Greek Prime Minister Says Positive Economic Data Points to Austerity Easing

“Greece is turning the page,” Mr. Samaras told politicians and entrepreneurs at an annual international trade fair in the northern port of Thessaloniki, traditionally used by Greek prime ministers to outline their government’s economic policy for the coming year. “There will be no more austerity measures,” he said.

Citing figures released on Friday by the national statistics agency, Mr. Samaras said the Greek economy shrank 3.8 percent in the second quarter, significantly less than an estimate of 4.6 percent. It was the smallest contraction since 2010, when Greece signed its first multibillion-euro loan deal with its so-called troika of creditors — the European Commission, European Central Bank and International Monetary Fund. The improvement is largely the result of an unexpectedly strong rebound in the country’s crucial tourism sector, with a record 18 million foreign visitors expected this year, he said.

Equally encouraging are early indications that the country will achieve this year a primary surplus — a budget surplus not counting debt financing, Mr. Samaras said. He said this would be the “first decisive step toward exiting the policy of memorandums,” referring to Greece’s two loan agreements since 2010, which are worth a total of 240 billion euros ($315 billion) and have been meted out in installments in exchange for a series of austerity measures.

Mr. Samaras said achieving the surplus would open the way for two things, in line with an agreement with creditors — some form of debt relief for Greece, but also the chance to help citizens who have been hardest hit by austerity. It remains unclear how large the surplus will be; Mr. Samaras put it at 1.1 billion euros for the first seven months of the year. Mr. Samaras said 70 percent of the surplus would go toward “lightening the injustices” suffered by Greeks on low pensions and by members of the police, fire service and coast guard whose salaries have been slashed as part of public sector cutbacks.

Greece remains wracked by political and economic instability and may even need additional bailout money. The I.M.F. warned in a report at the end of July that a persistent recession, now in its sixth year, and the government’s failure to accelerate overhauls might create an 11 billion-euro hole in Greece’s finances over the next two years.

The monetary fund said Greece’s economy could return to growth as early as next year. But that forecast comes with a question mark, given that output has fallen 25 percent since its peak in 2007, while unemployment has surged to 27 percent — the highest in the euro zone — and youth joblessness has exceeded 60 percent.

Mindful that representatives of the country’s troika of foreign lenders are expected back in Athens later this month for a new audit, Mr. Samaras was vague on details about potential handouts, including a potential subsidy for heating oil, which saw an increase in taxation last year. He also promoted the benefits of an economic reform program that was bolstered by a write-down of privately held Greek debt last year and the suspension of interest payments on foreign loans, which together helped cut Greece’s debt by 145 billion euros. It now stands at 321 billion euros.

“We stopped the debt from ballooning,” he said, claiming that Greece could return to precrisis levels of prosperity by 2020 by exploiting the potential of its tourism and energy industries and by pushing a program of state privatizations. “Five or six years of difficulties cannot wipe out 3,000 years of glorious history.”

The premier lashed out at the main leftist opposition, Syriza, which opposes the terms of Greece’s foreign loan agreements, saying it “does not want to govern.” He claimed that the leftists were as extreme as “the neo-Nazis” of the ultraright, anti-immigrant party Golden Dawn, which has soared to third place in opinion polls, after Syriza and the premier’s conservative New Democracy, which leads the coalition government.

In a statement, Syriza accused the prime minister of “suffering from delirium,” saying, “Mr. Samaras sees unemployment slowing down even as 1.5 million of our fellow citizens don’t have work.”

Alexis Tsipras, the leader of Syriza, joined anti-austerity protests in Thessaloniki on Saturday evening, which were expected to draw thousands of disenchanted workers. About 4,000 police officers were being deployed to prevent the violence that has marred previous rallies organized by trade unions.

Unionists are planning to scale up their opposition to austerity in the coming weeks ahead of the scheduled return to Athens of troika inspectors after German federal elections on Sept. 22. The problem of Greek debt, and how to handle it, has featured prominently in campaigns for the German elections, whose outcome is expected to set the tone for tough negotiations between the Greek government and the troika. Chancellor Angela Merkel of Germany has insisted there will be no second debt haircut for Greece but has suggested a third loan program, much smaller than the first two, might be extended to Athens to cover the anticipated 11 billion euros funding gap.

The gap is expected to be discussed in talks between Greek government and troika officials in Athens. Negotiations will also focus on a raft of tough proposed reforms that are sure to test the stability of Mr. Samaras’s fragile coalition. They include a lagging program aimed at selling off state assets, lax tax collection efforts, the progress of a system of forced transfers and layoffs in the Civil Service, the possible closure of state-owned defense companies that are running losses and a likely end to a moratorium on home foreclosures.

As Summers’s Odds Rise, Stimulus Easing Is Seen

The jitters even have some analysts betting that a Summers nomination could lead to slower economic growth, less job creation and higher interest rates than if the president named Janet L. Yellen, the Fed’s vice chairwoman.

Businesses raising money and people buying homes and cars all have faced higher interest rates in recent months as the Fed’s campaign to suppress borrowing costs has faltered. The rise in rates reflects optimism that the economy is gaining strength, and an expectation that the Fed will begin to pull back later this year. But a wide range of financial analysts also see evidence of a Summers effect.

Many investors expected that Ms. Yellen would be nominated to replace Ben S. Bernanke as head of the central bank, a choice that would have sent a clear message of continuity. Instead, investors are now trying to anticipate how Mr. Summers might change the Fed.

The unease is the product of a little information and a lot of speculation. Mr. Summers, a Harvard University economist who served for two years as Mr. Obama’s primary economic adviser, has said little about monetary policy in recent years. Investors are left parsing a handful of comments in which he has expressed some doubts on the benefits and concern about the consequences of the Fed’s policies.

“People don’t know what Larry might do,” said Mohamed El-Erian, chief executive of Pimco, the giant bond fund manager. “There’s a lack of a lot of information on Larry’s views. We don’t have enough information to make an assessment, just some second- and thirdhand accounts.”

Some doubts always attend the arrival of a new Fed chairman, but the consequences are particularly freighted at the moment because the Fed’s effectiveness increasingly depends on its ability to reduce uncertainty among investors. The central bank floored its traditional gas pedal five years ago when it pushed short-term interest rates to zero. It has since focused on further reducing long-term interest rates — which determine the cost of most kinds of borrowing — largely by convincing investors that short-term rates will remain near zero.

The sense of uncertainty is heightened by the fact that as many as five of the Fed’s seven governors may be replaced in the next year.

One governor, Elizabeth A. Duke, stepped down at the end of August. A second governor, Sarah Bloom Raskin, has been nominated to serve as deputy Treasury secretary. Mr. Bernanke’s term ends in January, as does the term of a fourth governor, Jerome H. Powell — although Mr. Obama could choose to reappoint Mr. Powell, a Republican who joined the Fed only in May last year and is said to be open to a longer stay. If Ms. Yellen is passed over by Mr. Obama, she, too, could choose to leave even before her term as vice chairwoman ends in October 2014.

Mr. Obama said last month that he would not announce his choice for the Fed’s top spot until the fall, and that he was considering at least three candidates: Mr. Summers, Ms. Yellen and the former Fed vice chairman Donald L. Kohn. But the president’s top economic advisers uniformly support the selection of Mr. Summers. They regard him as a creative thinker and an experienced crisis manager, qualities they value in particular because they expect the Fed may confront difficult choices as it begins to retreat from its six-year-old stimulus campaign.

They also insist that Mr. Summers supports the Fed’s efforts to revive the economy and would continue those efforts.

But Mr. Summers has criticized the Fed’s purchases of Treasury securities and mortgage-backed securities, warning that bond-buying on such a scale could distort financial markets. He said it was “less efficacious for the real economy than most people suppose.” As a result, many investors suspect he would seek to end those purchases more quickly than Ms. Yellen.

Julia Coronado, chief North America economist at BNP Paribas, said last week that the yield on the benchmark 10-year Treasury note already had started to rise as investors price in a Summers nomination. She added that the yield could eventually rise half a percentage point more than if the president nominated Ms. Yellen instead. Ms. Coronado estimated that this Summers effect would reduce domestic economic growth by 0.5 to 0.75 percentage point over the next two years, which could reduce job creation by 350,000 to 500,000 jobs.

A Summers nomination, she wrote, “would come at a cost of higher market volatility and interest rates, and a less buoyant economic recovery.”

Leadership changes at the Fed tend to unsettle financial markets more than changes in leadership at other major central banks, according to a 2007 study by Kenneth N. Kuttner, an economist at Williams College, and Adam S. Posen, president of the Peterson Institute for International Economics. That is partly because the Fed is the closest thing to a global central bank. But it also reflects the outsize role of the Fed chairman, who is less constrained than other central bankers in making policy.

Mr. Bernanke has sought to reduce the chairman’s role, most notably by adopting a 2 percent inflation objective. The Fed also has sought to lock in the course of near-term policy by announcing its intent to hold short-term rates near zero at least as long as the unemployment rate remains above 6.5 percent. But Mr. Posen said that the market turbulence of recent months showed that investors still thought the choice of chairman would determine the course of policy. “This is one of the reasons I don’t believe that forward guidance works,” he wrote in an e-mail, referring to the Fed’s declaration of intentions regarding short-term rates. “There is no way it can be binding on a new chairperson.”

Historically, new Fed chairmen have been able to settle the doubts of investors by acting quickly after taking office.

In the week after President George W. Bush announced Mr. Bernanke’s nomination in October 2005, the yield on the 10-year Treasury note rose to 4.57 percent from 4.39 percent as buyers demanded increased compensation against the risk of higher inflation. Bond yields also rose after Alan Greenspan was nominated as Fed chairman in 1987. Both men moved almost immediately to raise interest rates and bond yields receded.

But Mr. Summers would have no comparable opportunity. The most obvious way to show his commitment to the Fed’s stimulus campaign, at least in the short term, would be to do nothing. “The only thing he can do,” said Ms. Coronado, “is to show more patience.”

DealBook: Easing of Rules for Banks Acknowledges Reality

The New York TimesJamie Dimon, chief executive of JPMorgan Chase, said the regulations known as Basel III were “blatantly anti-American.”

When a global committee of regulators and central bankers agreed to a new set of rules for the banking system a year and a half ago, Jamie Dimon, the chief executive of JPMorgan Chase, told The Financial Times, “I’m very close to thinking the United States shouldn’t be in Basel anymore. I would not have agreed to rules that are blatantly anti-American.”

Over the last weekend, Mr. Dimon finally got what he had wanted: a form of deregulation of sorts. The new international capital requirements for banks, known as Basel III — apologies if your eyes are glazing over — were significantly relaxed by regulators.

Instead of requiring banks to maintain, by 2015, a certain amount of assets that can quickly be turned into cash, the most stringent deadline was pushed to 2019. Perhaps more important, the type of assets that could be counted in a bank’s liquidity requirement was changed to be more flexible, including securities backed by mortgages, for example, instead of simply sovereign debt.

This sounds boring, but it is important stuff. Increasing bank capital and liquidity requirements — think of it as the size of a bank’s rainy day fund — is arguably more significant than all of the new laws in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The more capital a bank is required to hold, the lower the chance it could suffer a run on the bank like Lehman Brothers did in 2008.

Given memories of the financial crisis, the idea that regulators would loosen rules even a smidgen is considered a huge giveaway. The conventional wisdom is that the banks are the big winners and the regulators are, once again, patsies, capitulating under pressure to the all-powerful financial industry. The headlines tell the story: “Banks Win 4-Year Delay as Basel Liquidity Rule Loosened,” Bloomberg declared. The Financial Times splashed, “ ‘Massive Softening’ of Basel Rules.” “Bank Regulators Retreat,” the Huffington Post said. Reuters described the new regulations as a “light touch.”

Mayra Rodríguez Valladares, a managing principal at MRV Associates, a regulatory consulting firm, put it this way, “With every part of Basel III that is gutted, we are increasingly back where we were at the eve of the crisis.” She went on to say, “In today’s financial world, regulators pretend to supervise while banks pretend to be liquid.”

But this is a knee-jerk response.

While there is no question that the original rules would do a better job preventing the next 100-year flood in the banking system, their quick adoption most likely would have created their own drag on the economy because bank lending would most likely have been curtailed.

“If Basel had been implemented this year as written, it almost certainly would have thrown the U.S. and other economies into a recession more than going over the fiscal cliff ever would have,” John Berlau of the Competitive Enterprise Institute, a research organization promoting free markets, wrote. Mr. Berlau, who may have a penchant for hyperbole, had been calling the deadline the Basel cliff. He added, “Basel III has been delayed, and for Main Street growth and financial stability, that is all to the good.”

Mr. Berlau is right. In truth, the reason that regulators ultimately chose to relax the rules was simple practicality: many banks in Europe and some in the United States would have never been able to meet the requirements without significantly reducing the amount of credit they were to extend to Main Street over the next two years, according to people involved in the Basel decision process.

That’s the other side of the regulatory coin that Main Street often forgets about. At the time that the original rules were written in 2010, the consensus among economists was that the global economy would be in much better shape today than it is.

“Nobody set out to make it stronger or weaker, but to make it more realistic,” Mervyn A. King, governor of the Bank of England, explained.

Let’s be clear: high capital requirements are a good thing to do to reduce risk in the system. And there is no question that the banks, especially in the United States, are in a much stronger position than they were. Let’s also stipulate that the Basel committee did a horrible job before the financial crisis in setting and enforcing proper standards. Basel’s loosening of rules before the crisis that worsened the pain of the global banking system.

But the push for stricter rules just as the global economy is trying to nurse itself back to health, simply to satisfy the public, rather to find a solution that balances the risks to the economy and the banking system, would have been a mistake. The chances of a leverage-induced crisis from Wall Street banks right now is quite low.

The challenge for regulators is making sure their memories aren’t so short that they seek to scale back the rules again.

This post has been revised to reflect the following correction:

Correction: January 8, 2013

An earlier version of this column misstated the affiliation of John Berlau. He is a senior fellow at the Competitive Enterprise Institute, not the Bastiat Institute.