Nobody likes paying tax. There is active unwillingness to do so if there is evidence of tax revenue being wasted. This would include, for example, recruitment to the public service outside an independent recruitment procedure, a practice that is, apparently, widespread in Greece.
Greece does not need amateur part-time tax inspectors. It needs a totally independent revenue service with draconian powers to pursue tax evasion. This is unlikely to happen overnight and certainly not until the wider reforms that reassure taxpayers that their money is being well spent is in place.
Greece is far from being alone with regard to the last mentioned.
Fratzscher: “..Greece has had a failed state…”. Has something been lost in translation? Greece is a failed state, period. All EU member-states experience failures in their systems of governance, with some failures more severe than others. Some member-states exhibit sustained failings that can be concealed for long periods. If these failings can be concealed no longer they may attempt to legislate them away by bribing voters with their own money or they may be able to compel other member-states to accept them. An example of the former is the Government’s response to the unprecedented public rejection last year of the water charges decision made by the economic regulator charged with a statutory duty to protect the interests of the public as service users. An example of the latter is France’s ability to secure an extension of the deadline to meet the European Commission’s fiscal deficit target.
Grrece has failed to such an extent as a state that it can no longer rely on its traditional variants of Irish deviousness and slipperiness; and it is no position to exercise the political power that France does. The necessary repairs will start only when a majority of Greek voters admit the extent of this failure and elect a goverment capable of effecting the repairs. But a majoirty of Greek voters are a long way from admitting the extent of the failure.
Paul Hunt is back and telling it like it is. Good times.
Policy makers in the EA have moved a long way since the onset of the crisis. Initially, no EA bank was to go bust ( strange , but that was the view from Merkel and Trichet) and the rational response of debt investors to deteriorating debt positions in some member states (sell the bonds) was seen as an attack on the euro. Germany also saw the roots of the crisis as fiscal and everyone signed up to budgetary rules which effectively means discretionary fiscal policy is no longer available as a policy instrument, although again , of late, those rules are being relaxed, albeit for the larger economies. The ECB , too, has changed tack, initially trying to fix the monetary transmission mechanism via liquidity injections but now trying to bypass the banking system via QE.
What to do with a chronic debtor is now the issue. To date, providing loans has been seen as the least bad option but are we at another point of change , in that allowing the debtor country to run out of funding is now perceived as causing limited contagion?. That perception may be wrong, of course, but with the ECB buying debt, bond investors appear to think that Greece is sui generis which may encourage a harder line from Greece’s creditors.
The academic underpinning of the Syriza approach is set out in this book by Euclid Tsakalotos, currently described as “economic spokesman” for the Greek government (and with a glowing endorsement by Varoufakis).
The “look inside” facility gives access to the main arguments, one of which is precisely that Greece is NOT sui generis but symptomatic of a wider euro malaise. The authors, it seems, may be proven right or wrong by the course of events in the coming months. It is not looking too good for their general thesis as matters stand. There is no evidence that Greece is in any way a catalyst for wider economic or market disruption. The caravan has moved on. Not alone has Greece not stood still, the country has begun to fall even further behind under Syriza.
Meanwhile, the Varoufakis continues his idiosyncratic approach although it seems his latest bon mot was recorded some time ago. His position seems increasingly untenable.
French version
“Puissante et incontrolee – la troika”
Harald Schumann/Arpad Bondy
@ JMG
Many thanks for the link! Fascinating stuff! I watched the French version. The problem is that it regurgitates the standard – conspiratorial – views of what might be described as the usual suspects. They continue to be puzzled by the failure of what appears to be a majority of those around them to grasp the error of their ways. The majority may, of course, actually be in error. But I remain to be persuaded of it.
And now for a not so savoury cheese mix served up in the bailiwick of our own minister for finance.
It looks like Permanent TSB is being kept alive, so that we may all have the benefit of subsidising its BTL and OO trackers for the next 15 years. Those doing the subsidising include new first time buyers on variable rates.
Isn’t that very friendly of them!
If Varoufakis was responsible for a bank like that, he would deserves to be fired.
@ DOMC
Perhaps you find this also interesting. From spring 2013, with more stuff about Ireland.
They got the “Deutsche Fernsehpreis 2013” (German TV prize) for it. Enjoy (,if you can).
(The major omission is the lack of any reference to Greece’s maritime prowess, with the largest commercial fleet in the world and a major involvement of those entrepreneurs involved in the Greek domestic economy; without paying much, if any, tax, it seems).
If those persuaded of the correctness of the analysis of the economic advisers to Syriza have data to support their position, I have yet to see it.
fyi
Thomas Piketty on the Euro Zone: ‘We Have Created a Monster’
In an interview with SPIEGEL, celebrated French economist Thomas Piketty speaks about Alexis Tsipras’ election victory in Greece, Europe’s inability to fix its financial woes and what EU leaders can learn from the United States.
SPIEGEL: You publicly rejoiced over Alexis Tsipras’ election victory in Greece. What do you think the chances are that the European Union and Athens will agree on a path to resolve the crisis?
Piketty: The way Europe behaved in the crisis was nothing short of disastrous. ……..
“Given the current condition of the Greek economy, the only sensible path is to negotiate a deal relaxing the fiscal consolidation in return for a commitment to reform. This should ultimately strengthen the capacity to build tax revenues and debt-service capability.
Whether the headline debt figure is cut, or the relaxation is disguised through maturity extensions and interest discounts, matters only to politicians. Greece cannot continue as a member of the Eurozone under the present arrangements, since there is little prospect of recovery if the government is forced to run an excessive fiscal surplus.
The long-term stability of the financial system needs to be restored. This requires sustainable finances for the government and an end to threats from the ECB to abscond as lender of last resort. If the central bank continually hints that the Greek banks are insolvent, there is little prospect of anyone else taking a contrary view.
The political debate about Greece’s entitlement to further debt relief, overt or concealed, has focussed largely on whether Greece deserves it. The Greek debt is now largely owed to official lenders, essentially other European states, the ECB and the IMF. That is to say, the folks who lent the money in the ill-conceived May 2010 first ‘rescue’.
If foolish lenders deserve haircuts, the official lenders are in the firing line for their May 2010 (and subsequent) mistakes. The IMF cannot take haircuts, so will (and should) seek exemption. It seems to have been a reluctant participant. Which leaves the European politicians, who are understandably unwilling to explain to their constituents that they made some dud loans to Greece, which in turn paid off banks and other investors who had backed the wrong horse in the first place.
That the current Greek crisis is the third in five years is its own testament to the inadequacies of Europe’s common currency area, which was not designed by Greece.”
The EZ grew by 0.9% last year. That is a shambolic performance from the house of our local rep, DOCM.
Too much debt, you see.
Deflation beckons.
France/Italy is the big issue in this Greece debate. At some point on the current path the whole structure will keel over and if a precedent is set for Greece what will happen to the debt owed by France/Italy ?
Wolfgang Muenchau has a must-bookmark article about how to bring debt out the back and kill it softly. Keep it because it’ll be very handing for talking points as the crisis intensifies
Many thanks for the second link. I ploughed through it (French version again) to the bitter end, which, in Ireland’s case, was a little less bitter as there is a textual postscript on the promissory note deal and the “saving” of €3 billion annually in immediate payments. The Ballyhea protest was, however, to continue.
I would recommend both programmes and simply suggest that anyone watching them ask themselves to compare the outcomes with the various predictions made. Those talking through their proverbial hats can be fairly easily identified (including at least a few surprises for me). Incidentally, the programmes have had remarkably few Youtube hits.
That the crisis is causing division in Europe is not a contention that anyone would dispute. The issue is whether the route adopted to remedy this crisis by restoring the required level of economic growth is the right one or whether better alternatives exists. I do not think that there is, even if it has been made up as they went along by the various governments.
The borrowed money that was expended domestically has gone from the pockets of some Irish taxpayers into the pockets of others. Where it remains!
Seafoid,
the problem with the “excessive fiscal surplus ” meme is that Greece is running a (rising) primary deficit due to a) unwillingness to pay taxes and b) fiscal incontinence. The debt/GDP number is irrevant since Greece is paying an interest rate of 2% or less.
In short the only way the Greek fiscal accounts can be put on a sustainable basis is for other European taxpayers to take responsibility for funding Greece.
France has had a third extension under the excessive deficit procedure, and is now given to 2017 to reduce its fiscal deficit to under 3% of GDP. The European Council, in judging France’s efforts to date at fiscal consolidation concluded that ‘the evidence did not lead the Council to conclude that no effective action had been taken’. Note the double negative but the conclusion has to be that once again the EU’s fiscal rules, however misconceived, are only for the smaller States. Wonder how the call for the latter to stump up more funds for Greece will go down now?
The example of the TV chain Arte, which broadcast the programmes linked to above, may help explain the apparent discriminatory treatment. Arte would not exist were it not an expression of the desire of two dominant powers, and cultures, in Europe to avoid further devastating conflict. Ditto the euro!
The real issue is not the evident discrimination with regard to the SGP but whether it reflects a failure by France, in terms of economic performance, and of the Commission, in terms of decision making. In both cases the answer is yes. The approach of our esteemed MOF may seem laudable at first sight. Seeking equal treatment in failing to do the right thing is not, however, very sensible. But rules are rules! Especially when they coincide with electoral interest.
@Ruules ruules ruuuless
Minor point:
“Foisting the German model on the rest of the Eurozone is disastrous.” Philippe Legrain
From the Legrain Link above …
Have the right lessons been learned from the crisis in the Eurozone?
P. Legrain: The short answer is No. Catastrophic mistakes by Eurozone policymakers – primarily Angela Merkel’s government in Berlin, the European Central Bank in Frankfurt and the European Commission in Brussels – have transformed a financial crisis into a much deeper economic and political one.
More than seven years into the crisis, the Eurozone is doing much worse than the United States, worse than Japan during its lost decade in the 1990s, and worse even than Europe in the 1930s. The economy, which is still 2 per cent smaller than in early 2008, is stagnating. The least-bad performer, Germany, has grown by less than Britain over that period and less than half as much as Sweden, Switzerland and the US.
The worst, Greece, has shrunk by more than a quarter and is faring worse than Germany did during the Great Depression. Many people’s living standards have slumped and unemployment is painfully high: 11.4 per cent overall, much higher in Southern Europe, scarily so among young people. A lost generation is in the making. In a nutshell, the Eurozone is sinking into a deflationary debt trap, with tragic social consequences and unpredictable political ones.
Unsurprisingly, voters are fed up of years of seemingly unending misery. Social tensions within countries are multiplying, as are political frictions between them. Understandable anger at the injustice of bailouts for rich bankers and budget cuts for poor schoolchildren overlaps with a despicable scapegoating of outsiders, notably immigrants. Old stereotypes have been revived and new grievances created. Northern Europeans slander southerners as lazy good-for-nothings, while Greeks label Germans Nazis. Nasty nationalism is on the march again and support for the European Union has never been lower.”
Minor point II:
The SGP (Angela’s Corset) has zero theoretical and zero empirical support.
from The Guv’nor
The entire cost to society of the fallout from the banking crisis has been more than €100 billion, Central Bank governor Patrick Honohan has told the Oireachtas Banking Inquiry.
Mr Honohan was giving evidence to the third session of the inquiry on Wednesday, having asked to appear before it in order to clarify evidence he previously gave. He told the inquiry the cost of the whole “debacle” were greater than estimated, but that he could not put an exact figure on it because nobody had really done the work “in a way that is robust”.
Lots of la chingada going round … dumb an dumber policy.
@DOCM
“The real issue is not the evident discrimination with regard to the SGP but …..”.
On this particular that is the real issue is the evident discrimination as far as the people of smaller countries are concerned, but there are other clear messages from the decision.
One of the main underlying messages is that the EC, under Juncker, appears no longer prepared to act as camp commandant enforcing a set of rules that has caused economic mayhem throughout the EZ. The EC commission is also not toeing the Berlin line on Greece either.
Minister Noonan, however, has made another political error of judgement. by placing the political need for deficit easing ahead of the bigger priority of holding the line on the corporate tax rate. Burning all his diplomatic boats on a ‘me too’ electorally beneficial deficit easing target is not a well thought out national strategy.
@ Tull
I thought the surplus was to ensure there was enough capacity to pay interest when they start loading it on. After growth returns. Whenever that is.
Syriza’s voters are not correlated significantly with tax avoidance AFAIK. That would be more ND or to a lesser extent Pasok.
Tspiras said at the outset tax would be part of their plan for government.
the strongest meme is coming from the PTB- that the Greeks are feckless.
Anyway with growth last year at 0.9% in the EZ and nobody anywhere able to explain the mystery of how QE benefits the real economy this crisis is going to run and run , regardless of what the bond yields are saying.
The story on Greece as of now is the increasingly extreme language of the members of the new government, from the PM down, notably in relation to the reparations that are seen as due by Germany. Varoufakis, for once, is not notable for any extreme utterances. The most hopeful interpretation is that there is (i) an attempt to try and placate the hard left elements in the party while (ii) Varoufakis attempts to regain some kind of footing as a valid negotiator with the “institutions”, including the ESM.
On the reparations issue, Germany could point out, were it so minded, that it has been for decades the largest net contributor to the budget of the EU i.e. in terms of contributions (in) and expenditure (out) as allocated among member countries (a complicated exercise that has to be carried out in order to calculate the UK budgetary rebate). Greece has been receiving sums as high as 3% to 4% of its GDP by way of structural fund transfers. It has, unfortunately, made very poor use of them as compared to Ireland cf.
One way or the other, Tsirpas will have to get his parliament to adopt whatever changes to the MOU are agreed (leaving aside the semantic shape-throwing that has been the hallmark of Syriza since it came to power). It is at that point the political fault lines are most likely to emerge.
@ JR
You are mixing up the issues in a manner that has not been attempted since our esteemed Taoiseach had his famous “Gallic spat” with Sarkozy.
Austerity is not Greece’s problem, or Ireland’s for that matter. To quote Ricardo Haussman.
“Greece never had the productive structure to be as rich as it was: its income was inflated by massive amounts of borrowed money that was not used to upgrade its productive capacity. According to the Atlas of Economic Complexity, which I co-authored, in 2008 the gap between Greece’s income and the knowledge content of its exports was the largest among a sample of 128 countries.”
The risk for Ireland is that the political establishment, pandering for reasons of electoral advantage to the still strong rent-seeking elements in the economy, will repeat previous errors with regard to its management.
PERIES: Michael, this is exactly what’s happening in Greece right now. The SYRIZA government is somewhat forced to continue privatization as a part of the agreement of the loans that they have been given by European banks. What could they do in this situation?
HUDSON: Well, this is really a scandal, because most privatizations are corrupt. In Greece, they’re almost as corrupt as they are the United States–well, nothing could be that corrupt. But the SYRIZA Party coming in said, wait a minute, the privatizations that have been done are by a governmental people to their own cronies at a giveaway price. How can we balance the budget if we’re giving away the public utilities instead of getting a fair price for them? The European Central Bank said, no, no, you have to give away privatization to cronies at pennies on the dollar just like Russia did under Yeltsin, just like the United States did with the railroad giveaways of the 19th century.
And remember, the American privatization [incompr.] cronies created essentially the ruling class of the 20th century. It created the stock market. Well, the same thing’s happening in Greece. It’s told, create a new oligarchy, endow a new kind of a feudal lord–although in the case of some monopoly lord, by giving them away, these privatization giveaways–and if you don’t do that, we’re going to bankrupt the banking system. Well, Varoufakis went back to the party congress in Parliament and said, will you approve this? Well, so far, the left wing in Greece has said, no, we won’t approve the giveaways. This is crazy. The pretense is that privatization is to make money. But the European central bank is really saying, no, no, you can’t make money; you have to give it away to your cronies, who are our cronies, and it’s all one happy financial family. This is escalating financial warfare.
“ its income was inflated by massive amounts of borrowed money that was not used to upgrade its productive capacity. ”
What do you think financialisation and QE are, DOCM ?
http://www.ft.com/cms/s/0/47d22b4c-3cbb-11e3-a8c4-00144feab7de.html
“Michael Hartnett’s team at Bank of America Merrill Lynch estimated this week that global central banks have boosted liquidity by roughly $9tn since equities bottomed in 2009. In that time, they say global market capitalisation has risen $35tn while the global economy has expanded only $14tn.”
The most interesting points that he made related to what might be described as the problem of national “culture” when it comes to dealing with economic issues and the possible justification for the SGP extension granted to France. There are deep-rooted “ways of doing things”, if one can describe culture in that sense, in every European society. Changing them is a political and not an economic problem. As to the justification that giving the French more leeway to maintain spending when other countries – notably Spain – were cutting, there would appear to be a lot of sense in this as France is, in fact, two economies, one tilting towards the North, the other towards the South.
DOCM says: “It needs a totally independent revenue service with draconian powers to pursue tax evasion. ”
i doubt there is much tax evasion in absolute amounts. Hiring bureaucrats to chase down street venders is not going to raise the needed revenue.
At street markets selling fruits and vegetables in Athens I received an electronically printed receipt with all the VAT stuff on it. As an aside maybe VAT is too complicated a way to tax street vendors. Why not charge a license fee and a flat sales tax and toss the VAT.
Increasingly Greeks like everyone else are buying everything online, please observe the vacant store fronts where clothing and household goods were once sold.
So again I really am having trouble figuring out where the large sums in tax evasion are.
The real problem Greece has is no revenue to tax. This is partially due to the lack of a coherent EU policy in the Balkans. In particular supporting wars in the former Yugoslavia and now in the Ukraine is not making the Balkans an attractive place for business. Disrupting the South Stream gas line from Russia to Bulgaria is another example. Beyond that the refugee burden on the Mediterranean caused various other wars is also straining the Greek economy.
“There are deep-rooted “ways of doing things”, if one can describe culture in that sense, in every European society.”
There are, DOCM. And when there is too much debt and the people are sick of it, debt gets cancelled.
Tsirpas continues his odyssey around countries and institutions that can make all the right noises but are actually unable to rescue him from his pressing dilemma; no money to meet the promises he made to win election.
The OECD, however, appears to have a defter touch in at least identifying the major problem that Greece has to confront; the economy’s near total lack of competitiveness.
Methinks DOCM’s Ordoliberal masters and mistresses are quite simply TERRIFIED of de neu Greek Administration …. Terrified de Are … terrified …. [love it!]
… an admin that places the interests of the humble Greek ‘spalpeens’ ahead of the interests of odious financial capital …. and dodgy oligarchs.
@DOCM
The printer is still waiting, a few years later, for your Epistle on the Non-existant Capital-Labour Relation.
p.s. Mad Oul Jozie says ‘Hi’!
Excellent two-handed report from the IT’s Brussels and Berlin correspondents which suggests that Varoufakis, at least, has copped on to the fact that Schaeuble cannot have his arm twisted and is prepared to take the risk of a Graccident, no doubt comforted politically in that approach by polls that now show that a majority of Germans agree with him.
Whatever is negotiated will have to go to the Greek parliament. Arguing that election promises will have to be “temporarily” delayed will convince no one. But maybe the Greek electorate is also already coming to terms with the inevitable.
It seems that the penny may not, in fact, have dropped for Varoufakis. He appears incapable of distinguishing between the role of a professor of economics, expressing views that may or may not be correct but which have no impact in the real world, with those of a minister of finance of sovereign state on the brink of bankruptcy, which do.
Yanis Varoufakis: Presenting an Agenda for Europe at Ambrosetti
Posted on March 15, 2015 by Yves Smith
Yves here. If you followed Yanis Varoufakis before he became a household word (at least in Europe and in finance circles), you’ll recognize that he is making a layperson-friendly case for the Eurozone reforms that he, Stuart Holland, and Jamie Galbraith call A Modest Proposal. A new wrinkle is that he argues that the scarcity of bonds eligible for QE argues for one of its ideas, infrastructure spending funded by the EIB (those bonds would presumably be eligible for QE purchases).
Good to see an EZ Finance Minister take the broad view …. erudite politicians in power clearly p!ss off and terrify ordoliberal spinners and their mistresses. Luv it!
@Yanis
DOCM is big fan … verging on the stalker variety …
@DoD
“DOCM’s Ordoliberal masters and mistresses”
Remind me of a line from the sawdoctors
“The cynics and the pessimists
The self-indulgent almost rich
The blatant hurlers on the ditch”
Two items which go to the core of the Greek conundrum.
“Through all the shouting, the two sides are still trying to come to some agreement. However dangerous the insults and the brinkmanship may be, especially as Greece runs out of money, they may offer a valuable lesson: The European Union might actually be strengthened by the realization that even when some countries do not like each other (at least temporarily), it is still in their interest to work together for the common good.”
“That is the trillion-euro question,” Mr Van Overtveldt said. “My feeling — and I can only talk about my feeling — [is] they still feel that they have some leeway in putting on pressure. They really think that they can still play the fear game.”
That is the essential point! The achievement of the EU is that countries that “do not like each other” work together by respecting in their cooperation the rules that they as democracies respect domestically. Tsirpas and Varoufakis have attempted to game the system in the most amateurish manner imaginable. Varoufakis has talked himself out of the script. Tsirpas is seeing Merkel next Monday. Greece is not on the formal agenda of the European Council commencing Thursday; which says it all!
If it came from a leading financial newspaper in a country that had taken the plunge that the euro represents with regard to European integration, it would have greater impact.
The UK position (courtesy Wikipedia).
Note about UK: Paragraph 4 of Treaty Protocol No 15, exempts UK from the obligation in Article 126(1+9+11) of the Treaty on the Functioning of the European Union to avoid excessive general government deficits, for as long as the state opts not to adopt the euro. Paragraph 5 of the same protocol however still provides that the “UK shall endeavour to avoid an excessive government deficit”. On one hand, this means that the Commission and Council still approach the UK with EDP recommendations whenever excessive deficits are found, but on the other hand, they legally can not launch any sanctions against the UK if they do not comply with the recommendations. Due to its special exemption, the UK also did not incorporate the additional MTO adjustment rules introduced by the 2005 SGP reform and six-pack reform. Instead, the UK has defined their own budget concept and, since June 2010, have strived towards reaching a medium term target at “0.0% or surplus” for their Cyclically-Adjusted Current Budget (corresponding to the SGP structural deficit, except that it does not include the expenditure “Public sector net investment” and refrains from performing any adjustment for one-off revenues/expenditures), which was initially forecasted to be reached in 2014-15.For comparison with the SGP’s definition of structural deficits, it shall be noted that the UK has been forecasted to spend on average 1.3% of GDP annually on “Public sector net investment” throughout the seven years from 2011-12 to 2017-18. When this extra deficit figure is added to the CACB deficit, it will be equal to the “SGP structural deficit before adjustment for one-off revenues/expenditures”. As of 2013, the CACB target and definition has remained unchanged, but its achievement date has now been postponed to 2016-17. Finally, the UK fiscal debt-ratio target also differs from the SGP debt-ratio target, as it measure compliance with the target according to “net debt” rather than “gross debt”, and only requires that it should start posting a declining trend as from 2015-16 (with a future UK specific debt-to-GDP ratio target only to be published and decided at that point of time).
41 replies on “Reforms in Greece”
This article from the Guardian, done in collaboration with Le Monde, is more down to earth.
http://www.theguardian.com/world/2015/feb/24/greece-collecting-revenue-tax-evasion
Nobody likes paying tax. There is active unwillingness to do so if there is evidence of tax revenue being wasted. This would include, for example, recruitment to the public service outside an independent recruitment procedure, a practice that is, apparently, widespread in Greece.
Greece does not need amateur part-time tax inspectors. It needs a totally independent revenue service with draconian powers to pursue tax evasion. This is unlikely to happen overnight and certainly not until the wider reforms that reassure taxpayers that their money is being well spent is in place.
Greece is far from being alone with regard to the last mentioned.
Fratzscher: “..Greece has had a failed state…”. Has something been lost in translation? Greece is a failed state, period. All EU member-states experience failures in their systems of governance, with some failures more severe than others. Some member-states exhibit sustained failings that can be concealed for long periods. If these failings can be concealed no longer they may attempt to legislate them away by bribing voters with their own money or they may be able to compel other member-states to accept them. An example of the former is the Government’s response to the unprecedented public rejection last year of the water charges decision made by the economic regulator charged with a statutory duty to protect the interests of the public as service users. An example of the latter is France’s ability to secure an extension of the deadline to meet the European Commission’s fiscal deficit target.
Grrece has failed to such an extent as a state that it can no longer rely on its traditional variants of Irish deviousness and slipperiness; and it is no position to exercise the political power that France does. The necessary repairs will start only when a majority of Greek voters admit the extent of this failure and elect a goverment capable of effecting the repairs. But a majoirty of Greek voters are a long way from admitting the extent of the failure.
Paul Hunt is back and telling it like it is. Good times.
Policy makers in the EA have moved a long way since the onset of the crisis. Initially, no EA bank was to go bust ( strange , but that was the view from Merkel and Trichet) and the rational response of debt investors to deteriorating debt positions in some member states (sell the bonds) was seen as an attack on the euro. Germany also saw the roots of the crisis as fiscal and everyone signed up to budgetary rules which effectively means discretionary fiscal policy is no longer available as a policy instrument, although again , of late, those rules are being relaxed, albeit for the larger economies. The ECB , too, has changed tack, initially trying to fix the monetary transmission mechanism via liquidity injections but now trying to bypass the banking system via QE.
What to do with a chronic debtor is now the issue. To date, providing loans has been seen as the least bad option but are we at another point of change , in that allowing the debtor country to run out of funding is now perceived as causing limited contagion?. That perception may be wrong, of course, but with the ECB buying debt, bond investors appear to think that Greece is sui generis which may encourage a harder line from Greece’s creditors.
fyi
http://blogs.lse.ac.uk/europpblog/2015/03/09/five-minutes-with-philippe-legrain-the-eurozone-has-become-a-glorified-debtors-prison/
+1
The academic underpinning of the Syriza approach is set out in this book by Euclid Tsakalotos, currently described as “economic spokesman” for the Greek government (and with a glowing endorsement by Varoufakis).
http://www.amazon.com/Crucible-Resistance-Greece-Eurozone-Economic/dp/074533380X/ref=la_B00E9CDPS4_1_1?s=books&ie=UTF8&qid=1425766458&sr=1-1
The “look inside” facility gives access to the main arguments, one of which is precisely that Greece is NOT sui generis but symptomatic of a wider euro malaise. The authors, it seems, may be proven right or wrong by the course of events in the coming months. It is not looking too good for their general thesis as matters stand. There is no evidence that Greece is in any way a catalyst for wider economic or market disruption. The caravan has moved on. Not alone has Greece not stood still, the country has begun to fall even further behind under Syriza.
Meanwhile, the Varoufakis continues his idiosyncratic approach although it seems his latest bon mot was recorded some time ago. His position seems increasingly untenable.
http://www.irishtimes.com/business/economy/varoufakis-admits-greece-will-never-repay-debts-1.2133267
@ DOCM
The documentary about the Greek debt crisis
broadcasted on german and french tv.
Power without control – the Troika
***********************************
German version
“Macht ohne Kontrolle – Die Troika”
Harald Schumann/Arpad Bondy
https://www.youtube.com/watch?v=E6aNwBwEm6U
French version
“Puissante et incontrolee – la troika”
Harald Schumann/Arpad Bondy
@ JMG
Many thanks for the link! Fascinating stuff! I watched the French version. The problem is that it regurgitates the standard – conspiratorial – views of what might be described as the usual suspects. They continue to be puzzled by the failure of what appears to be a majority of those around them to grasp the error of their ways. The majority may, of course, actually be in error. But I remain to be persuaded of it.
And now for a not so savoury cheese mix served up in the bailiwick of our own minister for finance.
http://www.permanenttsbgroup.ie/~/media/Files/I/Irish-Life-And-Permanent/Attachments/pdf/2014/2014-full-year-report.pdf
It looks like Permanent TSB is being kept alive, so that we may all have the benefit of subsidising its BTL and OO trackers for the next 15 years. Those doing the subsidising include new first time buyers on variable rates.
Isn’t that very friendly of them!
If Varoufakis was responsible for a bank like that, he would deserves to be fired.
@ DOMC
Perhaps you find this also interesting. From spring 2013, with more stuff about Ireland.
They got the “Deutsche Fernsehpreis 2013” (German TV prize) for it. Enjoy (,if you can).
French version
Quand l’Europe sauve ses Banques qui paye ??
https://www.youtube.com/watch?v=Ynl5xLYnfWg
German version
Staatsgeheimnis Bankenrettung
This commentary, and the article to which it refers, has useful – and very depressing – information on Greece.
http://www.conservativehome.com/the-deep-end/2015/03/spend-first-ask-questions-later-greece-is-proof-that-debt-economics-doesnt-work.html
http://www.project-syndicate.org/commentary/greece-export-problem-by-ricardo-hausmann-2015-03
(The major omission is the lack of any reference to Greece’s maritime prowess, with the largest commercial fleet in the world and a major involvement of those entrepreneurs involved in the Greek domestic economy; without paying much, if any, tax, it seems).
If those persuaded of the correctness of the analysis of the economic advisers to Syriza have data to support their position, I have yet to see it.
fyi
Thomas Piketty on the Euro Zone: ‘We Have Created a Monster’
In an interview with SPIEGEL, celebrated French economist Thomas Piketty speaks about Alexis Tsipras’ election victory in Greece, Europe’s inability to fix its financial woes and what EU leaders can learn from the United States.
SPIEGEL: You publicly rejoiced over Alexis Tsipras’ election victory in Greece. What do you think the chances are that the European Union and Athens will agree on a path to resolve the crisis?
Piketty: The way Europe behaved in the crisis was nothing short of disastrous. ……..
http://www.spiegel.de/international/europe/thomas-piketty-interview-about-the-european-financial-crisis-a-1022629.html
@DOCM
Colm McCarthy’s piece from last month on Greece was top notch
http://www.independent.ie/opinion/as-it-stands-greece-can-not-continue-in-eurozone-31011268.html
“Given the current condition of the Greek economy, the only sensible path is to negotiate a deal relaxing the fiscal consolidation in return for a commitment to reform. This should ultimately strengthen the capacity to build tax revenues and debt-service capability.
Whether the headline debt figure is cut, or the relaxation is disguised through maturity extensions and interest discounts, matters only to politicians. Greece cannot continue as a member of the Eurozone under the present arrangements, since there is little prospect of recovery if the government is forced to run an excessive fiscal surplus.
The long-term stability of the financial system needs to be restored. This requires sustainable finances for the government and an end to threats from the ECB to abscond as lender of last resort. If the central bank continually hints that the Greek banks are insolvent, there is little prospect of anyone else taking a contrary view.
The political debate about Greece’s entitlement to further debt relief, overt or concealed, has focussed largely on whether Greece deserves it. The Greek debt is now largely owed to official lenders, essentially other European states, the ECB and the IMF. That is to say, the folks who lent the money in the ill-conceived May 2010 first ‘rescue’.
If foolish lenders deserve haircuts, the official lenders are in the firing line for their May 2010 (and subsequent) mistakes. The IMF cannot take haircuts, so will (and should) seek exemption. It seems to have been a reluctant participant. Which leaves the European politicians, who are understandably unwilling to explain to their constituents that they made some dud loans to Greece, which in turn paid off banks and other investors who had backed the wrong horse in the first place.
That the current Greek crisis is the third in five years is its own testament to the inadequacies of Europe’s common currency area, which was not designed by Greece.”
The EZ grew by 0.9% last year. That is a shambolic performance from the house of our local rep, DOCM.
Too much debt, you see.
Deflation beckons.
France/Italy is the big issue in this Greece debate. At some point on the current path the whole structure will keel over and if a precedent is set for Greece what will happen to the debt owed by France/Italy ?
Wolfgang Muenchau has a must-bookmark article about how to bring debt out the back and kill it softly. Keep it because it’ll be very handing for talking points as the crisis intensifies
http://www.ft.com/cms/s/0/5faa51fe-ba7d-11e4-945d-00144feab7de.html
Remember that bondholders have to have lost all optimism and hope before they relent to logic.
@ DoD
The EZ in Greece looks like la chingada
http://www.speakinglatino.com/verbo-chingar-the-most-important-word-in-mexico/
@ JMG
Many thanks for the second link. I ploughed through it (French version again) to the bitter end, which, in Ireland’s case, was a little less bitter as there is a textual postscript on the promissory note deal and the “saving” of €3 billion annually in immediate payments. The Ballyhea protest was, however, to continue.
I would recommend both programmes and simply suggest that anyone watching them ask themselves to compare the outcomes with the various predictions made. Those talking through their proverbial hats can be fairly easily identified (including at least a few surprises for me). Incidentally, the programmes have had remarkably few Youtube hits.
That the crisis is causing division in Europe is not a contention that anyone would dispute. The issue is whether the route adopted to remedy this crisis by restoring the required level of economic growth is the right one or whether better alternatives exists. I do not think that there is, even if it has been made up as they went along by the various governments.
Some relevant links.
http://www.irishtimes.com/business/economy/john-fitzgerald-where-did-the-30bn-in-cuts-go-1.2105933
http://www.irishtimes.com/opinion/could-banking-crisis-have-cost-less-and-how-much-might-we-eventually-get-back-1.2068789
The borrowed money that was expended domestically has gone from the pockets of some Irish taxpayers into the pockets of others. Where it remains!
Seafoid,
the problem with the “excessive fiscal surplus ” meme is that Greece is running a (rising) primary deficit due to a) unwillingness to pay taxes and b) fiscal incontinence. The debt/GDP number is irrevant since Greece is paying an interest rate of 2% or less.
In short the only way the Greek fiscal accounts can be put on a sustainable basis is for other European taxpayers to take responsibility for funding Greece.
http://www.consilium.europa.eu/en/press/press-releases/2015/03/150310-france-gets-two-more-years-to-correct-government-deficit/
France has had a third extension under the excessive deficit procedure, and is now given to 2017 to reduce its fiscal deficit to under 3% of GDP. The European Council, in judging France’s efforts to date at fiscal consolidation concluded that ‘the evidence did not lead the Council to conclude that no effective action had been taken’. Note the double negative but the conclusion has to be that once again the EU’s fiscal rules, however misconceived, are only for the smaller States. Wonder how the call for the latter to stump up more funds for Greece will go down now?
The example of the TV chain Arte, which broadcast the programmes linked to above, may help explain the apparent discriminatory treatment. Arte would not exist were it not an expression of the desire of two dominant powers, and cultures, in Europe to avoid further devastating conflict. Ditto the euro!
http://en.wikipedia.org/wiki/Arte
The real issue is not the evident discrimination with regard to the SGP but whether it reflects a failure by France, in terms of economic performance, and of the Commission, in terms of decision making. In both cases the answer is yes. The approach of our esteemed MOF may seem laudable at first sight. Seeking equal treatment in failing to do the right thing is not, however, very sensible. But rules are rules! Especially when they coincide with electoral interest.
@Ruules ruules ruuuless
Minor point:
“Foisting the German model on the rest of the Eurozone is disastrous.” Philippe Legrain
From the Legrain Link above …
Have the right lessons been learned from the crisis in the Eurozone?
P. Legrain: The short answer is No. Catastrophic mistakes by Eurozone policymakers – primarily Angela Merkel’s government in Berlin, the European Central Bank in Frankfurt and the European Commission in Brussels – have transformed a financial crisis into a much deeper economic and political one.
More than seven years into the crisis, the Eurozone is doing much worse than the United States, worse than Japan during its lost decade in the 1990s, and worse even than Europe in the 1930s. The economy, which is still 2 per cent smaller than in early 2008, is stagnating. The least-bad performer, Germany, has grown by less than Britain over that period and less than half as much as Sweden, Switzerland and the US.
The worst, Greece, has shrunk by more than a quarter and is faring worse than Germany did during the Great Depression. Many people’s living standards have slumped and unemployment is painfully high: 11.4 per cent overall, much higher in Southern Europe, scarily so among young people. A lost generation is in the making. In a nutshell, the Eurozone is sinking into a deflationary debt trap, with tragic social consequences and unpredictable political ones.
Unsurprisingly, voters are fed up of years of seemingly unending misery. Social tensions within countries are multiplying, as are political frictions between them. Understandable anger at the injustice of bailouts for rich bankers and budget cuts for poor schoolchildren overlaps with a despicable scapegoating of outsiders, notably immigrants. Old stereotypes have been revived and new grievances created. Northern Europeans slander southerners as lazy good-for-nothings, while Greeks label Germans Nazis. Nasty nationalism is on the march again and support for the European Union has never been lower.”
Minor point II:
The SGP (Angela’s Corset) has zero theoretical and zero empirical support.
from The Guv’nor
The entire cost to society of the fallout from the banking crisis has been more than €100 billion, Central Bank governor Patrick Honohan has told the Oireachtas Banking Inquiry.
Mr Honohan was giving evidence to the third session of the inquiry on Wednesday, having asked to appear before it in order to clarify evidence he previously gave. He told the inquiry the cost of the whole “debacle” were greater than estimated, but that he could not put an exact figure on it because nobody had really done the work “in a way that is robust”.
http://www.irishtimes.com/news/politics/oireachtas/patrick-honohan-cost-of-banking-crisis-more-than-100bn-1.2134967
text from Paddy Zhukov in Kharkov:
https://consortiumnews.com/2015/03/11/nulands-mastery-of-ukraine-propaganda/
@seafoid
Lots of la chingada going round … dumb an dumber policy.
@DOCM
“The real issue is not the evident discrimination with regard to the SGP but …..”.
On this particular that is the real issue is the evident discrimination as far as the people of smaller countries are concerned, but there are other clear messages from the decision.
One of the main underlying messages is that the EC, under Juncker, appears no longer prepared to act as camp commandant enforcing a set of rules that has caused economic mayhem throughout the EZ. The EC commission is also not toeing the Berlin line on Greece either.
Minister Noonan, however, has made another political error of judgement. by placing the political need for deficit easing ahead of the bigger priority of holding the line on the corporate tax rate. Burning all his diplomatic boats on a ‘me too’ electorally beneficial deficit easing target is not a well thought out national strategy.
@ Tull
I thought the surplus was to ensure there was enough capacity to pay interest when they start loading it on. After growth returns. Whenever that is.
Syriza’s voters are not correlated significantly with tax avoidance AFAIK. That would be more ND or to a lesser extent Pasok.
Tspiras said at the outset tax would be part of their plan for government.
the strongest meme is coming from the PTB- that the Greeks are feckless.
Anyway with growth last year at 0.9% in the EZ and nobody anywhere able to explain the mystery of how QE benefits the real economy this crisis is going to run and run , regardless of what the bond yields are saying.
The story on Greece as of now is the increasingly extreme language of the members of the new government, from the PM down, notably in relation to the reparations that are seen as due by Germany. Varoufakis, for once, is not notable for any extreme utterances. The most hopeful interpretation is that there is (i) an attempt to try and placate the hard left elements in the party while (ii) Varoufakis attempts to regain some kind of footing as a valid negotiator with the “institutions”, including the ESM.
On the reparations issue, Germany could point out, were it so minded, that it has been for decades the largest net contributor to the budget of the EU i.e. in terms of contributions (in) and expenditure (out) as allocated among member countries (a complicated exercise that has to be carried out in order to calculate the UK budgetary rebate). Greece has been receiving sums as high as 3% to 4% of its GDP by way of structural fund transfers. It has, unfortunately, made very poor use of them as compared to Ireland cf.
http://www.lse.ac.uk/europeanInstitute/research/hellenicObservatory/pdf/3rd_Symposium/PAPERS/SARAVELOS_GEORGE.pdf
One way or the other, Tsirpas will have to get his parliament to adopt whatever changes to the MOU are agreed (leaving aside the semantic shape-throwing that has been the hallmark of Syriza since it came to power). It is at that point the political fault lines are most likely to emerge.
@ JR
You are mixing up the issues in a manner that has not been attempted since our esteemed Taoiseach had his famous “Gallic spat” with Sarkozy.
Austerity is not Greece’s problem, or Ireland’s for that matter. To quote Ricardo Haussman.
“Greece never had the productive structure to be as rich as it was: its income was inflated by massive amounts of borrowed money that was not used to upgrade its productive capacity. According to the Atlas of Economic Complexity, which I co-authored, in 2008 the gap between Greece’s income and the knowledge content of its exports was the largest among a sample of 128 countries.”
The risk for Ireland is that the political establishment, pandering for reasons of electoral advantage to the still strong rent-seeking elements in the economy, will repeat previous errors with regard to its management.
PERIES: Michael, this is exactly what’s happening in Greece right now. The SYRIZA government is somewhat forced to continue privatization as a part of the agreement of the loans that they have been given by European banks. What could they do in this situation?
HUDSON: Well, this is really a scandal, because most privatizations are corrupt. In Greece, they’re almost as corrupt as they are the United States–well, nothing could be that corrupt. But the SYRIZA Party coming in said, wait a minute, the privatizations that have been done are by a governmental people to their own cronies at a giveaway price. How can we balance the budget if we’re giving away the public utilities instead of getting a fair price for them? The European Central Bank said, no, no, you have to give away privatization to cronies at pennies on the dollar just like Russia did under Yeltsin, just like the United States did with the railroad giveaways of the 19th century.
And remember, the American privatization [incompr.] cronies created essentially the ruling class of the 20th century. It created the stock market. Well, the same thing’s happening in Greece. It’s told, create a new oligarchy, endow a new kind of a feudal lord–although in the case of some monopoly lord, by giving them away, these privatization giveaways–and if you don’t do that, we’re going to bankrupt the banking system. Well, Varoufakis went back to the party congress in Parliament and said, will you approve this? Well, so far, the left wing in Greece has said, no, we won’t approve the giveaways. This is crazy. The pretense is that privatization is to make money. But the European central bank is really saying, no, no, you can’t make money; you have to give it away to your cronies, who are our cronies, and it’s all one happy financial family. This is escalating financial warfare.
http://www.nakedcapitalism.com/2015/03/michael-hudson-quantitative-easing.html
An item of possible interest!
http://www.keeptalkinggreece.com/2015/03/02/scandal-wages-hikes-for-greeces-public-power-company-workers/
“ its income was inflated by massive amounts of borrowed money that was not used to upgrade its productive capacity. ”
What do you think financialisation and QE are, DOCM ?
http://www.ft.com/cms/s/0/47d22b4c-3cbb-11e3-a8c4-00144feab7de.html
“Michael Hartnett’s team at Bank of America Merrill Lynch estimated this week that global central banks have boosted liquidity by roughly $9tn since equities bottomed in 2009. In that time, they say global market capitalisation has risen $35tn while the global economy has expanded only $14tn.”
@ DOCM
Here’s another one for you
Share prices to sales for the S&P 500
http://www.vectorgrader.com/indicators/price-sales
Where did all the QE money go? Very little of it was invested 😉
If you want to diss the Greeks, at least try to be coherent.
The FT interviewed the outgoing head of the French central bank.
http://www.ft.com/intl/cms/s/0/eaab82d4-c822-11e4-8210-00144feab7de.html
The most interesting points that he made related to what might be described as the problem of national “culture” when it comes to dealing with economic issues and the possible justification for the SGP extension granted to France. There are deep-rooted “ways of doing things”, if one can describe culture in that sense, in every European society. Changing them is a political and not an economic problem. As to the justification that giving the French more leeway to maintain spending when other countries – notably Spain – were cutting, there would appear to be a lot of sense in this as France is, in fact, two economies, one tilting towards the North, the other towards the South.
DOCM says: “It needs a totally independent revenue service with draconian powers to pursue tax evasion. ”
i doubt there is much tax evasion in absolute amounts. Hiring bureaucrats to chase down street venders is not going to raise the needed revenue.
At street markets selling fruits and vegetables in Athens I received an electronically printed receipt with all the VAT stuff on it. As an aside maybe VAT is too complicated a way to tax street vendors. Why not charge a license fee and a flat sales tax and toss the VAT.
Increasingly Greeks like everyone else are buying everything online, please observe the vacant store fronts where clothing and household goods were once sold.
So again I really am having trouble figuring out where the large sums in tax evasion are.
The real problem Greece has is no revenue to tax. This is partially due to the lack of a coherent EU policy in the Balkans. In particular supporting wars in the former Yugoslavia and now in the Ukraine is not making the Balkans an attractive place for business. Disrupting the South Stream gas line from Russia to Bulgaria is another example. Beyond that the refugee burden on the Mediterranean caused various other wars is also straining the Greek economy.
“There are deep-rooted “ways of doing things”, if one can describe culture in that sense, in every European society.”
There are, DOCM. And when there is too much debt and the people are sick of it, debt gets cancelled.
Tsirpas continues his odyssey around countries and institutions that can make all the right noises but are actually unable to rescue him from his pressing dilemma; no money to meet the promises he made to win election.
http://www.euronews.com/2015/03/12/tsipras-strikes-deal-to-help-greece-reform-as-war-of-words-grows-with-germany/
The OECD, however, appears to have a defter touch in at least identifying the major problem that Greece has to confront; the economy’s near total lack of competitiveness.
http://www.oecd.org/daf/competition/Greece-Competition-Assessment-2013.pdf
@ George
FYI this item from the bulletin of the Bank of Greece culled from the web. A bit dated but no doubt still largely valid.
http://www.bankofgreece.gr/BogEkdoseis/econbull201106.pdf
Methinks DOCM’s Ordoliberal masters and mistresses are quite simply TERRIFIED of de neu Greek Administration …. Terrified de Are … terrified …. [love it!]
… an admin that places the interests of the humble Greek ‘spalpeens’ ahead of the interests of odious financial capital …. and dodgy oligarchs.
@DOCM
The printer is still waiting, a few years later, for your Epistle on the Non-existant Capital-Labour Relation.
p.s. Mad Oul Jozie says ‘Hi’!
Excellent two-handed report from the IT’s Brussels and Berlin correspondents which suggests that Varoufakis, at least, has copped on to the fact that Schaeuble cannot have his arm twisted and is prepared to take the risk of a Graccident, no doubt comforted politically in that approach by polls that now show that a majority of Germans agree with him.
http://www.irishtimes.com/business/economy/juncker-calls-on-european-states-to-show-solidarity-with-greece-1.2139357
Whatever is negotiated will have to go to the Greek parliament. Arguing that election promises will have to be “temporarily” delayed will convince no one. But maybe the Greek electorate is also already coming to terms with the inevitable.
It seems that the penny may not, in fact, have dropped for Varoufakis. He appears incapable of distinguishing between the role of a professor of economics, expressing views that may or may not be correct but which have no impact in the real world, with those of a minister of finance of sovereign state on the brink of bankruptcy, which do.
http://www.forbes.com/sites/timworstall/2015/03/14/greeces-varoufakis-warns-on-qe-but-doesnt-seem-to-understand-it/
Yanis Varoufakis: Presenting an Agenda for Europe at Ambrosetti
Posted on March 15, 2015 by Yves Smith
Yves here. If you followed Yanis Varoufakis before he became a household word (at least in Europe and in finance circles), you’ll recognize that he is making a layperson-friendly case for the Eurozone reforms that he, Stuart Holland, and Jamie Galbraith call A Modest Proposal. A new wrinkle is that he argues that the scarcity of bonds eligible for QE argues for one of its ideas, infrastructure spending funded by the EIB (those bonds would presumably be eligible for QE purchases).
By Yanis Varoufakis, Finance Minister of Greece.
http://www.nakedcapitalism.com/2015/03/yanis-varoufakis-presenting-agenda-europe-ambrosetti.html
Good to see an EZ Finance Minister take the broad view …. erudite politicians in power clearly p!ss off and terrify ordoliberal spinners and their mistresses. Luv it!
@Yanis
DOCM is big fan … verging on the stalker variety …
@DoD
“DOCM’s Ordoliberal masters and mistresses”
Remind me of a line from the sawdoctors
“The cynics and the pessimists
The self-indulgent almost rich
The blatant hurlers on the ditch”
Two items which go to the core of the Greek conundrum.
http://www.nytimes.com/2015/03/17/opinion/nikos-konstandaras-greece-and-the-great-divide.html?ref=opinion&_r=0
“Through all the shouting, the two sides are still trying to come to some agreement. However dangerous the insults and the brinkmanship may be, especially as Greece runs out of money, they may offer a valuable lesson: The European Union might actually be strengthened by the realization that even when some countries do not like each other (at least temporarily), it is still in their interest to work together for the common good.”
http://www.ft.com/intl/cms/s/0/81147fda-cbdb-11e4-beca-00144feab7de.html?siteedition=intl#axzz3Ua15Um6d
“That is the trillion-euro question,” Mr Van Overtveldt said. “My feeling — and I can only talk about my feeling — [is] they still feel that they have some leeway in putting on pressure. They really think that they can still play the fear game.”
That is the essential point! The achievement of the EU is that countries that “do not like each other” work together by respecting in their cooperation the rules that they as democracies respect domestically. Tsirpas and Varoufakis have attempted to game the system in the most amateurish manner imaginable. Varoufakis has talked himself out of the script. Tsirpas is seeing Merkel next Monday. Greece is not on the formal agenda of the European Council commencing Thursday; which says it all!
Coincidentally but right on cue from the FT!
http://www.ft.com/intl/cms/s/0/8131cb22-cbd0-11e4-beca-00144feab7de.html
If it came from a leading financial newspaper in a country that had taken the plunge that the euro represents with regard to European integration, it would have greater impact.
The UK position (courtesy Wikipedia).
Note about UK: Paragraph 4 of Treaty Protocol No 15, exempts UK from the obligation in Article 126(1+9+11) of the Treaty on the Functioning of the European Union to avoid excessive general government deficits, for as long as the state opts not to adopt the euro. Paragraph 5 of the same protocol however still provides that the “UK shall endeavour to avoid an excessive government deficit”. On one hand, this means that the Commission and Council still approach the UK with EDP recommendations whenever excessive deficits are found, but on the other hand, they legally can not launch any sanctions against the UK if they do not comply with the recommendations. Due to its special exemption, the UK also did not incorporate the additional MTO adjustment rules introduced by the 2005 SGP reform and six-pack reform. Instead, the UK has defined their own budget concept and, since June 2010, have strived towards reaching a medium term target at “0.0% or surplus” for their Cyclically-Adjusted Current Budget (corresponding to the SGP structural deficit, except that it does not include the expenditure “Public sector net investment” and refrains from performing any adjustment for one-off revenues/expenditures), which was initially forecasted to be reached in 2014-15.For comparison with the SGP’s definition of structural deficits, it shall be noted that the UK has been forecasted to spend on average 1.3% of GDP annually on “Public sector net investment” throughout the seven years from 2011-12 to 2017-18. When this extra deficit figure is added to the CACB deficit, it will be equal to the “SGP structural deficit before adjustment for one-off revenues/expenditures”. As of 2013, the CACB target and definition has remained unchanged, but its achievement date has now been postponed to 2016-17. Finally, the UK fiscal debt-ratio target also differs from the SGP debt-ratio target, as it measure compliance with the target according to “net debt” rather than “gross debt”, and only requires that it should start posting a declining trend as from 2015-16 (with a future UK specific debt-to-GDP ratio target only to be published and decided at that point of time).