The Cynical Economist

There is something in the Earth atmosphere….Otherwise there is no way to explain all these people and events that are gone insane around the World in the last few years

From The Telegraph
By Martin Banks

European bureaucrats have set up a secretive fund of £400 million to pay for projects that include promoting a “smelly-foot” dance and producing postcards about the causes of “social exclusion”.

Researchers have unearthed a series of grants issued to schemes deemed “confidential” that have not been subject to outside scrutiny. Taxpayers’ money spent on the projects, many of which have been described as “crazy”, has increased since the onset of recession.

The schemes include £145,000 to print 736 postcards that “reflect the current problems in Europe that generate social exclusion” and £166,000 on a street circus project whose aim is to “strengthen international understanding”.

Producing the postcards in six EU countries cost nearly £200 per card.

According to a report by Open Europe, a UK-based think tank, the £400 million was allocated to projects originally deemed “confidential”. The projects have now been listed on the European Commission’s newly-created database of beneficiaries of EU funds.

Open Europe analysts said they had unearthed “some pretty outrageous stuff”.

Stephen Booth, of the think tank, said, “There are some crazy projects but also a lot of money going to projects considered ‘confidential’.

“The Commission’s website simply says that ‘in certain cases, some parts of the information displayed on a particular grant or contract may be masked, for example, for security reasons’.”

Between 2007 and 2009, the database shows the Commission awarded a total of 727 grants in which the beneficiary is marked as confidential, amounting to a total value of just over £400m.

Some recipients have been named including the London-based Flying Gorillas troupe, whose act includes the “brilliant smelly foot dance and the incredibly difficult iguana four-step”. It received £162,000. Another £124,000 went to London-based artists BodyDataSpace for a project on “evolving global, social and technological shifts”.

From Times online

After bailing out Greece and now the euro, Germany is fed up with being Europe’s paymaster

GISELA and Susi, thirtysomething civil service secretaries, were shivering over their sausages in what the tabloids labelled the “most miserable May of the millennium” and planning their summer holidays. “I know where I’m not going,” one of them said. “The hotels, service and food aren’t as good as Turkey but the prices are as high as Italy!”

As Berliners bravely sat on the banks of the River Spree in unseasonably cold weather for the Ascension Day holiday that traditionally marks the start of summer, they had no doubt that the cold wind was blowing from the sunny south: Greece in particular.

The multi-billion-euro payout for Greece, followed by an even more expensive rescue package for the threatened single currency, has created the greatest political climate change in a generation.

Suddenly Germans are asking questions about the European project that has been the bedrock of their politics for 60 years, leaving Angela Merkel, the chancellor, under fire from the electorate, the opposition and her own party.

It took a stand-up display of table-banging aggression from President Nicolas Sarkozy and an intervention on the telephone from President Barack Obama to get Merkel to agree to the euro package.

“We foot the bill for EU disaster,” screamed a headline in Bild, the tabloid newspaper. Christoph Schmidt, a government economist, responded by warning: “Germany cannot become Europe’s paymaster.”

Read the rest of this entry »

From Mail Online
By PAUL SIMS

The Davey family’s £815-a-week state handouts pay for a four-bedroom home, top-of-the-range mod cons and two vehicles including a Mercedes people carrier.

Father-of-seven Peter gave up work because he could make more living on benefits.

Yet he and his wife Claire are still not happy with their lot.

With an eighth child on the way, they are demanding a bigger house, courtesy of the taxpayer.

‘It’s really hard,’ said Mrs Davey, 29, who is seven months pregnant. ‘We can’t afford holidays and I don’t want my kids living on a council estate and struggling like I have.

‘The price of living is going up but benefits are going down. My carer’s allowance is only going up by 80p this year and petrol is so expensive now, I’m worried how we’ll cope.

‘We’re still waiting for somewhere bigger.’

Mrs Davey has never had a full-time job while her 35-year-old husband gave up his post in administration nine years ago after realising they would be better off living off the state.

At their semi on the Isle of Anglesey, the family have a 42in flatscreen television in the living room with Sky TV at £50 a month, a Wii games console, three Nintendo DS machines and a computer – not to mention four mobile phones.

With their income of more than £42,000 a year, they run an 11-seater minibus and the seven-seat automatic Mercedes.

But according to the Daveys they have nothing to be thankful for.

‘It doesn’t bother me that taxpayers are paying for me to have a large family,’ added Mrs Davey.

‘We couldn’t afford to care for our children without benefits, but as long as they have everything they need, I don’t think I’m selfish.

‘Most of the parents at our kids’ school are on benefits.’

She added: ‘I don’t feel bad about being subsidised by people who are working. I’m just working with the system that’s there.

‘If the government wants to give me money, I’m happy to take it. We get what we’re entitled to. I don’t put in anything because I don’t pay taxes, but if I could work I would.’

The couple met in a pub 13 years ago. A year later, at the age of 17, Mrs Davey gave birth to Jessica, now 12.

She was followed by Jade, ten, Jamie-Anne, eight, Harriet, six, Adele, four, the couple’s only son Tie, three, and Mercedes, two.

‘It cost too much to carry on working as we were actually better off unemployed,’ said Mr Davey.

In addition to income support, housing benefit, child tax credits and a council tax discount, the couple receive carer’s allowance and disability living allowance for Tie, who suffers from a severe skin disorder.

Despite filing for bankruptcy 18 months ago after racking up £20,000 of debt on mail order catalogues they still insist on splashing out on four presents per child at birthdays and last Christmas spent £2,000 on gifts alone.

‘Santa is always generous in our house,’ said Mrs Davey, who once applied to join the police but was turned down.

She insists her husband would do any job ‘as long as we could still afford the lifestyle we have now’.

Mrs Davey, who spends £160 a week at Tesco, says she does not intend to stop at eight children. Her target is 14.

And she adds: ‘I’ve always wanted a big family – no one can tell me how many kids I can have whether I’m working or not.’

From Bloomberg
by Matthew Lynn

Another day, another episode in the Greek rescue saga. Over the weekend, after five days during which Greek debt took a battering on the markets, the euro area’s governments met, talked, sweated, and then came up with their traditional solution. They dipped their fists into a big pot of euros and threw money at the problem.

And yet, to use an image that is appropriate for the subject, the Greek debt crisis is a hydra: a beast with many heads. Chop off one, and a couple more grow in its place. Hercules may have finally defeated the animal. It isn’t likely the current crop of Greek or European officials will achieve anything quite so heroic.

This version of the rescue package isn’t going to work any better than the last one did. All it does is buy more time. The only real solution to Greece’s problems is Irish-style austerity. One way or another, it’s going to happen. The sooner they make a start on it, the better for everyone.

Last week, Greek borrowing costs surged to an 11-year high. Bond investors had taken a long, hard look at the last Greek rescue package and decided they didn’t believe a word of it. Greece was promised aid from its fellow euro countries, as well as the International Monetary Fund, but only with money at market rates. The trouble is, Greece can’t afford market rates. That solved nothing.

Subsidized Loans

This time, euro-area leaders compromised. A rescue package worth as much as 45 billion euros ($61 billion) was put together. Funded by the euro area, together with the IMF, the cash will be subsidized, but not by very much. The euro-area loans, if made, will pay about 5 percent, slightly less than Greece has to pay the bond market to borrow money right now.

Yesterday, it looked to have done the trick. Yields on Greek debt dropped. Stocks rose, particularly those of Greek banks. Hedge funds betting against the beleaguered country will have taken a hit if they didn’t adjust their books fast enough.

But does it really fix anything? Of course not. The issue facing Greece is simple. It isn’t that the bond markets won’t lend the country money on reasonable terms. It is that the markets have looked at the Greek economy, decided it is in deep trouble, and resolved not to lend it any more money. Not even 45 billion euros can solve that.

Greece has a budget deficit of almost 13 percent of gross domestic product. It has borrowed too much money for too long. Worse, rather than using that money to invest in improving the efficiency of its economy, it has blown it on lavish public spending and generous welfare benefits. It aims to reduce its budget shortfall to 8.7 percent of GDP this year.

Three Solutions

There were always only three real fixes.

One was to default on its debts, and let the banks that lent them the money take the consequences.

The next was to exit the euro, and massively devalue its new currency.

The third was the Irish solution. Embark on a serious, often painful, and politically tough austerity program to get the deficit under control.

None of them is easy, and each comes with a heavy price attached. If you default, you have to expect the capital markets to be closed to you for at least a decade. You aren’t burdened with the old debts, but you can’t raise any fresh money. And it’s hard for a country to grow when it can’t borrow.

Euro Exit

Exiting the euro allows you to devalue. That will boost industry. And if you can swap euro debts into “new drachma” debts, you effectively get to default as well. But you can’t devalue your way back to prosperity — if you could, Zimbabwe would be the richest country in the world.

Irish-style austerity involves big cuts in living standards. It takes a huge amount of leadership and social solidarity. The Irish have managed it. Whether the Greeks can, remains to be seen.

All three involve sacrifices. But subsidized loans? The idea that this fixes anything is nonsensical. If the country can’t afford to pay 7 percent, it can’t afford to pay 5 percent either. All it does is put off the day of reckoning. Six months, or a year, it doesn’t make much difference.

The markets will test this deal, just as they did the earlier version. Either the yield on Greek debt will remain stubbornly high, in which case Greece will be forced to use all the bailout money very quickly. Or else, attention will move on to the other highly indebted countries. Spain, Portugal or Italy could all be in the firing line soon.

‘We Can’t Help’

That will just pose more questions. What happens when the 45 billion euros runs out? Will more be made available? Or is there a point at which the rest of the euro members say, “Sorry, we can’t help you.”

And what happens when Spain or Portugal comes under attack? Do their governments get bailed out on the same terms as Greece? And if not, why not?

The markets will demand answers to those questions, and sooner or later they will get them.

The only realistic solution is the Irish one. An over- indebted country has to accept that once the money runs out, it must cut spending. If necessary, living standards must fall. Once that hit has been taken, you can start growing again. But it can’t be avoided.

The euro-area governments have ducked the real issue. Until those questions are finally resolved, the Greek debt crisis will remain a hydra: a beast that just keeps on growing new heads. The next one will be back to bite very soon.

(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)

Click on “Send Comment” in the sidebar display to send a letter to the editor.

To contact the writer of this column: Matthew Lynn in London atmatthewlynn@bloomberg.net.