Economic Outlook: Good news, bad news

By ANTHONY HALL, United Press International  |  Nov. 13, 2012 at 10:29 AM
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News from Europe falls into the good news/bad news category.

The good news is that the powers behind the international loans that are keeping Greece afloat did not outright say no to providing Athens with an additional $42 billion in loans the government expects. In fact, the team of financial ministers reviewing the country's budget adjustments "praised" the austerity measures Greece had taken to bring the county into alignment with international expectations, The New York Times reported.

The bad news is that financial ministers turned Greece down, at least temporarily.

There are two bailout programs involved, technically, with a grand total of $305 billion in loans at stake. However, the point that decides whether or not Greece has cut its spending and gotten control of tax revenue to the satisfaction of European Union policy makers turns out to be a matter of two years.

Luxembourg Prime Minister Jean-Claude Juncker has said Greece should have until 2022 to get its debt to something under 120 percent of its gross domestic product, while International Monetary Fund Managing Director Christine Lagarde says the appropriate timetable "is 120 percent by 2020."

"We clearly have different views," Lagarde said.

Clearly different, but not, seemingly, overwhelming.

In stock markets, meanwhile, the pattern is clear. Each time Greece manages to squeeze its budget tighter to qualify for a new loan, confidence in the euro rises. Logic says it should go the other way, as reason dictates every loan Greece accepts puts it further behind and every austerity budget the European Union requires makes it harder for Greece to catch up, given it represents an erosion of government support for the economy.

The formula was spelled out differently in the U.S. presidential campaign. Just using one example, discussion of U.S. debt quickly evolved into a discussion of the economy, which quickly elicited comments on shoring up U.S. schools, which is an investment into the country's economic future.

Hence debt issues turn into greater investments here.

Of course, all the variables aside, there is simply a breaking point for any society when the government runs for cover while the needs of the people increase.

On paper, it has always made better sense for Greece to return to the drachma, then allow that to devalue to the point where its goods and tourist industry become attractive to consumers again. "On paper," however, is code. It means economics that ignores the human factor.

Here's where the human factor gets you. This summer, British Prime Minister David Cameron said Britain should prepare to quickly lock out Greek immigrants the moment it was kicked out of the eurozone, if that happens. Other nations would likely respond in similar fashion given the chance.

In the United States, another key Republican used the "R word," this week. Former vice presidential candidate Rep. Paul Ryan of Wisconsin said, "You can increase revenue without having to raise taxes."

Ryan said he and running made Mitt Romney ran on "specific solutions and big ideas."

The word "specific" might raise an eyebrow or two, given Romney and Ryan's refusal before the election to name specific loopholes they would close to make up the difference as they lowered the overall tax rate.

But Ryan is following Speaker of the House John Boehner at this point, The Wall Street Journal reported.

Boehner said after the election that raising revenue was a possibility. This paves the way for an agreement in which Republicans can accept new federal revenue while saving face, which is to say while not having to admit they raised taxes. It opens the door for President Barack Obama to cut loopholes on the wealthy and to be extremely specific about it.

In international markets Tuesday, the Nikkei 225 index in Japan shed 0.18 percent while the Shanghai composite index in China lost 1.51 percent. The Hang Seng index in Hong Kong gave up 1.13 percent, while the Sensex in India fell 0.28 percent.

The S&P/ASX 200 in Australia dropped 1.53 percent.

In midday trading in Europe, the FTSE 100 index in Britain lost 0.46 percent, while the DAX 30 in Germany lost 0.78 percent. The CAC 40 in France slipped 0.56 percent, while the Stoxx Europe 600 shed 0.39 percent.

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