The Greek bailout might only offer brief respite

(source: evenkeelmedia.com)

Last week, Europe contributed to the biggest public debt-restructuring plan since the Greek post-war years.

Following the financial crisis of 2008, during which Greece almost went bankrupt due to a lack of funds to pay back its debts, private investors have agreed to shrink the country's public debt.

More than 107 billion euros will be subtracted from the total debt figure of 206 billion euros worth of bonds held by private investors. This restructuring will allow the country to benefit from a second international aid program worth 130 billion euros from the euro zone. 

This has been great news for the Greek financial minister, Evangelos Venizelos, who considers the country to be recovering from rather difficult years.

However, some remain very pessimistic about Greece's future, since there are still many issues that the country needs to tackle.

A return to sustainable growth?

                           

The Greek economy may face some difficulties returning to sustainable growth, which may make the government debt burden unmanageable. In fact, GDP has contracted 15% on average since 2008. Moreover, 10% of jobs have disappeared and more than half of young people are unemployed.

Once thing is certain, austerity measures, that the country has been forced to adopt in exchange for international support, are not the answer for Greek citizens looking to get their jobs back. It is clear that austerity measures will lead to further recession.

Consequently, the social situation will deteriorate if unemployment continues to grow in a country fond of protests and demonstrations. 

We can hope that the Greek elections on the 29^th of April will help improve the country's financial situation. It goes without saying that the government risks becoming a huge target in the eyes of the public if supporters demand new sacrifices in light of quarterly inspections.  

Therefore, if Greece is unable to comply with the time limits set for the repayment of its loans, there is a possibility that debt levels will return to their starting point. We should be prepared for a much more severe restructuring process at some point in the future, or even an exit by Greece from the euro zone over coming months.

What can we do?

The participation of all public investors would be the only way to significantly reduce the level of debt. However, many investors are reluctant to commit to this given the sharp increase in default risk. This is why the government has recently applied collective action clauses (CACs), to force backers to exchange their bonds for new ones worth half the face value. Obviously, this measure has angered some creditors and a case could be brought to the European Court of Human Rights, using treaties protecting investments concluded between Greece and other countries.

What can Greece do?

The restructure does not address Greece's uncompetitiveness. They need a better fiscal administration, a better system preventing corruption, they need to eliminate pensions, and liberalise the economy. Thus, a close eye on financial statistics and economic government indicators is vital in the next few months. 

(source:toonpool.com)

François Hollande doesn’t like the rich, he likes taxes!

Last Tuesday, France heard terrible news from François Hollande, the socialist candidate for the presidential elections of 2012.

He surprised everybody when he announced his intention to tax incomes over one million euros at 75%.  He cited patriotism as a reason to pay extra taxes to straighten out the country, while the actual president Nicolas Sarkozy criticizes improvisation and amateurishness from the socialist candidate. 

In this case, 10 000 people earning an annual income above a million of euros could be affected according to a simulation of the economist Thomas Piketty. Accused of theft by the minister of the economy François Barroin, the socialist team evaluate the yield of this measure to be between 200 and 250 million euros to the government. However, they pointed out that most of the time, the average rate of tax would be lower than 50%.

Who would be targeted?

Basically: financial professionals, bankers, artist, and sportsmen and women.

Indeed, after this politician became aware of the wage increase of 34% of stock market bosses, he jumped at the opportunity to rally partisans to his cause.

His main target is people from poor backgrounds, immigrants, and employees with low incomes. He wants them to take part in his project to eradicate this ‘elite’ who remains in the socialist's sight. He relentlessly accuses 'the financial industry' to be the cause of the economic crisis and all the problems that France has had to face during recent years. But isn’t it finance that helps a country's development, economic growth and improvement of international business and relations? Everything is interlinked and it is incorrect and easy to blame the financial system for that. Yes it has its imperfections, but if we work on it to avoid previous issues happening again, we could make the most of it to re-establish a stable economy.

Hollande's objectives

To be clear on Hollande's objectives - he not only wants to tax the rich, but all citizens! After he publicly announced his project, he also indicated his intention to tax all Life Insurance holders at the same rate as income tax. Here, we are not talking about 10 000 people anymore but 17 million households! This is appalling and ridiculous! This means that if you earn a million through life insurance, after paying taxes of 75%, you would only have one quarter of this amount left. So, all you have saved over the years, before daring to withdraw money from your insurance, will be partly taken away by the State.

Now the question is, what would these people become if François Hollande wins the election? They would leave the country for sure and others would use offshore accounts to secure their money. So, investment will diminish both domestically and internationally, since it will also deter foreign direct investment to enter the French market. France would then become uncompetitive and would surely see its growth fall sharply (which is not very high at the moment).

This news has incredibly affected François Hollande's credibility and campaign for the next elections. I will be following this carefully !

(source: françoishollande95.fr)

(HOLLANDE WANTS TO TAX THE  VERY RICH ...

Charles !...

We have forgotten mattress in our second castle!)