De-Lurking on the Net

June 19, 2015

Greece Induced Euro Meltdown reaching to its climax

Filed under: Currencies,Europe,Finance,World — Geekay @ 1:18 am
Tags: , , , , , , ,

The turmoil in Greece due to its inability of committing to austerity pledges as proposed by Brussels & IMF etc. makes one imagine of the day when this turmoil will end. It makes one compare the situation of the country with a company who becomes bankrupt. US companies, who owes others and unable to service their debts, gets protection under chapter 11 keeping its lenders etc from dissolving the company and meanwhile some more funds are arranged by the company from some others source to carry on running. Ford and Gen Motors came out stronger after this situation when it got rescue funds from US govt itself. Not every company is salvageable. So, willy-nilly one cannot fund any amount of loans to such a sinking company. Chapter 7 deals with protection to creditors when a company‘s assets are sold and given to creditors first before returning the rest to owner of company. Important issue is to identify in the sinking company if the salvage plan is any good. It usually rests on selling the currently produced items with the better design and better competitive price or sales with some incentives. Now, in the case of Greece, clearly Greek people want to pay the same pensions or other benefits as before. So the costs for the govt will stay the same and current account deficit will stay just the same. How can the solution lie in sticking to austerity without building some additional revenue generating capacity in Greece. So, if the Greece not only gets funds to service its loans but also additional money to build such a capacity then there may be a ray of hope. The productivity cost in Greece should now be comparable to the best in Europe. The ideas could be to produce new items in Export promotion Tax Free Zone areas. The richer countries should not only commit to buy from such zones but also help in setting it up in the first place. It means the richer countries basically shifting their own industries to Greece.

So, to rescue the EU currency project, not only other member countries have to commit to extend new loans to service the debts of Greece but also shift some of their industrial base out of their own country to Greece.  One cannot see that happening.  The Europe’s centre is pretty weak. The member countries have no desire to help those sinking members unrestrained. The centre has no ability to impose its own taxes and build reserves. Currently EU raises money from member countries’ VAT receipts(0.3%), its gross national income (usually around 0.7%) and export duties it collects on non-EU  products imported. So, if EU parliament cannot decide tomorrow to levy a new tax to build emergency rescue funds for countries in trouble and the individual country‘s largesse does not exist. So, why should Greece not be left to drift away. Of course, it will mean once untethered from Europe, it will seek saviours from where ever the cash pockets can be found in the world.  It could be in China, Russia, Gulf Countries etc.

It gives a lesson to those blocks or groups (like ASEAN, NAFTA, MERCOSUR, SAARC, BRICKS etc) who want to follow EU trading block example to build tighter integrated block. Any block should never attempt the currency union without building a strong centre. No matter how effective the intra trade within the block may be. For a currency union to succeed depends on giving up power from the member countries to raise the tax for the whole group. Merely imposing an austerity formula cannot keep the currency union safe. But if an austerity formula is devised, then countries should be allowed to join and leave at will. A mechanism should be built to entangle and disentangle. Perhaps, writing off debt to creditors after a forced ejection may mean losing the capacity to raise any money at all unless a saviour country outside EU can be found.

A picture of Greece debt (in billion Euros)

GreeceDebt

A wilderness for years like Argentina  following its second default in 2014 in last 14 years awaits Greece, if it doesn’t agree to those willing to bail it out on their terms. On the other hand, will EU risk Greece to move into the arms of unsavoury company of countries? An example of Zimbabwe could be followed where it has now adapted the stable global currencies in place of its own currency. After leaving Euro project, Greece will be free to default on its debt. It can still use Euro and does not have to stick to austerity plans imposed by IMF, Brussels. It can stabilise and build its reserves, economy gradually. Of course, being outside the EU project means it  will probably not able to trade with EU any more but perhaps EU may allow some trade on some conditions.

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October 24, 2012

Justice in Democracies

There is an article in Washington Post discussing the slick running ofDrone Attacks across Pakistan, Yemen, Somalia. There may even be need to enlarge the area of operations soon as Al- Qaeda seem to be taking root in Northern Mali, Algeria and Arab Spring States. Well, the acceptance of targeted killing is justice denial but there is little doubt that when states are unruly (Somalia, Yemen) and unable, unwilling to act (Pakistan), the drone action gets justified. But will the taps ever stop now having gotten used to them. The worrying aspect is that the judgement of deciding the targets based upon the input may be not all that right always. Inputs may be tainted, compromised or from a biased informer trying to take revenge of his own enmity.

The justification for anything can be done as attack on Iraq comes to mind which was justified at the time being based on WMD presence. But, I will contrast this theme of justice denied (effectively to terrorists or damned as terrorists) to selective justice practiced in India where it came to light more prominently in last few weeks. Recently, one activist turned politician Mr Arvind Kesriwal started giving the evidences against all corrupt politicians in India irrespective of which party they belonged. First, Mr Kesriwal presented the case of making big money via the government connections against the son-in-law Mr Robert Vadra of the ruling party president Mrs Sonia Gandhi, who is proxy PM of India. The ruling party responded the only way it knows that is by keeping quiet and speaking at times as if some sin has been committed by dragging the relatives of the party post holders as they said they never bring the matters related to the relatives of opposition party in public domain however damning these may be. Next, Mr Kesriwal gave evidence against another ruling party functionary or so called Law Minister for defrauding the system systematically via a government funded NGO. Brazenly, the Law Minister, Mr Salman Khurshid refused to resign, the PM decided not to meet anyone or probe or say anything. Next Mr Kesriwal decided to present evidence against the opposition party president, Mr Gadkari.

While the ruling party dismissed all evidence against its own party holders or beneficiaries but then they decided to use the government departments to probe for cases against the opposition party president. So, this is another pattern of selective justice in so called democracy which can aptly be described sham-o-cracy, brazen-o-cracy or thug-o-cracy (Russian democracy seems more apt for that, though). So, in some ways democracies should not be talking of human values and equal justice which they often seem to champion while talking about China, Syria, Sudan, Zimbabwe etc. While, there seems no real way to nab terrorists and the only way left is to strike and eliminate them in their own currency of terror but should we continue to uphold these values for unforeseen period? It signifies the failure of reason, diplomacy, decency as the outbreak of drone wars between countries could lead to bigger catastrophes for mankind while partisan justice of India will lead to witch hunt following a regime change.

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