haroldchorneyeconomist

Nathan Cullen has run an excellent campaign but fallen just short on the third ballot and so now drops off the ballot with the Convention having a clear choice between two somewhat different visions of the role of the NDP in national politics. Mulcair to win has to obtain as few as one quarter of the Cullen vote to win. But Topp can win if he captures about 11,544 of Cullen’s vote.  Probably a very difficult feat but not impossible. Knowing New Democrats as I do but also given the nature of the voting system with the bulk of the votes already cast in the advance vote it will be a difficult moment for the social democratic core of the party to easily accept at least initially the prospect of a Mulcair victory.

Cullen’s vote was 15, 426 votes  out of a total of 62,728 votes cast. Mulcair thus needs 31,365 votes to win. since he achieved 27,480 votes on the third ballot to win he only needs an additional 3885 votes on the final ballot assuming the total vote number stays the same and Mulcair loses no votes from his vote total in the third round. Topp on the other hand needs 11544 votes from the Cullen total to win making the same assumptions about the vote total and his own vote. As I say a very unlikely but not impossible task.

The second ballot results seem to suggest that Thomas Mulcair is less likely to win the leadership but it is unclear who is more likely to defeat him Topp or Cullen. It will depend presuming that no one drops out where those people who supported Nash go to. In this kind of convention and voting system it is impossible to predict what the final outcome will be. We shall see in the next few hours.

All of the member countries in the euro zone have now approved the terms of the second Greek bailout.

As well, the 206 billion euro debt restructuring has also been accepted, albeit reluctantly by the majority of Greek sovereign debt holders from the private sector(a few of whom are going to court to have themselves exempted from the deal or compensated by damages) whereby they will agree to accept new lower interest rate bonds with longer terms and lower face values in effect taking a substantial haircut on the face value of the bonds they held to avoid the government more totally defaulting on them. Close to 3 billion dollars in credit default swaps will be paid out because the derivatives body that determines whether there has been a default has ruled in the affirmative.

Nouriel Roubini  has argued that these private sector bondholders will be much better off since the existing bonds they hold are worth much less than the new ones in the actual market and that it will be the public sector taking the hit that the private sector is handing them.However, that is not yet totally clear for it will depend upon the final worth of the newly restructured debt instruments and the degree to which eventually the Greek economy recovers in the long run.

The second installment of the European union and IMF bailout is also complex. It includes 130 billion euros of new money provided by the EU plus 28 billion by the IMF as well as an additional 37 billion left over from the original 110 billion first bailout. The IMF will be paying the money out over the next five years but 19.8 billion of it will be paid out by 2015.

So the exact size of the bailout according to the Financial Times and its interpretation of  the report by the European Commission Directorate General for Economic and Financial affairs is a question of which time period, three years or five years ,you are examining. Over three years the total appears to be 164.3 billion but over five years the total rises to 173.6 billion. To this amount one must add the 73 billion already disbursed under the first program.So the bill now appears to be about 246 billion euros.

This is substantial but in the context of the euro zone GDP  it is a small percentage, less than 2 %.  A large chunk of this could easily have been financed by an expansion of the broadly defined monetary base of the ECB with negligible inflationary risk.But dogmatic opposition to this approach in the heart of the ECB and the German government has prevented such an approach.

The money will begin to flow this month . Over the next three months three tranches will be released 5.9 billion in March, 3.3 billion in April and 5.3 billion in May. As part of the deal some 48.8 billion euros will be paid to the banks to help them recapitalize after taking a haircut on Greek bonds. In addition , of course, the Greek parliament has passed an additional 3-4 billion euros in budget cuts to the health care sector, the public services,as well as introduced further privatization and professional restructuring . The Greek GDP has shrunk  7.5 % this year after shrinking 5 % last year. Unemployment has risen to over 21 %,exports are down, business bankruptcies among small entrepreneurs have skyrocketed and considerable hardship has already been imposed on Greek society.the only bright spot so far is apparently the Greek shipping industry(Greece has the second largest fleet after Japan in the world) which some analysts insist is cash rich and well poised to take advantage of a recovery, when and if it arrives. But it is also quite mobile and footloose should the government seek to increase its tax burden as part of austerity measures.

Given these developments it is frankly difficult to understand why the Eurozone leadership believes that the Greek problem has been solved. A temporary lid has been placed on the problem but if the economy continues to be mired in austerity and extreme unemployment the problem will continue to fester.

As I have explained before there were and are better alternatives to these policies of austerity and retrenchment. It is a great pity that they were not tried.

(bibliographic note: I have drawn on the extensive and excellent  coverage of Greece in the financial press, particularly The Financial Times, The New York Times, the Globe and Mail,the Guardian,Bloomberg news, plus the New Statesman as well as data from the Greek Office of National statistics and the IMF and Eurostat and my own blog and knowledge base, in particular my published work on quantitative easing and deficits and debt(see the bibliography in the paper After the Crash: Rediscovering Keynes and the Origins of Quantitative Easing, posted on this blog June 3, 2011,  in researching and writing this entry.)

Canadian employment fell by 2800 in February. This has now happened in three of the last five months, suggesting that a definite slowing down in the economy is emerging . Not a good sign for the unemployed and a clear warning to the finance minister who is bringing down a new austerity oriented budget in a few days that he should revise his plan. Some 37,900 people dropped out of the labour force last month so that even though the headline rate of unemployment fell to 7.4 % from 7.6 % the reality was that fewer people were working than last month. The sluggish growth in employment should cause some serious rethinking both at the Bank of Canada and within the finance department about the renewed emphasis on budget cutting and raising intererst rates. Obviously this is premature.

The Canadian labour force consists of 18.74 million workers . According to the Stats Canada Labour force survey for February some 17.35 million are currently employed , 14.06 million in full time jobs, 3.3 million in part time jobs. There are, despite a recovery from the crash, 1.386 million workers still unemployed which translates into a 7.4 % unemployment rate.  This is significantly lower than in the U.S. but still elevated and a source of hardship for these workers and their families. The participation rate fell last month from 66.7 % to 66.5 %. In fact, the participation rate has fallen 0.5 % over the past 12 months. The public sector lost some 13,400 jobs from January to February. Unemployment remains low in Manitoba, Saskatchewan and Alberta where the rate is well below 6 % but elevated in Quebec 8.4 % and Ontario 7.6 %. resource rich B.C. has a 6.9 % unemployment rate. The Atlantic provinces as is traditionally the case have elevated rates of 8.2% in Nova Scotia,10.1 % in New Brunswick and 12.9 % in Newfoundland.

In the U.S. the picture was brighter as the recovery continued and under the broader definition of unemploymentthe rate fell fell from 15.1 % to 14.9% as well over 230,000 new jobs were created. In fact because the economy is stronger more than 400,000 workers rejoined the labour force otherwise the headline rate of unemployment would have fallen. As it was it remained at 8.3 %. If current trends continue the unemployment rate should drop to 8% or lower by election time next Fall.

The situation in Greece continues to fester as wrangling continues as to the precise terms and the degree of severe austerity demanded by the EU troika that has been negotiating the bailout.

Although precise data is difficult to obtain it would appear from a column by Gavyn Davies in the FT today that the bailout involves transferring some 100 billion euros worth of Greek debt from the European private banking system to the accounts of the IMF and the European union. These accounts, unlike those of the private banks, at least in theory, are the liabilities of taxpayers as opposed to bank shareholders and bank bondholders.

It is because of this and the political considerations of the German, Dutch and Finnish politicians involved in the negotiations that such draconian austerity is being demanded and apparently some German politicians like the German finance minister Wolfgang Schauble are now having serious second thoughts about rescuing Greece and are increasingly considering default as an option. Default is of course always an option. If it were not for the fact that some 40 plus European banks and various governmental agencies would be affected, and the extent of the damage would only become known if and when the default were to occur, and a raft of speculators would make money out of their credit default swaps which essentially bet on a default, it might be a useful option for Greece to consider. It would allow it to reduce its debt load to more reasonable levels and launch a new drachma currency, thereby avoiding some of the extremely damaging deflation being imposed on it by its creditors.

But there is another better way out of the mess.

It is a route currently blocked by the monetarist dogma that still grips the European central bank and the leading Eurozone politicians from Germany. That better alternative would authorize the ECB to purchase a large block of Greek sovereign debt , suspend the market interest payments on it for a set period of time by reducing the interest rate to close to zero and undertake the operation by temporarily expanding the broadly defined money stock M2 which as of December 2011 stood at 8673.2 billion Euros. Hence, an additional 100 billion would add 1.16 % to M2 and clearly in the present circumstances have no inflationary consequences. This amount of debt relief with interest rates near zero and stripped of the obligation to impose immediate punishing and counter productive austerity that can only shrink aggregate demand and undermine debt repayment and reduction by increasing unemployment is clearly a superior alternative policy to the one being followed.

There is some moral hazard involved and Greek politicians and citizens would still have to clean up their act in terms of paying their taxes, restoring a solid work ethic and manageable and affordable welfare state but at least that could be undertaken in more civilized circumstances than now prevail and the much beleaguered Greek citizenry would be granted some breathing room.

All that stands in the way of this option is hidebound conservative rigidity and dogmatic misguided monetarist thinking that the events of the last few years should have long ago vanquished.

Despite the Greek economy suffering over 20 % unemployment and 48% youth unemployment ,the European union negotiators have persuaded the Greek political leaders in the coalition government led by technocrats to accept further rollbacks including cuts in government spending amounting to 3 billion euros, reduction in the minimum wage by some 20 % and cuts in defense spending.

The only positive news in this announcement is that politicians were successful in exempting low income pensioners from cuts in their pensions. The fact that thereby for the time being Greece will be able to meet its bond payments because of further transfers from Europe is also perhaps positive news. There are many who might argue that defaulting on its debt and leaving the Euro and returning to the drachma might be a better outcome in the long run for Greece. The economy is now into its fifth straight year of deep recession and it is an absolute guarantee that the austerity being imposed in exchange for the bailout money will not solve Greece’s problems.

There was some welcome news on the U.S. unemployment front this morning as the U.S.Bureau of Labour Statistics released the latest unemployment data for the previous month.

Unemployment fell from 8.5 % to 8.3 % .

Since January of 2011 the unemployment rate in the U.S. has fallen from 9.1 to 8.3 %. There were a total of  257,000 new jobs created in the private sector last month  somewhat higher than analysts had expected. But because of state and local government cuts the net new addition to the employed labour force was smaller at 243,000. Had a second stimulus been approved by Congress that targeted helping the state and local governments maintain employment as should be the case in a proper co-ordinated stimulus the results in terms of lowering the unemployment rate would have been even better.

In almost every recovery since the stagflation crisis in the 1970s analysts have been overly pessimistic about the strength of the recovery. This time is no different. The reduction in the headline rate to 8.3 % is a clear sign of a slow but steady recovery. Unemployment needs to be much lower but at least the data is heading in the right direction.

There is a very good possiblity but no certainty  that the rate will be close to 7 % or even below 7 % by next 5November. U6 the rate which is the broader measure of unemployment including marginally attached workers,discouraged workers and those working part-time when they would rather work full time remains elevated at 15.1 %, although it too has fallen by 1 percentage point since January 2011.

Unfortunately in Canada the news was less positive. Statistics Canada released its latest report on the labour force showing that for the month of January, 2012 unemployment rose slightly to 7.6% It dropped in Quebec to 8.4  from 8.7 % with the participation rate steady at 64.7 % but in the industrial and demographic heartland of Ontario the rate rose from 7.7 to 8.1 %. the participation rate was 66.7 %. Unemployment in the western provinces remained low except for B.C. where it was 6.9 % but with a low participation rate of 60.3 %. In Manitoba the rate was 5.4 % participation 69.1%; Saskatchewan unemployment 5.0 % participation 69.2 % and Alberta, unemployment the lowest in the country at 4.9 % and the highest participation rate of 74.1 %.

The Canadian government seemed poised to announce a series of austerity measures but with the unemployment rate now rising in Ontario it would be well advised to reconsider.