George Soros Interview for Spiegel

"SPIEGEL ONLINE: In Germany, once the motor of European integration, people are openly discussing the possibility of leaving the euro zone. Many Germans believe that a return to the deutschmark would be cheaper than to remain stuck in a flawed currency union. Are they right?

Soros: There is no question that a breakup of the euro would be very damaging, very costly, both financially and politically. And the biggest loss would be incurred by Germany. Germans have to bear in mind that, effectively, they have suffered practically no losses so far. Transfers have all been in the form of loans, and it is only when the loans are not repaid that real losses will be incurred.

(...)

SPIEGEL ONLINE: Once again: How is that Germany's fault?

Soros: This is the joint responsibility of everyone who was involved in the introduction of the euro without understanding the consequences. When the euro was introduced, the regulators allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital. And the European Central Bank discounted all government bonds on equal terms. So commercial banks found it advantageous to accumulate the bonds of the weaker countries to earn a few extra basis points.

SPIEGEL ONLINE: And that then dragged down interest rates?

Soros: Yes. The lower interest rates fueled housing and consumption booms in countries such as Spain and Ireland. At the same time, Germany, struggling with the burdens of reunification, tightened its belt and became more competitive. All this led to a wide divergence in economic performance. Europe became divided into creditor and debtor countries. All these conditions were created by European authorities, including the European Central Bank, which was largely modeled after the Bundesbank. Germans tend to forget now that the euro was largely a Franco-German creation. No country has benefited more from the euro than Germany, both politically and economically. Therefore what has happened as a result of the introduction of the euro is largely Germany's Schuld -- its responsibility.

(...)

SPIEGEL ONLINE: Do you think Angela Merkel is prepared to take such steps?

Soros: She is trapped. Merkel has realized that the euro is not working, but she cannot change the narrative she has created because that narrative has caught the imagination of the German public, and the German public has accepted it.

SPIEGEL ONLINE: The narrative essentially says that crisis-stricken nations simply haven't made the necessary reforms, unlike Germany.

Soros: Right. But at the same time, Chancellor Merkel realizes that what is happening is not working, and so she is determined to preserve the euro.

SPIEGEL ONLINE: German Finance Minister Wolfgang Schäuble gave an interview to SPIEGEL saying that now is the time for bold steps. He outlined ideas for a closer political union in Europe.

Soros: Schäuble is representative of the Germany of Helmut Kohl. He is the last European standing, and he is a tragic figure, because he understands what needs to be done, but he also realizes the obstacles that stand in the way, and he cannot find a way to overcome these obstacles. So he is really suffering.

(...)

SPIEGEL ONLINE: If you were still an active investor, would you be tempted to make massive bets against the euro?

Soros: As an investor, I would be very pessimistic, especially about Europe. But as a believer in an open society, I have to put my faith in the people and leaders of Europe to show some reason." [Spiegel Online]

via B.

Lies and omissions in "As Spain Acts to Cut Deficit, Regional Debts Add to Woe, "

"Excuses are, of course, already being prepared for this lamentable state of affairs, and in particular the argument is being run that in fact the responsibility here does not lie with Spain’s central government (which was entirely composed of choirboys and girls), but with a lamentable set of constitutional arrangements which give far too much spending power and control to the country’s regional governments. To some extent this is true, but as I say, it is important not to take everything here at face value, since as ever, all is not what it is made out to be.

This advice could, as it happens, have proved useful to New York Times reporter Suzanne Daly who advertently or inadvertently seems to have been taken for a complete ride with the article she wrote for the newspaper last Friday. The focus of the article was purportedly on regional extravagance in Spain, but in the event she seems to have allowed herself to be used to float a political agenda which primarily seeks to take the attention away from the country’s central government, and the responsibility it has for the current lamentable state of affairs. Naturally examples of regional extravagance certainly abound (hell, the entire country was living beyond its means), but I started to smell a rat when I saw the example she chose to highlight in her article – the prison at Puig de Les Bases, Figueres (which just happens to be located only a few kilometers from where I live).

What worried me is that the prison you can see in the photo above is NOT an example of something that isn’t needed, like a phantom airport, or a golf course where no one will ever play golf. The problem with Puig de Les Bases is not that there aren’t prisoners waiting to be moved there from the two outdated prisons which are scheduled to close (there are, 300 of them, to which can be added an additional 450 once the new one is open). No, the problem here is that there isn’t enough money to run the place after it opens.

(...)

The issue, however, goes deeper. The offending prison is in Catalonia, and Catalonia is a region which has long been seriously underfunded by the central government – indeed as was suggested by the regional minister of economics, Andreu Mas Colell, it looks suspiciously like the central government were not paying funds owing to some key regional governments to make the regional deficit look worse, and the central deficit look better.

(...)

It is also striking how the article also draws attention to spending issues in the community of Andalusia (which is the only community the socialist PSOE really controls now, and which the PP hope to win in elections in the spring) while there is no real mention of communities like Valencia, or Galicia, which are controlled by the PP and where there are plenty of examples which could be mentioned, like the phantom airport in Castellon, built under the eager eyes of former Valencian President Francisco Camps, who had to resign and is now facing corruption charges in a trial which is currently attracting a lot of media attention." Edward Hugh in EconoMonitor.

Is Decentralisation the Cause of All Problems of Spain?

"Much of this stems from Spain’s exaggerated decentralisation. The democratic constitution’s creation of 17 autonomous regions tried to reverse Franco’s heavy-handed centralisation, while keeping enough national control to satisfy the right, long nervous about self-government of Basques, Catalans and Galicians. In fact it has led to waste in public spending and to 17 sets of business regulations, fragmenting the national market and increasing costs. And it has failed to settle Spain’s historic quarrels: Basque and Catalan nationalists have exploited their status as coalition partners of the two main parties to demand ever more powers.

Mr Rajoy’s absolute majority in parliament plus his party’s control over many of Spain’s regions could allow him to start rolling back this trend. He should be cheered that a new centrist group which split from the Socialists in protest over Mr Zapatero’s toadying to the regions took almost 5% of the vote. Although Basque separatists, boosted by the end of ETA’s terrorism, and Catalan nationalists also did well, one lesson of the euro crisis applies also at home: too much splintering makes governing an economic union harder." [The Economist]


The key point is that there is not even one real reason or argument given in the article to prove why decentralisation is such a big problem for spanish economy. Only the vague suggestion that decentralisation causes implies lesser speed of reaction. Although the politics developed by the catalan nationalist administration prove the opposite.

Even more, given the fact that the article absolutely ignores the efforts made by Catalonia to restrain its economic spending (the toughest by far made by any admministration in Spain) it comes the suspicion that there could be an interested purpose in the article, and not a healthy journalist job.

Excerpts from Michael Lewis' "Boomerang: The Meltdown Tour"

"In Greece, he says, the government initially disguised the true state of its finances with the help of U.S. bankers. Goldman Sachs, for example, did off-market currency trades with the government of Greece.

"[Those trades] enabled the Greek government to book upfront a big profit, but down the road [the Greek government] would have to repay Goldman Sachs quite a bit," Lewis says. "So [Goldman Sachs] lent the government money without saying that's what they were doing. If you did this in the corporate world, a bunch of people would be put in jail. They helped the Greek government rig its books so that they looked acceptable to the European Union so they'd be admitted to the euro[zone].

(...)

This was not a one-off situation," he says. "You look at the financial crisis in Europe, and the fingerprints of American investment bankers are everywhere. The financial collapse encouraged the worst sort of behavior. At the same time they were making bad loans in the United States, they were encouraging the same sort of behavior at the government level in Europe. The basic problem was, historically the role of the financier was to vet risk and make sure risk was evaluated. That got perverted in recent times, and instead the financier helped disguise risk."" [npr.org]

I Can Rate Moody's Rating

Moody's Corporation (NYSE: MCO) is the holding company for Moody's Analytics and Moody's Investors Service, a credit rating agency which performs international financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized ratings scale. The company has a 40% share in the world credit rating market. [Wikipedia]

Global Credit Research
Credit Opinion
15 FEB 2007
© Copyright 2007, Moody's Investors Service, Inc.

"Ratings
Category Moody's Rating
Outlook Stable
Country Ceiling: Fgn Currency Debt Aaa/P-1
Country Ceiling: Fgn Currency Bank Deposits Aaa/P-1
Iceland, Government of
Outlook Stable
Government Bonds Aaa
Commercial Paper P-1
Other Short Term P-1"

"AAA highest credit quality. The 'AAA' ratings indicate the expectation of reduced credit risk. Are assigned only in cases where there is an exceptionally strong capacity to meet the principal and interest repayment of financial obligations on time. It is highly unlikely that this capability be adversely affected by foreseeable events" [Abanfin - Google Translated]

"(...) because of the failure of its banking system and a subsequent economic crisis. Before the crash of the three largest banks in Iceland, Glitnir, Landsbanki and Kaupthing, their combined debt exceeded approximately six times the nation's gross domestic product of €14 billion ($19 billion). In October 2008, the Icelandic parliament passed emergency legislation to minimise the impact of the financial crisis. The Financial Supervisory Authority of Iceland used permission granted by the emergency legislation to take over the domestic operations of the three largest banks." [Wikipedia]