Is Greece going to set off the long feared next wave of the Great Recession?

@High Seas,

reading with interest...

Also, can someone explain to me the situation in Germany re its defense budget as compared to other EU countries? I heard an off-hand comment recently that Germany has the luxury of a better economy because they don't have to worry about paying for their own defense. I have no idea if this is even remotely true and profess my complete ignorance on the subject. I do know that many in the US are talking about the cost of maintaining military bases in Germany as part of defense budget reductions here. I always figured it was a yin/yang thing for the US - we have the benefit of having a military base in central Europe and carry the cost of that as well.

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@High Seas,

High Seas wrote:

Does your former chancellor from Hamburg have "some sense" about that court (sorry Court!) decision? It's alarming to me that he and assorted other dirigistes (to put it mildly) have scheduled a press conference on the same date - and believe me I never forgot how much he opposed German unification on grounds it might bring down the welfare state!

I'm not aware of that press conference.
And as far as I know, "my former chancellor from Hamburg" (Helmut Schmidt) praised Kohl for his efforts to bring the unification forward.
If he said something about 'bringing the welfare state down' - it kind of did, in my opinion: you can't integrate 17 million people in health insurances and pension fonds, who paid nothing in but got the got the full advantages from the very first day. (And that at a ratio of 1:1 between Mark der DDR and Deutsche Mark!)

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@Walter Hinteler,

You forgot 1989? Ever while the Berlin wall was coming down Gerhard Schröder was adamant there was zero chance for German unification!:

Quote:

"Nach vierzig Jahren Bundesrepublik sollte man eine neue Generation in Deutschland nicht über die Chancen einer Wiedervereinigung belügen. Es gibt sie nicht."

Sure he was right about unification bringing down the welfare state as it then existed in West Germany (esp. concerning unions) - but that was no bad thing Smile

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@High Seas,

Since you wrote about "my former chancellor from Hamburg", I was referring to Schmidt. (Schröder has and had nothing to do with Hamburg.)

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@Walter Hinteler,

You're absolutely correct - sorry, I had an advance copy of what turned out to be Schröder's interview with Der Spiegel - not a press conference as I said - and then started thinking of Schmidt for another reason so I wrote down Hamburg. I apologize. So, Schröder: what's he thinking? He wants unification with France now? Napoleon did that, so did Hitler, but how does Schröder plan to proceed?

I wouldn't worry too much about him were it not that word from your finance ministry (you know I'm a great admirer of Wolfgang Schäuble, have been since 1989) is they're trying to fend off French socialist advances also aiming at such a closer union - backed by the daughter of Jacques Delors, Martine Aubry, most likely the socialist presidential candidate since Strauss-Kahn is out - and of course the ministry worries it will end up with the tab!

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@High Seas,

No idea about what he thinks today, and what he thinks about what he has said.

But as said earlier (here [and in some of university papers]): I always had similar ideas - at least, until 1988/9.

But now let's wait 16 hours and see what our Constitutional Court will say ...

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@Walter Hinteler,

Walter Hinteler wrote:

But now let's wait 16 hours and see what our Constitutional Court will say ...

Markets aren't planning to wait that long - yields for Greek 2-year notes are now literally off the charts:

http://media.economist.com/sites/default/files/imagecache/original-size/20110910_WOC540.jpg

Closing prices for credit default swaps, ditto:

Quote:

Peripheral Sovereign CDS Pricing
Name Level Change Time
Portugal 1055 33 (3.2%) 17:00
Italy 453 5 (1%) 17:00
Ireland 840 1 (0.1%) 17:00
Greece 2650 196 (8%) 17:00
Spain 415 -7 (-1.6%) 17:00

That was a basic error in the "no credit event" clause of the 2nd Greek bailout: by not triggering CDS payout it destroyed the main hedging tool.

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If you trust Bernanke.

Quote:

Bernanke: U.S. exposure to periphery 'manageable'

WASHINGTON (MarketWatch) -- The exposure of U.S. banks to Greece, Ireland and Portugal is manageable and quite small, Federal Reserve Chairman Ben Bernanke told U.S. Senator Bob Corker in a letter written in July that was released Tuesday. The nearly $200 billion exposure the Bank for International Settlements has reported capture only one side of banks' credit-default swap exposure, Bernanke said. Confidential supervisory information and CDS data from the Depository Trust & Clearing Corp.'s trade information warehouse indicate that the exposures are "quite small." Bernanke does note a sovereign credit event could affect a broad range of markets and financial institutinos.

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@cicerone imposter,

That information was accurate as of last July when Bernanke wrote it, but things went haywire during August and are getting worse. Btw, any historians here know why all wars, revolutions, market collapses, and the like, invariably start between July and October?! Is it a northern hemisphere thing?

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@High Seas,

The reason I posted that article is because it's posted as "new" news under Yahoo's MarketWatch.com.

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@cicerone imposter,

Quite right - and in a sense it is "new" in the sense that it was only now made public. Barry Eichengreen has some practical ideas on the euro debt crisis:

Quote:

...The US is already involved as a provider of dollar liquidity and the Asian countries as purchasers of European bonds. The EU may hesitate to see them expand their involvement, but the longer it dithers, the weaker its objections become. If the rest of the world does not intervene more forcefully now, Europe’s crisis will no longer be Europe’s alone.

He's definitely right - nobody has immunity, not even far-off Australia and New Zealand; certainly not US-Canada. It's a very tightly coupled system.

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@High Seas,

That was true when it became a world economy. I remember when the Thai Bhat lost value, and that affected currencies all over the world - including the economy.

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@JPB,

Sorry JPB - saw your question earlier but it's hard to answer with precision - everyone includes whatever he wants in the military budget, some include pensions, medical care, schooling for children, maintenance of war materiel, and so on, while others group such items in the general state budgets. Germany spends as much on defense as % of GDP as anybody except the US and Russia on a "bareboat" basis (crews and provisions not included). Besides, how much do advanced weapons really, really cost? Uranium ore is dirt cheap - so are most materials, then there's "labor", then overheads, then interest on the debt Smile

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@Walter Hinteler,

Walter Hinteler wrote:

But now let's wait 16 hours and see what our Constitutional Court will say ...

The German Federal Constitutional Court ruled that all is according to our constitution what was decided ...

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@Walter Hinteler,

I went looking for a report of such on my normal online media outlet expecting to find it on the front page. Nope. I checked the world page tab. Nope. I looked in the business section and saw a headline about Wall St expecting a rebound today after major losses yesterday. The second paragraph of the article discusses the court ruling. It never ceases to amaze me how self centered Americans can be.

Excellent news, obviously. I wonder if they could, in conscience of the real fallout, have determined otherwise.

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@High Seas,

I'll take that as a, "Yes, no, maybe." Smile

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@JPB,

The English websites certainly published that news a bit later.

Three reports:

• Spiegel-online:German Court Rejects Challenges to Euro Bailouts
• Washington Post: German high court ruling could make Berlin’s responses to crisis more cumbersome
• EuroBusiness: Merkel says court ruling confirms German euro policy

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@JPB,

JPB wrote:

I wonder if they could, in conscience of the real fallout, have determined otherwise.

It actually wasn't that question but if it was done according to our constitution .

The full ruling is >HERE<, in German only.
Official translations to English last some time - which could be the reason for a couple of misleading headlines/reports in the English-speaking media.

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@Walter Hinteler,

No, I know the question was a different one. But, still... can you imagine what would have happened if they allowed the suits to stand?

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@Walter Hinteler,

From your Washington Post link

Quote:

President Judge Andreas Vosskuhle said parliament had to play an active role and could not simply serve as a rubber-stamp for the chancellor.

The court did not impose, as some feared, the harsher requirement that emergency packages be approved by the full parliament.

Instead, it took a middle path, requiring the government to consult only the parliamentary committee before committing substantial new funds. The current bailout law allows the government to consult the budget committee after the fact in some cases.

I always prefer a middle path.

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Is Greece going to set off the long feared next wave of the Great Recession?

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