twitterfeedReplyRetweetFavorite

@Zpravy

Zpravy

Turns out, if you like, that you can blame everything on European vacation syndrome (e.g. “No one touches my August holiday!”): EU leaders want to quickly carry out changes from summit, that way they’ll calm markets is the headline here.

• “Summit”? That’s the one they just had, of course, an extraordinary convening in Brussels on July 21 in reaction to the Italy/Spain funding troubles.
• “Changes”? That has to do with the European Financia Stability Facility (EFSF), which leaders at that summit agreed would be beefed up to better be able to intervene to assist eurozone member-states in financial need, eventually even becoming a sort of European Monetary Fund.

(more…)

Sorry to bother: Are you aware that Belgium last held national elections back on June 13 of this (soon-to-terminate) year, yet it still has only caretaker politicians in charge of its national government?

You might have a recollection of that somewhere in the back of your mind (unless you yourself are Belgian, in which case the memory is a bit more prominent). Yet why should anyone really care – unless, of course, they are Belgian? Maybe not even then: the country seems to run fairly well even without a formal national government in place and, indeed, currently carries out the duties of the rotating EU presidency. There’s really no threat of any sort of violence, despite the current high levels of frustration within the Belgian political establishment.

One reason is the enormous Belgian national debt, since one of the points of forming a proper government is to come up with a team willing to take on the responsibility of making sure it gets paid back, in the right amounts and on time. But a simpler reason may simply be fascination – of the pileup-on-the-highway sort – with the sloppy, sordid mess that the government-forming process has become over these long six months (so far).

Take the latest sensation, namely the interview given two weeks ago to Der Spiegel by Bart De Wever, head of the N-VA party that is the largest in Flanders (Belgium’s northern, Dutch-speaking part) mainly by virtue of its strong separatist tendencies. “Strong” I say, but apparently not “overwhelming” in that for much of the past six months (if not now) De Wever has consented to appointment by the King as bemiddelaar, i.e. the politician officially designated to try to form a new government. As the authoritative Flemish paper De Standaard points out today, however, the venting De Wever delivered to Der Spiegel clearly shows he is about out of patience with the whole charade:

If it were possible to set the necessary reforms in one Belgian state on track, I wouldn’t stand in the way. But that is not possible. The Walloons [i.e. the French Belgians], above all the Socialists as their strongest [political] party, are blocking all meaningful reforms.

And that is hardly all. The interview is entitled “The sick man of Europe” (Europas kranker Mann), an epithet applied by De Wever himself (along with een mislukt land, “a failure of a land”) to the country in which he is an elected politician, one which for that matter he is sure “has no more long-range future.”

Since it’s apparent he operates under the assumption that no one in the French-speaking half of Belgium has bothered to take up the German language, De Wever goes freely on to reveal other tasty tidbits. Like he expects his N-VA party to be voted out of power in Flanders in the next election if it does in fact ever enter any new national government – because N-VA voters clearly never voted for that, but rather for some sort of intelligent separation process! Like he doesn’t feel he can trust King Albert II, since his sympathies so obviously lie on the side of the Walloons.

But it turns out that politicians from Wallonia actually are able to access German texts one way or another. Newscasts from Belgian radio today (yes, including those in Dutch) are crackling with their indignant French-speaking voices pointing out – with justification – how all this “hopeless” talk is about the last thing Belgian state finances need now that international bond speculators are starting to shift their jaundiced eyes from Greece, Ireland, etc. to pick out other possible sovereign-debt deadbeats.

Oh, and they also point out how outright rude De Wever is, considering the recent government-forming efforts by the current bemiddelaar, Johan Vande Lanotte – another Flemish politician, with the sort of funky Dutch/French name you can only find in Belgium, but from a different party – seem to be coming along so well. Yeah . . . right.

(BTW De Standaard also includes a link to De Wever’s Der Spiegel interview itself, and in a Dutch translation – not only because of its Dutch audience, but also since anyone who wants to read it in the original German needs an on-line subscription to access it behind Der Spiegel’s paywall!)

UPDATE: Sure enough, now we have this entry on the FT’s Alphaville blog reporting how S&P has shifted its outlook on Belgium’s sovereign debt from “stable” to “negative,” namely for the unusual reason of “political uncertainty,” i.e. no government. It further threatens a downgrade to the country’s AA+ rating if there’s no such proper government in place within six months – or if that “proper” government nonetheless seems to be ineffective in addressing the state’s worsening fiscal issues.

Don’t look now, but another EU sovereign debt crisis is creeping up. This can be seen in the effective interest rates currently paid for the obligations of the usual problematic countries – Greece, of course, along with Portugal and Ireland, but also Italy and Spain. The last-named had hoped that it had made it out of the woods – mainly by means of various public-spending austerity measures – and so Spanish financial experts are particularly aggrieved now that it seems the country’s painful fiscal virtue is threatening to be all for naught. One such, C. Pérez of the Spanish newspaper El País, knows who is to blame and issues his accusation today: Berlin sows doubts about debt and the contagion reaches Spain and Italy.

It’s almost like what happened back when the EU sovereign debt crisis first broke in January, after the new Greek government took office and felt obligated to announce that the country’s debt and fiscal situation was much worse than the previous regime had led everyone to believe. Then, Germany for a long time resisted coming to Athens’ assistance, and thereby succeeded in little more than spreading doubts about their fiscal probity to Portugal, Ireland, and Spain as well, before finally in May rallying Eurozone countries to set up a huge and unprecedented EU sovereign debt support fund.

This time the story is slightly different, although the Germans are still the villains of the piece. It has to do with the proposal Finance Minister Wolfgang Schäuble recently unveiled for the establishment of a mechanism to deal with future sovereign debt crises: first, a program of intensified fiscal austerity for the deadbeat country, accompanied by a mandatory lengthening of their debt’s maturity date; then (if that does not work to calm investor fears of a default) intervention with EU funds, but with required provisions for the lenders to get back less than they are otherwise due, i.e. to take a loss on their investment. Schäuble: “The EU was not created to enrich financial investors.”

All that seems reasonable in itself, but in the first place the Germans here are explicitly raising the prospect again of sovereign defaults. That’s supposed to be unmentionable, and when it is mentioned it tends to make investors sit up in alarm and take notice. More importantly, though, the German proposals also amount to a change of the rules of the game for lending money to Eurozone countries; for one thing, before this investors weren’t expected to have to take a loss if the EU and/or IMF had to come in to cover the debts (and the later maturity date is not something designed to thrill them either).

Given that this is the proposal being pushed by Germany, the EU’s paymaster, these investors are naturally adjusting their expectations for such a near-future development now: the Greek, Portuguese, Irish, Spanish and even Italian debt they are holding no longer seems quite so attractive in the light of this likely rules-change, and so we see the effective rates on those debts lately rising up dangerously to levels potentially high enough to ensure that, in effect, they never can be repaid by those countries themselves.

The result: in trying to address the problem of how to handle sovereign debt crises in the future, the EU has come close to bringing about such a crisis in the here-and-now, and has plunged countries which had thought themselves at least on the margins – namely Spain and Italy – squarely back into the danger-zone. It’s no wonder they’re not happy about it. Unfortunately, there’s a limit to how much of substance can be accomplished by secret consultations among the EU member-states. Such a crisis was probably inevitable, given that top EU leaders refused to simply stick their heads in the sand and pretend that such serious international financial trouble could never come around again.

The brief of this EuroSavant weblog, as all familiar with it know, is normally pieces from the European press written in some language other than English. Then again, there’s always room for the rare exception. Consider:

For four months Belgium has been without a government, its public debt is approaching 100% of GDP and the spread of Belgian 10-year bonds over the German benchmark is today three times as high as at the beginning of this year. Is Belgium the next country with a sovereign debt crisis?

As if the EU needed another such problem! Nonetheless, with the political system there seemingly unable to form a government, with a national split-up now a real possibility – the option is now being discussed in Walloon (French) circles as well as Flemish ones – who’s going to take care of payments on its ever-expanding sovereign debt?

The analysis, by Susanne Mundschenk and Raphael Cottin for EuroIntelligence, is a couple weeks old but still definitely worth a (belated) mention, as is the accompanying 10-page PDF document that goes into even more detail. All are in English.