Greece: The Economic Crisis Continues (Christodoulou)

Eleni Christodoulou writes for EA:

It was only last week, after panic and media outbursts over the financial crisis, that the words "good", "progress", and even "strong began to appear beside "Greece". This combination, almost an oxymoron to our ears, came after an assessment by a team from the European Union, European Central Bank and International Monetary Fund, preceded by a two-week audit, in which the lenders said Greece had made “impressive” progress in revamping its economy, from restructuring pensions to overhauling the tax system.

This report cleared the way for Athens to receive the next installment of its bailout package. The New York Times described it as "the latest sign that the crisis surrounding European finances was starting to ebb". The BBC reported, "Greece's efforts to tackle its public deficit have had a 'strong start', the International Monetary Fund and European Union have said."

The report added that the Greek government had made "impressive" efforts regarding structural reforms, trimming pensions and continuing efforts to reform the labour market. "The programme has made remarkable progress," said Servaas Deroose, a representative for the European Commission.

Earlier this year, the media was flooded by negative waves of heavy criticism, fear of potential spread of the crisis, and even hostility against Greece –--- both the state and its people. Pessimism loomed, and it seemed that Greece’s default was inevitable, a financial disaster simply waiting to happen.

Gradually a decline in these media outbursts became apparent, reflecting perhaps a period of behind-the-scenes workings between Greek and international financial and political experts. Still, an editorial of The New York Times criticised European leaders for going "from panic to complacency" in a few months and warned that there is no time for such attitudes as "the eurozone crisis is not over".

Complacency was followed by optimism and relief, only for the short-lived nature of this euphoria to be exposed. Stories are once again placing Greece side-by-side with gloomy verbs and nouns: "shrank", "decline", and, of course, "unemployment".

The BBC, headlining, "Greek Economy Shrinks a Further 1.5%", says a further contraction of the Greek economy in the second quarter of the year suggests an accelerated rate of recession. Reduced government spending, an outcome of the aggressive austerity policies, accompanied not only a decline in Gross Domestic Product but also a continuing rise in unemployment figures.

According to the Greek Statistics Agency, there was a rise of 43.2% in the number of unemployed in May, compared with the same month last year. This effectively means 181,784 people who were employed in 2009 are now without a job. Even worse, unemployment is due to rise further.

Anyone who lives in Greece has a drama of job loss to tell, either their own story or that of a person related to them. More than one in three in the 15-24 age bracket are out of work: that should worry the social services, given that a high proportion of those involved in violence during the recent strikes were youngsters.

The latest strike, that of the Greek truck drivers, paralysed the country for almost a week. The strike, which began on 25 July at the height of the holiday season, protested planned reforms aimed at liberalising the freight industry. The havoc created by the lack of fuel not only affected citizens who could not get to their jobs but also destroyed food exports, such as the peach industry, and crippled the tourist industry, leaving thousands stranded at their destinations. The government was forcedin the end to call in the army to ensure supplies of fuel to airports, hospitals, and power stations and to halt the devastating effect on the already burdened economy.

Meanwhile, the editor of the Greek newspaper ‘H KAΘHMEPINH’ argues that ‘the intensity of true public discontent has been surprisingly low’. This statement, given the prevailing chaos and violence which resulted in the death of four innocent people working in a bank, seems overly optimistic. Even if there is relative tolerance of the existing austerity cuts, the long-term effects of reduced wages and pensions are more likely to be felt in the following months. The more the discontent, the greater the resistance. And the less that the state claims it can do, the more the people will turn to past offenders who are perceived to have led the country into the brink of bankruptcy.

Although many lists of tax evaders (including doctors and lawyers) have been published by the media, arrests for corruption, tax avoidance, and money laundering have yet to be made. And until the perpetrators are brought to justice, Greek society remains volatile, even during this holiday mood.

A popular Greek blog ‘Fimotro’ wrote about a telling event that occurred this week in a fish tavern in Paros, one of the Cyclades Islands). When a Greek couple finished eating, they took their bill to the nearby table where Dimitris Sioufas, the former President of the Greek Parliament under the conservative party of Nea Dimokratia, was dining with colleagues. The couple placed the bill in front of the politicians’ plates and shouted, "Take it, and pay it using the stolen money."

China’s Economy This Week: Currency Pressure Eases; Growth Slows; Development in West

"Softened" IMF Tone Eases Currnecy Pressure:  The International Monetary Fund's new approach toward China's exchange rate regime will ease pressure on the appreciation of the yuan, as the world's third-largest economy faces increasing risks of a slowdown, Chinese economists have said.

In a summary of comments by the IMF's 24-member Executive Board released on Tuesday, the Washington-based lender welcomed China's recent decision to return to a managed floating exchange rate system but contended that the yuan was still "undervalued".

The tone was slightly different from the IMF's long-held position, which claimed that the Chinese currency is "substantially undervalued". IMF Managing Director Dominique Strauss-Kahn had reiterated the stance in June.

On 19 June China scrapped the yuan's 23-month-old peg to the US dollar and pledged to seek greater flexibility in the value of its currency. The yuan has edged up about 0.7% since then.

Hu Xiaolian, vice-governor of the People's Bank of China, the central bank, said in an article published on the bank's website last week that the exchange rate will maintain overall stability at a reasonable and balanced level. However, the currency might show "two-way movements" against a single currency depending on market conditions, Hu said.

Central Banks Says Chances of Double-Dip slim:The People's Bank of China said on Tuesday that while it is possible for China's economic growth to slow, the chances of a "double dip" recession are seen as slim.

The country's gross domestic product increased 10.3% year-on-year in the second quarter of this year, slower than the 11.9% growth in the first quarter and the 10.7% expansion in the last quarter of 2009.

The bank said the current slowdown was a correction following arlier excessive expansion and a result of the government's macro-economic regulations that aimed at curbing steep property price increases, easing local government debt risks and avoiding possible inflation.

The PBOC said that the country's bank lending would be within the 7.5-trillion-yuan ($1.1 trillion) target in 2010 if the increase is maintained at the June level.

China to Continue Pro-active Fiscal Policy:  China will continue its fiscal policy in the second half of the year, focusing on speeding up economic restructuring, Finance Minister Xie Xuren said Tuesday.

The country would improve its macro-regulation policies according to changes in domestic and international economies, making the policies more flexible and targeted, Xie said.

China would continue efforts to boost domestic demand, especially consumption, in the second half, he said, urging better implementation of the minimum wage system and programmes such as the subsidized home appliance purchase scheme in rural areas and automobile replacement policy

Xie also demanded continuous financial support for agricultural production, technological innovation, energy-saving, emission-cutting projects and disaster relief.

China's Top Consimer Growth: China is first among 27 emerging economies due to its huge consumer market and rapid economic growth, according to the Emerging Markets Opportunity Index released by US accounting firm Grant Thornton.

"China leads the way thanks to the country's huge consumer market, an increasingly open economy and extremely rapid trade growth, which offer a myriad of business opportunities for potential investors," said Xia Zhidong, partner and vice-chairman of Grant Thornton China.

According to figures from the United Nations Conference on Trade and Development, China attracts the most foreign investment among the BRIC (Brazil, Russia, India and China) countries.

However, a lack of skilled labor, increasing labor costs and the low per capita gross domestic product (GDP) pose major challenges to foreign investment.

Strong Growth in China's Western Regions: The gross domestic product in China's western regions grew by 13.5% in 2009, much higher than the revised national GDP growth of 9.1%, according to a report by the Chinese Academy of Social Sciences.

It is the eighth year in a row that the regions have shown a double-digit growth after the Chinese Government launched a "West Development" campaign in 2000.

Noting that economic development in the western regions still heavily relied on natural resources, the report said efforts should be made to increase the regions' capacity to ensure sustainable development while establishing a low-carbon industrial system.

Hefty Government Investment in Tibet:  China's central government spent 137.8 billion yuan ($20.3 billion) to boost Tibet's development from 2006 to 2010, the regional government said Tuesday.

The money funded 188 key projects covering infrastructure building, urban development, environmental protection, and cultural conservation.

In the first half of this year, Tibet's GDP grew by 11.2%.

Tibet remains one of China's most underdeveloped regions due to its tough natural conditions and a weak economy, and it relies heavily on investment from the central government.

CIC Growth:  China Investment Corporation (CIC), the country's sovereign wealth fund, said Thursday that the rate of return on its global portfolio for 2009 was 11.7%, compared to a drop of 2.1% in 2008.

CIC has quickened its pace of overseas investments since the start of May last year. It invested $58 billion globally after a decline in 2008 of $4.8 billion.

China Currency Pact with Singapore:  The People's Bank of China, the central bank, said Friday that it has signed a 150-billion-yuan ($22.12 billion) currency swap agreement with the Monetary Authority of Singapore (MAS).

Since late 2008, China has signed currency swap agreements with the Republic of Korea (ROK), Malaysia, Belarus, Indonesia, Argentina and Iceland, as well as Hong Kong.

ICBC to Raise $6.6 billion: Industrial and Commercial Bank of China, the world's most valuable bank, plans to raise up to 45 billion yuan ($6.64 billion) through a rights offer, the latest in a series of massive fundraising plans by Chinese lenders to shore up their capital base.

ICBC said the rights offer was "to ensure the healthy development of our business and to boost our bank's competitiveness, as well as its resilience to risks and its sustainability in profits".

ICBC also said it plans to privatize its unit ICBC (Asia), but did not provide further details.

Big State-owned Chinese banks including Bank of China are seeking to replenish funds depleted by last year's record lending spree and to meet higher capital requirements demanded by regulators.