This article titled “Greece begins €50bn privatisation drive” was written by Helena Smith in Athens, for The Guardian on Monday 1st August 2011 17.50 UTC

The starting gun for one of the biggest fire-sales in western history was fired as Greek officials began appointing advisers for the country’s ambitious privatisation drive.

“Our target is clear, and it is to generate €1.7bn from privatisations by the end of September and €5bn by the end of the year,” said the finance minister, Evangelos Venizelos.

After securing a second aid package to prop up an economy now dependent on international handouts to pay public wages and pensions, Athens has moved with record speed to divest itself of state assets ranging from prime real estate to loss-making companies.

By any measure it is a gargantuan task. At stake is Greece’s €350bn debt, which before the EU and IMF agreed to bailout the country again was predicted to peak at 172% of GDP next year.

The socialist government says it aims to raise €50bn through the campaign by 2015. Enough, it is hoped, to not only make a dent in the debt but send a convincing message to the markets that have pummelled Athens since the onset of the crisis 18 months ago.

The prime minister, George Papandreou, has cancelled his summer holidays to accelerate the dismantling of a sector that his father Andreas – Greece’s fiery socialist premier in the 1980s – did much to foster.

International lenders have warned that if there no progress with privatisations they will withhold the next tranche of aid in September.

“In more ways than one Papandreou is paying for the sins of his father,” said Nikos Dimou, author of the bestselling book The Misfortune of Being Greek. “It was Andreas, after all, who did more than anyone else to run Greece into debt.”

The appearance of For Sale and For Rent signs on everything from former Olympic venues to island locales, casinos, marinas and airports, has been met with unexpected acceptance by Greeks long weaned on state largesse. A growing majority appears to agree it is the only way of arresting soaring unemployment by attracting foreign investment. Experts estimate Athens could own around €300bn worth of state property, almost as much as the total Greek debt.

“There has definitely been a shift in mood,” said Stefanos Manos, a former national economy minister in a centre-right government. “But that could easily change. It is very clear that the government is only doing this under great duress from [our] international creditors,” he said.

“With timetables being so pressing, I worry that the whole process is very ill-prepared. If it there is not enough transparency we may end up like Russia, where only a cast of oligarchs end up benefiting.”

With the privatisation drive now seen as crucial to reviving economic growth, the government has actively courted countries with big sovereign wealth funds to invest in Greece.

Last week Europe’s paymaster, Germany, signalled it was interested in snapping up assets in the energy and tourism sectors.

At home tycoons who control large sectors of the media have also started jockeying for position in what one commentator called the “beginning of a civil war” to buy stakes in state companies.

“It is going to be a minefield for the government,” said political analyst Giorgos Kyrtsos. “The troika [of lenders] are not well-versed in Greek reality. The programme is overly ambitious.”

After years of resisting privatisations, the breakneck speed at which Athens has agreed to conduct the sales – nearly one every 15 days – has raised fears that state jewels will be sold at rock-bottom prices.

“In a buyer’s market our biggest concern is that this entire process will only serve to benefit the forces of capitalism and do nothing to create development,” said Yiannis Panagopoulos, president of the Confederation of Greek Workers, the country’s biggest labour grouping.

“We will strongly oppose the sale of any sector in which the government has a strategic interest … there will be huge resistance if it tries to sell the electricity company, the water board, our post office or ports, sectors that are vital to developing this country.”

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This article titled “Image of France as a generous welfare state marred by grim reality” was written by Phillip Inman Economics correspondent, in Paris, for The Guardian on Monday 21st March 2011 17.46 UTC

Thousands will pour into the Galeries Lafayette this week to enjoy the last few days of the spring sales and beat the recession. Tourists and Parisians will find huge discounts on designer clothes on every floor of the ornately domed department store that dominates Boulevard Haussman, Paris’s main shopping street.

As a measure of confidence, the sales present a gloomy picture of France’s middle classes and their appetite for shopping. Marc Jacobs, Chloé and Lacoste offer 30% discounts. Givenchy dresses are knocked down by 40% and the Galleries’ own ranges can be bought for 50% less than the list price. Only Prada, Dior and a handful of international brands hold their value .

Like their British counterparts, French shoppers can only be enticed with massive bargains. Technically, France like Britain, has escaped recession. But to ordinary French workers, blue and white collar, the pain of the last two years lingers. Shopping is expensive even in the sales, especially when a mix of high taxes and punishing national insurance leaves you with one of the lowest rates of take home pay of any western country. Only Belgium and Hungary exceed its average 45% tax on pay.

France appears to have a natural order still in place with food and wine at its heart and a generous welfare state to support the sick, the elderly and those out of work. Yet this picture disguises a slow decline, made worse by the financial crisis, that leaves the average French family struggling to make ends meet.

Loïc Sadoulet, a professor of economics at the Paris-based business school Insead, says the word that sums up France is disconnect. By which he means the rosy image and the dour reality are miles apart.

A trip on the Paris Metro makes the point. It was always dowdy, if not a little shabby, which most residents and visitors accepted as part of its charm. Now there are major stations closed for refurbishment and some passageways are reminiscent of ancient caves with green slime and blown plaster adding to the effect. The construction at one station of glass screens to prevent passengers falling on the tracks can only be described as makeshift, with bits of wood screwed to the platform floor to hold the metal posts in place.

Paris train workers joined the protests against pension reforms last October and closed the city for several days after similar shutdowns in 2007, 2005 and 2003, over government plans to cut pensions and welfare.

An apocryphal story about France’s slide from greatness goes back to the decision in 2005 on where to hold the 2012 Olympics. It is said the top brass from the IOC arrived for a fact-finding mission just as the Metro workers began another strike. A quick look through the records showed that the frequency of strike action meant there was a strong likelihood an Olympic year would be no exception. With little else to separate the bids, London was declared the winner.

True or not, the French establishment vowed revenge and last year president Nicolas Sarkozy pushed through a law forcing vital public services to provide a minimum service during industrial action. Railway workers will be among the state employees caught by the law.

Recent polls have revealed the confusion many French workers feel about the colourful and sometimes violent protests against Sarkozy’s welfare cuts and plans to end decades old employment protections. A majority say the reforms are necessary while telling pollsters they support the protests.

This perplexing need to adopt both sides of the argument has paralysed debate, especially on pensions and the totemic 35 hour week. Unlike Germany, which has spent 10 years discussing and implementing reforms with a view to becoming more competitive, the French have reached a position of stasis. Apart from the new strike law and bill freeing universities from state control, pensions reform is almost all Sarkozy has to show for his four years in power.

Next month the Paris-based think tank, the OECD, will publish its biannual report on the French economy. It is expected to argue the Elysée palace must move more quickly to tackle a low growth, high unemployment economy that could spark widespread social unrest .

Antonio Gurria, the OECD boss, will stand next to finance minister Christine Lagarde and politely urge her to free small and medium sized businesses from the straitjacket that has stifled growth and innovation for decades.

Innovation has tended to come from France’s industrial behemoths – France Telecom, Renault, engineering firm Alstom and Compagnie Générale des Eaux, the water company that spawned media giant Vivendi and Veolia, a waste management firm that empties many of the UK’s dustbins. Others such as Pernod Ricard and the luxury goods maker LVMH dominate their industries. However, the government’s support and reliance on their tax revenues has been at the expense of smaller firms.

The strategy is also undermined by the vulnerability of these large businesses to innovative rivals with access to cheap skilled labour. Renault and Peugeot have seen Mercedes, BMW and Audi sweep them aside in the race for Asian customers. Air France remains loss making and the oil business Total, with its close links to France’s former colonies, is vulnerable to the changing political weather in many of the world’s hotspots. Last week it was forced to suspend production in Libya and is embroiled in bribery allegations over deals in Iraq.

Hervé Boulhol, the OECD’s France expert, says the country’s finances have deteriorated for the last 35 years. Since the financial crash the situation has worsened. “The public finances must be fixed because while France has been largely immune to the worst of financial crisis, at least so far, it needs to address deep-seated problems,” he says.

Boulhol reels off a list of measures that Sarkozy could implement to bring the country more firmly into the 21st century. First it must get more women into work by reforming a tax system that encourages them to stay at home to reduce the household’s taxable income. The result is the lowest employment rate among the 30 rich nations assessed by the OECD.

Second, its benefits system, which accounted for 3.5% of GDP in 2005, first in the OECD rankings, must be reformed. It is a source of Gallic pride but the system is largely universal, and boosts the incomes of the richest, as much as the poorest. Boulhol describes it as “regressive spending” that would be better channelled to the poorest. It may be the main reason middle income couples have continued to have children, unlike Italian and German families, but offering the same benefit to the wealthy is “just about writing cheques to people who are not going to change their behaviour,” he says.

A third problem is that France has the largest number of people in retirement as a proportion of the overall population.

The battle last year, which saw school cooks join teachers, factory workers and students on the streets of Paris, Marseille and Lyon, was eventually won by Sarkozy. A law pushing up the minimum retirement age to 62 was passed along with measures that mean younger workers must wait till they are 67 to pick up their full entitlement.

Bruno Tardieu, a full time official at one of the country’s most active anti poverty groups, ATD Quart Monde, is concerned that a growing number of working class people are being shut out of the benefits enjoyed by a decreasing number of white collar workers. He says every town is blighted by high unemployment, while 26% of young people are out of work compared with 20% in the UK.

A volunteering scheme designed to put 200,000 young people back into the workplace is directed largely at college educated under 25s and not those with poor qualifications. Tardieu will meet government officials this week to focus on ways to include low skilled people in the scheme.

“It is elitist. Poor groups don’t know it exists. It offers very low pay. And it presumes the young person will be housed and subsidised by their parents, which is often not possible for people from poorer families,” he says.

Back at Insead, Sadoulet argues that the French fear of Anglo-Saxon capitalism has paralysed the debate and left poor workers to bear the brunt of globalisation.

The number of “year in, year out” workers are growing he says, as companies resist giving full benefits to new employees. After six months, staff accrue full employment rights. A short term, six-month contract can be rolled over for another term, but then the workers must be laid off. Studies show that after a year of work, usually on the minimum wage, these workers spend a year on the dole, hence the “year in year out” tag that dogs them.

“France has spent two decades ignoring the problem and the longer it is left the bigger it will become. The debate about what to do, who should shoulder the cost, and how best to encourage innovation, is in its infancy compared with the UK and Germany,” he says.

“There is still a knee jerk reaction that says simply tax the rich some more. But increasingly ambitious people are leaving, they are going to London, to Silicon Valley, and anyway, there simply aren’t enough rich people to pay for the current level of welfare bills”, Sadoulet says

Union leaders point to the success of the country’s banks and risk averse property market as reasons to be cheerful. Here was good reason to avoid the risk taking of the Anglo Saxons.

They have a point. Compare Sarkozy, who pledged €40bn (£35bn) to boost bank finances and a further €320bn to guarantee interbank lending, with Gordon Brown, who had to pledge about £850bn to prop up the British banking system, of which £117bn was pumped straight into the worst hit banks.

But while Britain suffers wild property crashes, prices in many areas of France keep rising and finished higher in 2010 on the year before despite predictions of a slump. The steady rise has taken prices beyond the UK and shut middle income families out of the market, or prevented them moving. The long-term effect is the same as in the UK, where the financial crisis has left the incomes and assets of the wealthiest largely untouched, while hitting the growing number of – young people, immigrants and unskilled workers – who stand on the outside of protected, unionised industries.

Much of the French establishment, like the wider population, supports the unions’ conservative, old world view that globalisation is to be feared, feeding the sense of paralysis.

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This article titled “Germany’s new boom: making money by making stuff” was written by Larry Elliott in Munich, for The Guardian on Monday 14th March 2011 22.00 UTC

Strolling the broad, prosperous streets of Munich, it is worth recalling the times over the past decade when Gordon Brown used to boast in his budgets about how the UK economy was leaving Germany for dead.

Now – following the most successful year for Europe’s biggest economy since the euphoria that followed reunification two decades ago – that looks like the sort of prediction English football fans make ahead of each World Cup: premature, based on little more than wishful thinking – and wrong. “We will have a golden decade now,” says Hans-Werner Sinn, president of Munich’s Ifo Institute, one of the country’s leading thinktanks. Sinn wrote a book early in the last decade, when unemployment was high and pessimism rampant, called Can Germany be Saved? His view then was that it could be. Now he says it has been.

The phrase “crisis, what crisis” also springs to mind outside the Audi plant an hour up the autobahn in Ingolstadt, where a happy band of German motorists have turned up to pick up their new cars, fresh off a one-kilometre production line churning out 2,500 vehicles a day, six days a week.

“2010 was our best ever year,” says Jurgen de Graeve, Audi’s head of communications. “At the beginning of last year it was clear the market was about to turn up but we didn’t expect it to happen so fast.”

Current trading conditions for Audi, as for the rest of German industry, have been transformed since the long, hard winter of 2008-09, when some factories slashed output by up to 90% as the financial crisis threatened a second Great Depression. Overdependent on its export sector, Germany suffered a 20% drop in manufacturing output in 2009.

But government wage subsidies meant companies could keep highly skilled workers employed part-time rather than throwing them on the dole, enabling industry to respond quickly to the pick up in global demand. There is now confidence the traumas of 2008-09 will help the country reinvent itself after a troubled period in which the economy was hobbled first by the costs of reconstruction in the former East Germany, then by the uncompetitive rate at which Germany joined the single currency, and finally by the collapse of the IT bubble in 2001.

It was then that the rumours of inexorable decline started to circulate. The list of defects was long: pampered workers; an over-generous welfare state; a too cosy relationship between companies and their bankers; the lack of a venture capital industry; too high a reliance on family-run manufacturing businesses; a population that was getting older and starting to shrink. Put together, the view was that for decades Germany had been living on past glories – the explosive growth of the Wirtschaftswunder, or economic miracle, in the 1950s and 1960s – and had allowed its economy to become sclerotic.

Now there is belief the good times are coming back, and that some of the weaknesses flagged up in the 1990s and 2000s have turned out to be strengths.

It will, however, take more than one year of powerful growth to convince sceptics – inside and outside Germany – that a second Wirtschaftswunder is guaranteed. The integration of the old communist lander is far from complete: money has moved from west to east, the people have moved in the opposite direction. Some Germans now say the old East Germany is the equivalent of a Potemkin village: the buildings have been given a makeover but the mass exodus of the young means there is no one living in them.

The skewed nature of Germany’s growth is also a concern. Unemployment is falling, and in rich states such as Bavaria it is below 5%, but there are few signs yet of a classic export-led revival broadening into a pick up in wages and consumption.

Heiner Flassbeck, once adviser to Oskar Lafontaine – briefly the leftwing finance minister to Gerhard Schröder – is one who says there is no real comparison with the 1950s and 1960s, when the proceeds of growth were shared by companies and their employees.

In those days, German workers worked hard and grew prosperous, earning higher wages as the factories they worked in became more efficient. Over the past decade, there has been another productivity spurt as German companies have overcome the handicap of an over-valued exchange rate on entry into the single currency by making themselves hyper-competitive. This time, though, workers have not enjoyed the fruits of their labour. Real wages have stagnated, consumption stayed weak.

“Over the next 10-15 years there has to be an increase in wages to shift demand from the export sector to domestic demand,” Flassbeck says, echoing the calls from the International Monetary Fund and the Organisation for Economic Co-operation and Development for Germany to play its part in evening out the imbalances in the global economy between those countries that run massive trade surpluses and those with chronic deficits. As the two biggest exporters in the world, China and Germany are seen as sharing a common problem: “Chermany”, it is said, needs to import more.

Flassbeck says that unless Germany does so at a European level the euro cannot survive because weaker countries will face permanent austerity.

Sinn believes that falling unemployment will eventually lead to increases in wages, which in turn will boost consumer spending. There is, though, little sign of Germany’s policy-makers hastening this process. They seem quite content with the combination of factors that help explain Germany’s comeback.

The first is Germany’s economic and political structure. Prosperity is far more widely spread across the country, with none of the excessive concentration of wealth in one region found in Britain. There is an emphasis on long-term growth rather than flipping assets, and boom-busts in the housing market are unknown.

Germany was not immune from the speculative mania, and one reason Angela Merkel is prepared to bail out the struggling economies of the eurozone is that German banks are up to their eyeballs in Greek, Spanish, Irish and Portuguese debts. But there was still an industrial bedrock. Thomas Mayer, chief economist at Deutsche Bank, agrees. “Looking back, some economies were putting too many of their resources into sectors such as real estate. Perhaps they overdid it. Germany benefits from an old-fashioned structure. What looked old fashioned was more durable. The UK has overdone it but it is not the only one. The Americans, the Irish and the Spanish all overdid it.”

So, while the City boomed and Wall Street became fixated by sub-prime mortgages and collateralised debt obligations, Germany concentrated on making stuff.

This was true of the prestige international names like BMW and Siemens, but it was also true of the hundreds of thousands of lesser-known names that make up the Mittelstand. These are companies, often family run and in many cases founded a century or more ago, that provide the hidden wiring for the global economy. Germany provides the kit that other companies need to make their products, and the Mittelstand companies have become expert at dominating their corners of the market.

It is not uncommon for a German company to have a global market share of 80% in a particular piece of equipment, and despite high labour costs customers keep coming back for the guaranteed delivery times, the reliability of the products and the after-sales service.

The second explanation for Germany’s renaissance is that the country finally embraced structural reform of its economy at least two decades after Margaret Thatcher and Ronald Reagan pioneered deregulation, privatisation and welfare reform in the UK and the US.

What happened, according to supporters of this theory, is that unlike Britain and America, Germany coped well with the oil shocks of the 1970s and 1980s so saw no need to change anything in the 1980s. Towards the end of that decade, and increasingly after reunification, the economy became increasingly sclerotic, but the warning signs were ignored by Helmut Kohl.

But by the early 2000s, the evidence of slow growth and high levels of unemployment was too powerful to ignore, so Gerhard Schröder introduced the Agenda 2010 reforms which cut business taxes, slashed the top rate of income tax, made pensions less generous, cut unemployment pay and allowed the shops to stay open later.

“Schröder didn’t get the full credit for what he did,” Mayer said. “He attacked all the sacred cows and paid the price by losing the election to Merkel. Industry embarked on a ruthless cost-cutting programme, they exploited new production techniques and IT to make their operations leaner and more profitable. Some parts of manufacturing were moved overseas but not all of it.

“It is an amazing comeback. The country seems to be a lot more dynamic.”

Flassbeck has a different view. He blames the timidity of the unions on the changes introduced by the former SDP/Green coalition. “There is no pressure for higher wages because of the fear of being fired. Schröder killed the unions. That’s a nice paradox.”

The third explanation is that German investors had their fingers burned in the financial crisis and are now keeping their money safely at home. That has provided the capital for an investment boom that will help keep German industry hyper-competitive in the future. Sinn says this is a real change from the period 1995-2008, when Germany had one of the lowest investment rates in the west. “The crisis has meant the perception of risk has changed.

“Investors see that not all glitters is gold.

“There was a period under the euro when lots of attractive investment opportunities seemed to be in other countries. Government bonds seemed to be absolutely secure so German banks invested there. The risk perception means that German savings now don’t go out of Germany.”

Finally, there’s China, where year after year of 9-10% growth has sucked in exports from Germany. In part this has been demand for German cars from a rapidly expanding middle class in Shanghai and Beijing, with Audi now expecting to sell more cars in China this year than it does at home.

But it is also the result of Germany’s global dominance in investment goods, the products countries need when building up a manufacturing capacity. Britain talks about breaking into the Chinese market: Germany has done so.

Are there lessons in this for Britain? Yes, says Martin Zeil, deputy prime minister of Bavaria. “All the countries that have kept the nucleus of their industry are more successful.” Bavaria has invested carefully in the region’s science and technology base, identifying future growth sectors such as green technology and life sciences and building up clusters of excellence that act as a magnet for investment. It takes more than a clutch of world class companies to provide a solid industrial base.

And yes too says Mayer at Deutsche Bank, who spent eight years in London watching the boom-bust come to grief. “You have to realise that Gordon Brown was wrong when he praised economic stability and high growth as the result of his policies. It was an illusion.

“A large part of the world was living on the drug of credit. The UK economy is so reliant on housing. It has a high social value. Everybody is obsessed with it. In Germany almost everybody rents.

“Britain was on a 10-year high and now it is doing cold turkey. You have to wean the economy off credit and rebalance towards production and traded goods. But it takes years and years and years. In Britain there is a tendency to take the easy way out, to just go for another gin and tonic.”

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This article titled “Booming China tries to rein in lending” was written by Phillip Inman, for The Guardian on Friday 10th December 2010 18.19 UTC

China’s central bank today tightened bank lending for the seventh time this year after data showed the economy surging to new highs.

Beijing raised the amount of cash that banks need to hold in reserve in a concerted effort to restrict lending and prevent the economy from overheating.

Figures for November showed a trade surplus of bn (£14.5bn) after exports soared 35% over the same month a year earlier. The rise was steeper than forecast and was widely seen as a sign that demand from western countries was growing.

China’s leaders believe strong growth is needed to power the economy and maintain rising living standards. Economists estimate growth needs to run at 7% to 8% just to keep pace with the country’s rising population.

But fears that a growth spurt will trigger a spike in inflation over the coming months was believed to be behind the central bank’s move to mop up excess cash in the economy.

China has come under intense pressure to calm its growing economy following fears that it could repeat the mistakes of the US, Ireland and Spain by allowing an unsustainable property bubble to balloon out of control.

Much of China’s wealth is being diverted into a speculative wave of housing and business developments in its major cities. Analysts warn that China risks creating domestic asset bubbles and infuriating the US, which has argued that China’s growth is being powered by a low fixed currency.

The country’s stock markets have shed more than 10% over the past month on concerns that the government would ratchet up its tightening of monetary policy in the face of rising inflation.

Lombard Street Research said: “China’s trade and monetary data showed unwelcome buoyancy. The inability or unwillingness of the authorities to rein in money and credit growth shows China’s precarious addiction to borrowing. The expanding trade surplus and Beijing’s refusal to allow faster yuan appreciation risk American protectionist retaliation.”

Data out tomorrow is expected to show China’s inflation is picking up. Inflation in October jumped to 4.4%, well above the government’s 3% target.

Last week, China’s state council said the description of monetary policy in 2011 would change from “moderately loose” to “prudent”. A rise in interest rates due later this month could be followed by further rises, said analysts who feared the economy was running out of control.

But Capital Economics said concerns about China were overblown. It argued that while the headline rate of consumer price inflation had continued to rise, core inflation remained low and stable. “Meanwhile, monetary conditions are no longer as loose as many think. Indeed, the [central bank] has been injecting funds into the financial system in recent weeks to offset the squeeze on liquidity in the interbank market.

In the US, which has struggled to grow in the last year, consumer confidence data for last month revealed an improving situation, while the country’s trade balance narrowed. A keenly watched survey also showed inflation expectations had declined, reinforcing the message from the US central bank that a lack of growth was a problem and not inflation. The US needs to grow by more than 2% to 2.5% a year to create jobs, the Fed chairman Ben Bernanke has said.

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This video is from The Center for Freedom and Prosperity. It explains in 5 minutes why Keynesian economic policies are doomed to failure.

(hat tip Hot Air)

Commie Pinko George Soros has a brand new idea for destroying America and he’s putting $50 million behind it.

According to Newsweek, Soros aims to “purge” economics of its “free-market zeal”. In other words, Soros wants to dismantle free market capitalism as we know it.

Now financier George Soros is announcing a $50 million effort to speed things along. This week Soros is gathering some of the leading practitioners of the market-skeptic school, who were marginalized during the era of "free-market fundamentalism," among them Nobelists Joseph Stiglitz, George Akerlof, Michael Spence, and Sir James Mirrlees. He’s also creating an "Institute for New Economic Thinking" to make research grants, convene symposiums, and establish a journal, all in an effort to take back the economics profession from the champions of free-market zealotry who have dominated it for decades, and to correct the failures of decades of market deregulation. Soros hopes matching funds will bring the total endowment up to $200 million. "Economics has failed not only to predict and explain what happened but has also failed to protect society," says Robert Johnson, a former managing director at Soros Fund Management, who will direct the new institute. "That’s what the crisis revealed. The paradigm has failed. There is no guidance."

George Soros has spent years and hundreds of millions of dollars trying to destroy America — so this is nothing new. What is new is that for the first time we have a president who actually agrees with him.