The usual suspects

Oct 26th 2010, 15:10 by The Economist online 

Public-sector corruption remains a cause for concern
WITH scores of 9.3 out of 10, Denmark, New Zealand and Singapore are the world's least corrupt countries, according to a new index from Transparency International, an anti-corruption watchdog. At the other end of the table, Somalia ranks bottom with a score of 1.1, ahead of Afghanistan and Myanmar. Worryingly, Brazil, Russia, India and China—the BRICs currently considered the global engine for economic growth—all score less than 4. The 178-country index is based on 13 surveys of experts and business people. These surveys are not standardised and the overall methodology changes from year to year, making it difficult to say whether a country has indeed done better or worse if its score alters. Still, Transparency International has identified 16 countries which showed improvements or declines since last year. Notable among these is America, which dropped from 7.5 (19th place) to 7.1 (22nd place). As in most developed countries, the issue is not bribery, but a lessening of political transparency (for instance in campaign finance) and regulatory oversight.
 
Correction: An early version of this map wrongly put France in the same dark orange category as Italy. But its score is actually 6.8. Apologies.

economist.com/blogs/dailychart

Income distributions in the OECD

MARK THOMA reproduces several charts from the OECD, illustrating the distribution of average disposable income across the developed world:
As you can see, America's median income is among the highest in the rich world, on a par with that in Switzerland and the Netherlands, a shade above the median in Britain and Canada. The average income of the top decile, by contrast, is easily the highest in the OECD, and nearly twice the OECD average.
The bottom ten percent, on the other hand, have incomes comparable to the poorest residents of Greece and the Czech Republic—below the OCED average. All the other of the richest rich countries do far better.
I'll just note that from these figures, at least, it seems difficult to justify the claim that prosperity requires an unequal income distribution. Further discussion and analysis I'll leave to you all.

economist.com/blogs/freeexchange

Beware the Greeks, though not just yet

Posted by Cardiff Garcia on Sep 03 15:37.
 
Here’s an interesting chart ripped from the CFR Geo-Graphics blog:

Notice anything strange?
The European Stabilization Mechanism was announced on May 11, the date represented by the blue bar in the middle of each time-to-maturity listed. For maturities of one and two years, the market’s expectation for a default (represented by Greek-German spreads) remains lower than before the ESM was announced. For a three-year maturity, it’s roughly the same as before.
But if you go any further along the timeline, the market is now pricing in more risk than before the ESM came into play.
Why has the market increased its confidence in Greek short-term debt but reduced it for the long-term?
Some of this might be explained by a simple preference for long-term bunds driven by other factors, but CFR offers a less sanguine explanation (emphasis ours):

Greece will happily borrow from the ESM to avoid having to close its primary deficit (that is, excluding interest payments) too rapidly. Yet if Greece is successful in eliminating its primary deficit, its temptation to default will actually grow, as it can wipe out huge amounts of accumulated debt without any longer needing the financial markets to fund current expenditures. If faced with the choice between paying Greek debts and letting Greece default, its northern neighbors may, once their banks are on more solid footing, find it more attractive simply to let Greece default. This is the story line that the markets are now pricing into government bond spreads.

Oh dear.

ftalphaville.ft.com

Beware of Greeks Bearing Bonds - Vanity Fair

As Wall Street hangs on the question “Will Greece default?,” the author heads for riot-stricken Athens, and for the mysterious Vatopaidi monastery, which brought down the last government, laying bare the country’s economic insanity. But beyond a $1.2 trillion debt (roughly a quarter-million dollars for each working adult), there is a more frightening deficit. After systematically looting their own treasury, in a breathtaking binge of tax evasion, bribery, and creative accounting spurred on by Goldman Sachs, Greeks are sure of one thing: they can’t trust their fellow Greeks.

By Michael Lewis•

October 1, 2010

Read more on...

vanityfair.com

Working days lost due to labour disputes

Where Greece is really?

WORKERS on London's underground rail network begin a strike on Monday September 6th, while across the channel French workers are also on strike in protest at attempts by the government to change the retirement age. Both countries come fairly high on the list of countries that lose working days to labour disputes. South Africa, where Cosatu, a federation of unions with some 2m members, has been on strike since August 18th, also scores highly on this measure. But all of these places are left in they shade by the Canadians, who lost 2.2m working days to strikes last year. Greece, which is also fond of striking, does not appear on this chart as its numbers are not comparable.

More one Economist

EU austerity policies risk civil war in Greece, warns top German economist Dr Sinn

Greece’s austerity measures cannot prevent default and will lead to a breakdown of the political order if continued for long, a leading German economist has warned.

By Ambrose Evans-Pritchard in Cernobbio, Italy

Published: 9:30PM BST 03 Sep 2010

“This tragedy does not have a solution,” said Hans-Werner Sinn, head of the prestigious IFO Institute in Munich.

“The policy of forced 'internal devaluation', deflation, and depression could risk driving Greece to the edge of a civil war. It is impossible to cut wages and prices by 30pc without major riots,” he said, speaking at the elite European House Ambrosetti forum at Lake Como.

“Greece would have been bankrupt without the rescue measures. All the alternatives are terrible but the least terrible is for the country to get out of the eurozone, even if this kills the Greek banks,” he said.

Dr Sinn said Greece is an entirely different case from Spain and Portugal, which still have manageable public debts and can bring their public finances back into line with higher taxes.

“Greece would have defaulted in the period between April 28 and May 7, had the money not been promised by the European Union,” he said, describing the failure of the EU’s bail-out strategy to include a haircut for the banks as an invitation to moral hazard.

“There should be a quasi-insolvency procedure for countries. Creditors have to accept a haircut before any money flows for rescue plans, otherwise we’ll never have debt discipline in the eurozone,” he said.

Greek society has so far held together well, despite a wave of strikes and street violence in the early months of the crisis. However, unemployment is rising fast and political fatigue with such austerity policies typically sets in the second year.

Under the rescue deal, the eurozone pledged €80bn of new loans at 5pc interest and the International Monetary Fund offered a further €30bn.

The joint bail-out was hoped to safeguard Greece against the pressure from global capital markets for two and half years, but the relief rally proved short. Spreads on longer-term Greek government debt have surged back to crisis levels of about 800 basis points, implying a high risk of default.

“We are in the second Greek crisis right now, today,” said Dr Sinn.

Greece is undergoing what amounts to an IMF austerity package but without the IMF cure of debt restructuring or devaluation that usual for a country with a spiralling public debt and a chronic loss of competitiveness.

The IMF says Greece’s debt will rise to 150pc by 2013-2014 even if Athens complies fully, a strategy viewed as self-defeating by several ex-IMF officials. There is a strong suspicion that the real objective is to bail-out North European banks with heavy exposure to Southern Europe, rather help Greece.

Dr Sinn said the Germany is now was super-competitive after clawing back 18pc in competitiveness during its long slump. “We’re in a new phase of history. The toggle switch has turned and we are going to see a mirror image of the last 15 years. This time it is Germany that will have an internal boom,” he said.

Germans will not recyle their savings in the Club Med region. They will invest at home.

http://www.telegraph.co.uk/finance/economics/7980291/EU-austerity-policies-risk-civil-war-in-Greece-warns-top-German-economist-Dr-Sinn.html