Wednesday Night #1569

Ioannis Philopoulos, former student and associate (at the Gamma Institute) of Kimon Valaskakis, is an international public finance consultant, currently based in Aman. He specializes in state securities; program budgeting; and PFA (Public Expenditure and Financial Accountability) which on behalf of donor countries offers to recipients of technical assistance development of regulatory frameworks, training seminars and visits to donor countries to learn how things are done. Ioannis is also associated with Crown Agents of the UK as a seminar leader.
He has had numerous mandates including for The UAE, Eastern Europe, the Caspian nations and Egypt, and gives seminars to the European Union on management of public finance. He also heads the New School of Athens in Greece,
His appearance at Wednesday Night on the eve of the tabling of the federal budget is most appropriate, as he has in the past participated in pre-budget consultations (see 1995 pre-budget consultations in Montreal )

The problem of Greece is not an isolated case. It is a European Union problem. The structure of the euro is a problem. The EU is a form of confederation, lacking central institutions

Greece is currently undergoing what might be termed bailoutism. The Troika has given no indication of strategic thinking – after austerity – what? Have the requirements of the Troika resulted in turning around the economy? No, after two years, Greece has a social economy that has completely imploded; totally collapsed to a point that the economy resembles that of the Great Depression. Unemployment has skyrocketed (26-27%, and among those under 30, it is at 50%). But even those who are theoretically employed are often unpaid for 6-7 months. Salaries have decreased 60%; the minimum wage has been reduced by 22%, but food prices are rising. Soup kitchens (not seen since WWI), organized by parish churches, are widespread. [See Archbishop Ireonymos issues appeal towards PM Papademos over economic depression, warns of social upheaval] There is a notable impact on health; public health institutions cannot offer the same standard of services and are supplemented by local branches of international NGOs like MSF and Médecins du monde. There is a marked increase in suicide, especially among younger people.
There is not an equivalent to the (in-country) westward migration that took place in the U.S. during the Depression, however, some of the younger people who do not have language and technical skills, leave the urban setting for the lands of their parents, but once there, they have little idea of what to do and the government has no tradition of programs to assist them to start up an activity. Skilled/professionals who speak foreign languages are emigrating – to Western Europe, and particularly to the UAE, or to Australia where the government has instituted a massive program to recruit skilled workers.
What about public works programs to stimulate the economy and job creation? EU banks are bankrupt, so the co-financing required for major public works is not available; the EIB and EBRD have cash, but don’t contribute. Everyone is standing back and letting the country go under.
Greece should not have joined the euro zone; the economy was not ready. A solution has to be found within the euro zone framework. Withdrawal is unthinkable because of the consequences, both for the country and for the entire euro zone. So exiting is not the answer. Austerity, which appeared to be the answer, is not either. Further austerity measures, such as cuts to pensions (which people have paid into), simply reduce disposable income. Investment is not coming into the country. The country is now going through internal devaluation.

The ECB must start to act like a central bank and issue Euro bonds and not just for Greece; Portugal, Spain, Italy, even France (wait and see what happens after the elections). At the same time, create a stimulus package for the next 5-10 years by printing money – some inflation is needed now. The inherent problem is that the northern European countries (Scandinavia, the Dutch and Germans) view Euro bonds as a scheme to get them to pay for the fecklessness of the Mediterranean countries. What nobody seemed to understand at the outset was that the Greek situation could not be isolated; it was and is contagious. Meanwhile Greeks are described as lazy and cheats, a generality which is simply not true.

Austerity as the policy du jour
In September 2012, the European Union will adopt a common fiscal policy. That’s the good news. The bad news is that it will be one of austerity. And, if Obama does not win in November, or wins but faces a divided Congress as we have had over the past two years, we may expect that austerity will prevail in the U.S.

Kimon Valaskakis has become increasingly convinced that austerity is the wrong policy for the wrong times and quotes Joseph Stiglitz “austerity is a suicide pact among governments”. The problem is not one of austerity, but of the need for stimulus – getting people to work – in Europe and North America. This can be accomplished through either fiscal or monetary means. But the key is that there are solutions: a North American solution; a European one and a Greek one (which is more limited).
In his recent paper Austerity Now! Bold Strategy or Huge Blunder?, published on the website of the New School of Athens, and based on his forthcoming book, Wrong Diagnosis … Losing Strategies, An Unconventional Analysis of the World Economy, Kimon asks and answers three questions:
(1) Is Austerity fair? Are the perpetrators who have created the indebtedness being punished, or is the burden unfairly borne by people who have not really benefited from the loans?
(2) Is it working? Whether fair or unfair, is it working? If we take the cynical point of view that Life is unfair anyway and some people have to be sacrificed, are the sacrifices worthwhile or are they both cruel and useless?
(3) Is it Needed? Are there less painful, more palatable, and perhaps more effective alternatives to get rid of Public Debt?
The answer to all three questions is NO.

Canada’s federal budget
On Thursday, the budget will be tabled in The House of Commons. It is widely anticipated that it will be one of austerity, guided by the philosophy and prejudices of the Harper government, and containing a number of unwelcome cuts to services and Canadian institutions. It is expected that the emphasis will be on expenditures and that there will be some downloading to the provinces; it has already been announced that there will be some cuts to the transfers at a rate of around 6% p/a. Provincial responsibility for education and healthcare will be problematic in the face of cuts. Pensions will be another issue, especially in light of the Ontario budget tabled yesterday.
[Editor’s Note: For more on Canada and austerity, See “The politics of austerity” by CBC’s Don Pittis.]
Rumours are that it will be worse than the ’95 Budget which is often cited as a victory for austerity. But the circumstances of the ’95 budget were different – low Canadian dollar, period of growth for the North American economy, revenues from the GST (a benefit that the Liberals had no intention of repealing, despite having been vocally opposed when the Mulroney government brought it in), plus the fact that the federal government passed many costs to the provinces. It should also be pointed out that there was considerable manipulating of the tax base, so that higher taxes were not an issue – simply a broader base paid them. Meanwhile, now that the Harper government has reduced the GST and lowered corporate taxes, there is a need to pay for these cuts. It was noted that Don Drummond has now become the “austerity guru” of Ontario and likely will embrace the same role for Canada.

The NDP
The newly-elected Leader of the Official Opposition, in his first press conference has sounded a note of reasonableness along with firmness. It is obvious that Mr. Mulcair’s aim is to make the Liberal Party irrelevant by moving the NDP towards the center. However, he has a large constituency of separatists in Quebec which will force him inevitably to raise constitutional issues. Some believe that the fact that Mr. Mulcair is a former provincial Liberal and Bob Rae a provincial NDPer makes it likely that the two parties will merge, or at least create a strong alliance before the next election. There is, after all, less philosophical difference between the two parties than was the case with Reform/Alliance/Red Tories.
The Tories continue to talk about job creation, but it appears evident that they cannot create jobs in the atmosphere of retrenchment (austerity). How will Mr. Mulcair conduct this conversation?
[Editor’s note: the Tories will no doubt respond that by streamlining the process for approval of energy projects, e.g. Northern Gateway Pipeline, they will create hundreds of thousands of jobs. This claim has been fiercely contested by certain economic analyses.]

Market comment
Ron Meisels is in Asia. He sends this market comment The market is behaving as expected, I am away, so it sold off. However, not too much, so if anyone interested, use it to buy some more. (Be sure to buy low!!!)

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Prologue

Kimon Valaskakis will introduce his former student and current colleague, Ioannis Philopoulos, an Athens-based Greek Canadian who is the NSoA vice president for Greece and a senior consultant with the EU in many countries. This should afford us all a very current discussion of what is happening in Greece and the EU from both a personal and professional perspective.

Without doubt, Tom Mulcair’s victory in the NDP Leadership vote will be at the top of the list as we will have had a few days to absorb all the pundits’ predictions of what happens going forward. John Ibbitson’s column NDP opts for a power broker over a protest leader, is a good place to start. Jonathan Kay offers a bleak view for anyone who does not believe that Stephen Harper should be PM for life. And < href="http://www.thestar.com/news/canada/politics/article/1151599--hebert-the-allure-of-power-proved-irresistible?bn=1">Chantal Hébert, as always, offers a clear-eyed view from both national and Québec perspectives. We note that the Conservatives were quick off the mark in moving to attack mode (more on this topic from rabble.ca).

Meanwhile, Stephen Harper is in Asia, as Jeffrey Simpson puts it “Seeking a nibble in Asian trade waters” . Happily, his visit to Japan appears to have met with some success (despite Jeffrey Simpson’s pessimistic prediction).

On the eve of the tabling of the federal budget, there is much anticipation of cuts to CBC. David Mitchell has forwarded a link to the Toronto Star’s site that provides some stimulating dialogue on the subject. We love our CBC Radio, but can certainly agree with some aspects of Rick Salutin’s critique What’s more public: CBC or the Internet?
In another ominous indicator of things to come, the media reports possible changes to Canada’s Fisheries Act, changes that would reduce or eliminate habitat protection for species governed by the act. This, which appears to be yet another step in accelerating the progress of the Northern Gateway project, has prompted reaction from 625 members of Canada’s scientific community, but given the Harper government’s attitude, the more likely outcome is yet more cuts to science that ‘thwarts’ the government’s proposals.

The Republican campaign – whatever else you may say – never fails to provide pundit fodder and the latest is last week’s “Etch A Sketch Disaster”, which CNN describesin some detail, concluding that it may not go away soon.

If you followed Jeffrey Sachs’ campaign to become president of the World Bank (or even if you haven’t), what is your reaction to the news that President Obama has tapped Jim Yong Kim for the World Bank post? Nice to see Professor Sachs’ gracious endorsement of the choice, which appears to be a very good one, more acceptable to the developing world than most of the other names bruited about, and certainly a huge improvement on Paul Wolfowitz!

World Water Day 2012 was on March 22. We are somewhat underwhelmed by the conclusions of the report by the office of the Director of National Intelligence (U.S.) . that areas including South Asia, the Middle East and North Africa will face major challenges in coping with water problems that could hinder the ability to produce food and generate energy. It goes on (apparently, we haven’t read it) to elaborate that “In coming decades, areas of South Asia, the Middle East and North Africa will face not only shortages of water but floods, factors that contribute to the risk of water being used for leverage between states, as well as a weapon of war and of terrorism.” We can only imagine (hope and pray) that the report is not considered groundbreaking, but a reiteration of the dangers of which countless others, including our OWN Cleo Paskal, have been warning for a number of years.

With the chaos that has been currently imposed on Montreal by the student demonstrations, the topic of Cities, which is close to our hearts, inevitably comes to the fore. We love Montreal, even if it has been recently voted 149th in a list of most desirable Canadian cities to live in by Money Sense – what do they know? However, there are a few good articles that should stimulate some thinking about how our beloved, pothole-ridden city can be improved. In particular is this: Intelligent urban design — Cities should be places where the best and the brightest congregate and where new wealth is created.

For your calendar:

Astri Reusch Exhibition
Guilde canadienne des métiers d’art/ Canadian Guild of Crafts
1460-B, Sherbrooke street West
Montreal
February to April 2012
MÉMOIRES GLACIALES II
… a series of glass evocations of the memories of those who have lived, explored and perished in the vastness of the Arctic (in this particular instance, the Franklin expedition of 1845 in which all were lost after years of waiting for rescue). The work being shown at the Canadian Guild of Crafts represents a fragment of a much larger ensemble which is intended to create an environment of contemplation which reflects the solitude and purity of the far North. In the present exhibition at the Guild, the work complements the fine art prints of the everyday life of the Inuit in 1946 by George Hunter. For more about Astri’s work http://www.astrireusch.com/

Titanic: The Canadian Story
A CBC film based on Alan Hustak’s book
Will air on Thursday April 5 at 8 pm on CBC-TV
Repeating Friday April 6 at 7 pm ET on CBC News Network

There is lots to talk about, so we hope that you will join us. As always, we appreciate an RSVP.