The painful Greek Olympic legacy is doubly relevant this month. Just nine days after the Greek referendum, the first test event for the Rio 2016 Olympics, the Volleyball World League Finals, start in the Maracanãzinho arena, in the shadow of the Maracanã soccer stadium.
The Athens Games were so expensive, in part, because the Greeks made such a mess of their preparations. The IOC warned the organizers repeatedly about delays. The late rush to completion escalated the costs. Rio has even bigger problems. In April 2014, John Coates, an IOC vice president, called its preparations the “worst ever,” according to the BBC.
In May, Reuters reported that the Games would cost Brazil $13.2 billion and that only about 10 percent of 56 Olympic projects were finished.
Brazil is already struggling with the legacy of the 2014 soccer World Cup, which cost it an estimated $14 billion and left it with hugely expensive stadiums it does not need. If the jungle reclaims the Arena Amazonia in Manaus, Brazilians will not even have the ruins to contemplate.
Some pundits have called for “austerity Olympics,” the name given to the London Games of 1948. While that might capture the mood of the times, IOC members, like the Greek public, have shown a marked reluctance to vote for austerity.
Yet the IOC could solve the problem of where to stage its increasingly costly Games and provide a helping hand to Greece by putting the Games permanently in Athens. Anyone who attended the 2004 Games has happy memories of the event, hot and humid though they were. The Greeks were good hosts. The country has historical and sentimental appeal. Greece was where the ancient Olympics were born. Athens was where the modern Olympics was reborn. Athens has the facilities. They aren’t being used for anything else. They need work, but putting the Games permanently in one place will allow it to become profitable for the host as well as for the IOC.
And the IOC is one of the few international institutions that owes a debt to Greece.
SYRIZA has promised to cancel the austerity measures Greece adopted as part of the bailout package and renegotiate its debt obligations. This could trigger a confrontation with Athensâ€™ lenders in Europe and the IMF, potentially resulting in a Greek exit (or â€œGrexitâ€) from the eurozone. Prime Minister Samaras is playing up this risk. â€œWe shed blood to take the word â€˜Grexitâ€™ away from the mouths of foreigners, and SYRIZA is bringing this word back to their mouths,â€ he said in a speech late last year.
It seems Samaras is getting help in this campaign from Berlin. By 2012, Merkel had decided Greece must be kept in the eurozone to mitigate the risk of a â€œcontagionâ€ effect that could hasten the departure of other members and threaten the common European currency. This position implied Greece had some leverage, because its exit would hurt Germany and other eurozone members, as well. Now, according to the German news magazine Der Spiegel, Merkel appears willing to accept a Greek exit, and her government is preparing for that possibility. Officially, of course, Berlinâ€™s policy hasnâ€™t changed: It wants to keep the eurozone intact. But itâ€™s hard to read the unnamed â€œGerman officialsâ€ who spoke to Der Spiegel and not conclude that Germany wanted to send a message to SYRIZA that Berlin will call its bluff if Athens demands onerous concessions or scuttles austerity.
Tsipras publicly scoffs at the possibility that Greece will be forced to leave the eurozone. â€œWe are through with the possibility of a Grexit, and there is only a Samaras-exit,â€ he has saidâ€”a nifty bit of sloganeering that has failed to soothe the nerves of Greeks who worry a SYRIZA victory will result in tumult between Greece and its creditors. Tsipras has tried to lessen those fears. The closer he gets to power, the softer his rhetoric has become. Only six months ago, says Economides, it looked like a SYRIZA victory would result in a Grexit. â€œNow theyâ€™ve talked their way out of that corner, and theyâ€™re leaving it open that theyâ€™ll do their utmost to stay in the eurozone,â€ he says.
There are ruins everywhere in AthensÂ all left over from a rather unsuccessful 2004 Olympic Games.
Local debt is the big untold story of the Euro crisis and, if that was not apparent before, it became glaringly so when Cataloniaâ€™s President this week told the world his autonomous Catalan Government would struggle to meet its bills at the end of this month.
Looked at from afar it might be difficult to interpret what this â€œlocalâ€ problem means for Europe and those countries dependent on European consumer markets â€“ but weâ€™re always talking about a Euro problem when in fact it is a thousand local crises too. Put in American terms Cataloniaâ€™s problems are probably best likened to a successful area in the USA, like Austin, Texas, asking for a bailout.
The capital of Catalonia is, of course, Barcelona and Barcelona has a global reputation for excellence that stretches back to its management of the 1992 Olympic games.
A succession of charismatic mayors has turned Barcelona into a poster for regional economic success. Barcelona has done pretty much everything that the text book says a regional economy should do. It did â€œclustersâ€ â€“ it has a very strong cluster of companies in global logistics, it maintained regional manufacturing and grew a strong service infrastructure, it has a strong creative economy, the ESADE business school has a global reputation for management education, it has a very strong, competitive culture. And it has the worldâ€™s best football club, which gives the city global exposure week in, week out. Catalonia accounts for a quarter of Spainâ€™s GDP. It is a success story.
But local indebtedness in Europe should come as no great surprise either. Germany and France bother have large local debt problems that are anything but transparent. In fact in the case of France much of the local debt was inherited from the central Government, which â€œdelegatedâ€ the debt to localities where national funds were spent, effectively reducing the national debt headline figure.
Here is the big picture
In April last year the Economist also warned of all the mini-Greeces in Germany:
Germanyâ€™s 11,000-odd municipalities had a deficit of â‚¬7.7 billion last year, the second-highest everâ€¦. in NRW( North Rhein Westphalia) local social spending rose by 274% between 1980 and 2006, whereas revenue went up only by 104%.
Local debt refinancing in Spain this year, though, is Euro 36 billion with Euro 13.5 billion of that falling to Catalonia. The reality is that, at this local level in Catalonia, the failure to refinance debt will lead to real wealth destruction and impair Spainâ€™s prospects for years to come. When a success story like Catalonia hits the skids like this, you know the problem runs deep, very deep, but Catalonia also symbolizes something about Europe right now. It is not just a financial crisis but an existential one.
The same thing is happening in the United States. Iâ€™d love to see the Canadian numbers.
Under questioning from opposition MPs, Flaherty said for the first time that the Conservative government would move in with another round of stimulus spending if the world economy suffers a double-dip recession.
â€œWe would obviously do what is neededâ€ if there was a â€œdramatic deteriorationâ€ in the economies of the United States and Europe, he told the committee.
But for now, Flaherty said, the government is not changing its budget plan despite the turmoil on financial markets and debt crises in the United States and Europe. The plan calls for spending cuts of $4 billion a year to eliminate the annual federal budget deficit â€” now $32-billion annually â€” in a few years.
Pressed by opposition MPs about how Ottawa would react to a renewed global slowdown, Flaherty said he would change course and develop a pro-growth spending plan as the Conservatives did during the recent recession.
Here is my problem with this problem. Do any of us think that the United States/Europe is going to fix their problems in the next recession. I am not saying Flaherty is wrong but does this look like itâ€™s going away. Jeff Rubin points out that with global demand the way it is, as we come out of a recession, prices will increase and drive the economy back into it which means, how many of these recessions will we be able to afford to ride out until we are looking at Mulroney-esqe debt loads and Devine type deficits again.
We are looking at a default or massive bailouts for Greece, Italy, Spain, Portugal, and the too big to fail banks in Germany. There is a dysfunctional governance system in the United States, and even China has some long term economic problems. Does anyone think this next recession is going to be a quick one or we wonâ€™t be experiencing a triple or quadruple dip recession before this is all said and done? No, me neither.
I know Jim Flaherty has been seeking out the advice of economic experts like former Calgary Flames captain Jim Peplinski but may the alternative might be figuring out ways to reinvent Canadaâ€™s economy to thrive in a world where recessions will be the norm, not the exception.
When I was growing up, the United States was larger than life.
It was the peak of the Cold War and we thought at the time only Ronald Reagan, the United States military and our Canada Cup hockey team was standing between us and the evil Soviets.
Fast forward and I am now reading that much of the U.S. Navy is rusting out because they can’t afford maintenance or spare parts (how very Canadian of them).
S & P downgraded the U.S credit rating, and the government just cut $900 billion dollars from its annual budget.
Many economists think this could send the country back into recession. China is now saying it is growing tired of buying up U.S. debt.
In more tangible terms, one third of American high school students don’t graduate or graduate late. In 2005 the American Society of Civil Engineers released a report card on U.S. infrastructure, giving the U.S. a D, with the highest mark being C+ for solid-waste handling.
One in five Americans are now on food stamps. The country no longer looks so large or powerful.
Europe is in worse trouble. Greece seems about to topple, Portugal and Spain are teetering, and Italy’s debt is 120 per cent of its GDP – around $3 trillion.
Former British prime minister Gordon Brown said that he sees G20 and IMF intervention coming to the continent very soon.
In Asia, China is battling inflation at home, which is generally fought with higher interest rates and a reduced flow of investment capital.
If Goldman Sachs is right and the United States does head into another recession, Saskatchewan will probably escape this downturn in a similar way to how we did the last one. Demand for our potash, oil, and food will remain constant if not increase, which means maintaining the status quo will be pretty tempting.
Foreign investment dollars will tighten up, however. Expect tourism and manufacturing to face some challenges due to a weak U.S. dollar and foreign markets struggling because of austerity programs abroad.
Despite our strengths and good luck, Saskatchewan is a $46-billion conomy in a $62-trillion world, which means if the world markets convulse and shudder, we will feel it.
While we can’t totally avoid what is happening out there, we can take this time to figure out how to come out ahead. Former prime minister Paul Martin told the Globe and Mail recently that Canada will attract the best and brightest from around the world because of our stability. He also added that investments in infrastructure and education would continue to push the Canadian advantage.
We have the time to figure out how to make the right investments. It took Canada and Saskatchewan almost a decade to find our way out from our economic crises of the 1990s, and expect it to take at least that long for the U.S. to recover.
Saskatchewan elections are typically pretty mundane affairs. We tend to look at election issues and promises for the short-term view. We have an election coming up in November that doesn’t have many issues that either party seems to be able to use.
Instead of creating fictional quotes for radio ads, why not talk about some of the more substantial issues facing the future of the province? What should Saskatchewan look like in 2031 and how do we get there?
We need to ask what it will take to attract the top talent to Saskatchewan. How do we create an atmosphere of innovation and entrepreneurship in a province historically dominated by Crown corporations?
What role does the University of Saskatchewan play in our future and what resources does it need to fill that role? Do we have industries or technologies where targeted investment would allow them to take off ?
What do race relations look like in 2031? Are our public schools preparing children adequately for the future?
How are we going to pay for it? Do we use non-renewable royalties to fund government operations now or should we be creating our own version of Alberta’s heritage fund once the oil and other nonrenewables are gone?
I guess the first question we should ask is: "Are we are ready to have an election about real issues or should we settle for one dominated by fear mongering, childish stunts and ridiculous debates?"
I would prefer forwardlooking election platforms and some real vision from both parties to figure out where we are going and how will we get there.
Times like this only come by once in a lifetime.
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He compares it to the Mexican financial crisis in 1995
The year 2010 is the 15th anniversary of the Mexican peso crisis â€” the financial crisis in Mexico. And Bob Rubin said, you know, Mexicoâ€™s got two hours to live and if we donâ€™t give them a loan guarantee, theyâ€™re going to go belly-up tomorrow.
The leadership of the Republican and Democratic parties had previously promised to support me in Congress. But they came and said, we canâ€™t deliver any votes because there had been a poll in the paper that morning which said that by 79 to 18, the American people were against â€” strongly against â€” my giving financial assistance to Mexico.
And so they came in and we had a little debate. Bob Rubin made the case. Somebody made the arguments against it. I said, this is not close. Give them the loan.
And all the younger people there in the room literally thought I should be given immediate psychiatric care. They said, look, we just lost the majority in the Congress after the mid-term elections.
You just got your brains beat out once. Now youâ€™re doing something that 79% of the people are against. Are you out of your mind?
I said, okay, letâ€™s not do it. Letâ€™s tell him, sorry.
Then, a year from now when Mexico is still reeling, when people have been hurt south of Mexico, when we have another million illegal immigrants, when there are more narcotics coming across the border, when every Mexican hates our guts because they think weâ€™re greedy and selfish and uncaring about our neighbors, people in the United States will ask me what in the daylights are you doing letting this mess develop.
And my answer is going to be, well, on the day I could have stopped it, there was a poll saying 79% of you were against it? And it quieted all the opposition.
30 days after 9/11, I was in Seattle listening to Leonard Sweet talk at Soularize. He was saying before others that 9/11 would change everything and he was right in many ways but I think people will look back at the credit meltdown in 2008 and the response of world governments in 2009 as a big or bigger world changing event. 9/11 may have defined the Bush presidency but the meltdown of the American banking system will be felt for decades. The world spent trillions of dollars it didnâ€™t have to minimize the impact of the banks implosion and we are going to be struggling with the consequences for years to come. According to the OECD, the worldâ€™s deficits are approaching 4% of the global GDP (meanwhile the U.S. deficit is around 11%).
Canada is already looking at five years of leaner government spending to help pay for the massive deficit we rang up in 2009.
â€œThe government’s approach will be clear. We won’t be raising taxes, but we will be constraining growth, making sure that growth is very much contained in the future, and that the tax base of the country can gradually recover,â€ Mr. Harper said in a year-end interview for CTV’s A Conversation with the Prime Minister , taped for a Boxing Day broadcast.
â€œAnd within four to five years, if we follow that path, we should be back to a balanced budget.â€
Mr. Harper’s view that his government will be able to chip away at deficits by squeezing the growth of public spending has been questioned by economists and by former officials with the Finance Department.
Former deputy ministers Scott Clark and David Dodge have already stepped forward to challenge the government’s plans for eliminating the deficit, which is projected to reach $56-billion this fiscal year. Mr. Clark has said that Ottawa will have to raise the GST, which Mr. Harper cut in 2006.
â€œI don’t think it’s very likely that they can balance the budget without some very severe spending restraint,â€ said Bank of Montreal deputy chief economist Douglas Porter.
2016 is to be the year that we are out of the woods but I wonâ€™t hold my breath. I foresee a higher GST and higher interest rates before this is all said and done. While Michael Ignatieff has a different approach to fighting the deficit, which he doesnâ€™t want to share, but he seems more comfortable spending instead of cutting.
â€œIf Iâ€™m prime minister, Iâ€™m going to be looking at the unemployment numbers first and deficit second,â€ Mr. Ignatieff said during the interview at Stornoway, the official Opposition leaderâ€™s residence. â€œWeâ€™re going to have a jobless recovery or weâ€™re going to have a recovery where thereâ€™s still a lot of people looking for jobs.â€
According to MSNBC, the impact of the United States deficit and stimulus package could be felt for decades. It isnâ€™t just a national issue, itâ€™s trickled down to the states and provinces. The State of California is looking more and more like it is going to default on itâ€™s loan. Itâ€™s debt is already a kind of trend setter in that it has been the first state debt to be reduced to junk status.
In addition to debt problems in California and North America, Morgan Stanley fears that the U.K. is headed towards a sovereign debt crisis in 2010. Actually Moodyâ€™s is predicting that more than the U.K. is going to have problems in the years ahead.
Moody’s warned on Tuesday that sovereign debt could be sold off sharply next year, which could lead to a wider downturn in financial markets, if central banks don’t implement what they term ‘perfect exit strategies,’ from the support they’ve been giving financial markets.
â€œIn an extreme situation a fiscal crisis could lead to some domestic capital flight, severe pound weakness and a sell-off in UK government bonds. The Bank of England may feel forced to hike rates to shore up confidence in monetary policy and stabilize the currency, threatening the fragile economic recovery,â€ they said.
Morgan Stanley said that such a chain of events could drive up yields on 10-year UK gilts by 150 basis points. This would raise borrowing costs to well over 5pc – the sort of level now confronting Greece, and far higher than costs for Italy, Mexico, or Brazil.
High-grade debt from companies such as BP, GSK, or Tesco might command a lower risk premium than UK sovereign debt, once an unthinkable state of affairs.
The Financial Times points out that the U.K., Dubai, Greece, and California is in good company. Japan has some sovereign debt problems of their own.
Yet Japanâ€™s fiscal problems are even more pressing. A debt trap appears when the rate of interest paid on government debt is higher than the economyâ€™s growth rate and the public revenues are insufficient to cover its financing charges. When this happens the fiscal position becomes unstable and the debt spirals upwards. This has been the case in Japan for several years. A bad situation has been made even worse by the global financial crisis.
Japanâ€™s national debt is fast approaching 200 per cent of GDP. The debt mountain is the result of prolonged economic weakness and successive fiscal deficits since the bubble economy collapsed in 1990. These problems are compounded by the fact that Japanâ€™s population is now shrinking. The economyâ€™s trend growth rate has fallen and tax receipts are shrinking, while welfare payments for pensioners are rising. Japanâ€™s debt trap, it seems, is structural rather than cyclical.
If you believe the stories out of Copenhagen, it has even lead to a reshuffling of the world order. As China owns more and more United States debt, it is increasingly calling the shots.
Since the fall of the Soviet Union in 1991, there has been one superpower, the U.S. Now there are two, as became abundantly clear in the chaotic closing day of the climate- change conference.
At that, Barack Obama was snubbed by the Chinese premier, Wen Jiabao. And then the U.S. was snookered by the Chinese.
As the New York Times reported Sunday in a riveting piece from the back corridor of the conference: "Twice during the day, Mr. Wen sent an underling to represent him at the meetings with Mr. Obama. To make things worse, each time it was a lower level official."
The first time, Wen sent his deputy foreign minister to a meeting of major heads of government, including most G8 countries (though not, apparently, Canada). Later on, the Times reported, "after a constructive one-on-one" between Obama and Wen, the Chinese premier sent his climate-change negotiator to another heads-of-government meeting that included the U.S. president.
There’s more. The White House set up an evening meeting with the presidents of South Africa and Brazil, as well as the Indian prime minister and the Chinese premier, and when senior staff arrived, as the Times recounted it, they "were startled to find the Chinese premier already meeting with the leaders of the other three countries" – without the president of the United States, the guy who called the meeting in the first place. According to the Times, Obama rushed to the meeting and called out from the doorway: "Mr. Premier are you ready to see me? Are you ready?"
You don’t see that in the newspaper every day, about the leader of the most powerful nation on Earth going cap in hand to his own meeting. It wouldn’t have happened on Ronald Reagan’s watch. His dignity, let alone his sense of the American president’s role on the world stage, wouldn’t have permitted it.
Welcome to the New New World Order.