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The latter day Greek tragedy continues

If the Greeks vote no, they face not just potential mayhem but a complete national shutdown. Yet the majority of economists actually believe this course would serve the country best.

If the Greeks vote no, they face not just potential mayhem but a complete national shutdown. Yet the majority of economists actually believe this course would serve the country best.

What are we to make of the tragedy which is unfolding across the beautiful waters of the Aegean? Here in high summer when they should be enjoying the fruits of their glorious holiday season they are locked in a battle for their very survival with the giants of north Europe and their banking systems.

Let’s be clear about one thing: Greece has already paid a terrible price for its profligacy and easy living on the back of a strong currency of which it was never qualified to be part. Their economy has had been bludgeoned by the money men into shrinking by a horrendous 25% and their youth unemployment exceeds 60%.

Right at the beginning, the books appealing for entry into the euro were cooked, helped in no small part by that ‘Great Vampire Squid’, Goldman Sachs. But while the Germans and the rest knew very well how the Greeks went about their business and that they were not a suitable candidate, political Europe had to take precedence over economic Europe and they let them in.

With other weaker economies such those of the Spanish, Portuguese, Irish and Italians allowed to join the party, the Germans ended up with a currency much less strong than their old Deutschmark would have been and that made it much easier for them to flog their BMWs and the like. Borrowing rates for these weaker economies became much lower than ever they would have been had they been using their own currencies so, of course, they were happy to buy north Europe’s products as well as treat themselves to a much higher standard of living than their economic performances warranted.

All was well throughout the goods times that preceded the financial crash of 2008. That ill-conceived monetary union – which lacked the also essential fiscal union – of the euro could bumble along so long as there were no headwinds. But, boy, it wasn’t so much headwinds that arrived but rather a hurricane. The Credit Crunch brought the Western world’s economies to the brink of meltdown.

Today the weakest of the dominoes stands in imminent danger of falling, with the risk that others will follow. And the country that benefited most during the good times, Germany, insists on playing hardball. It needs to show a bit of humility – as well as compassion – and realise that it must take its share of the blame for the plight that Greece finds itself in today.

Despite its own banks, along with French and others, being exposed to a possible Greek default of alarming proportions, it knows that a Greek economy that cannot grow because of acute austerity will never ever be able to pay off its debts. It needs relief and restructuring. Long before this present crisis broke they acknowledged this fact. But what now are the Troika’s proposals? Even deeper austerity. Can we be surprised that a government that was elected on a mandate to end austerity has thrown up its hands and said enough?

If Greece on Sunday, in its touching desire to remain at the heart of the European family – but also out of sheer terror at the thought of the consequences of being cast adrift – votes to accept the Troika’s diktats, it faces never-ending recession. If the Greek people vote no on Sunday, they will stay in the EU and possibly even the single currency, but mayhem could follow with a complete national shutdown. Could Brussels stand by and see this happen?

Actually the majority of economists believe that this seemingly bonkers course would serve it best (Argentina went down a similar road). Economists say there would be six months of hell, or possibly longer, but then a future would open up for Greece. With holiday costs cut to half their present level, we would cast aside that old warning to ‘beware of Greeks bearing gifts’. Greece would become the continent’s playground as never before. Poor, suffering Hellas, the first of all Europe’s civilisations, would start to smile again.

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Cypriot Euro raid proves banks cannot be trusted

Banks are not to be trusted. That is the shocking message the Troika of the European Central Bank, the EU and the IMF have sent out when they seized up to 60 per cent of the deposits of their wealthier customers in tiny Cyprus.

The actions of Cyprus' powerful masters to curb the country's excesses has sent shock waves not just across Europe, but the entire world.

The actions of Cyprus’ powerful masters to curb the country’s excesses has sent shock waves not just across Europe, but the entire world.

Governments have attempted to get themselves out of holes in years past by raising money in all sorts of unlikely places, some of them truly bizarre. But never, until now, had they felt themselves entitled to raid peoples’ bank accounts and plunder them. That island state of 1.2m people may only represent 0.02% of Euroland’s GDP, but the action of its powerful masters to curb Cypriot excesses has sent shock waves not just across Europe, but the entire world. The reason is simple: if you can’t lodge your money in a bank account without feeling that it is safe, where on earth can you put it? Under the bed, perhaps, or in a biscuit tin? For all the derisory interest savings have attracted in recent years, that might not seem such a bad idea. The trouble is that almost no one has a pay packet anymore – it has to go straight into the bank – and we have allowed ourselves to be seduced by the convenience of the hole in the wall that we can no longer contemplate anything else.

What has happened to Cyprus, however, should make all of us take stock. It has breached what hitherto has been held as a sacred principal: that you cannot help yourself to something which has been placed in your safekeeping.

People have believed that in an uncertain world their humble bank deposit was at least safe from predators. Just the same, what is to be done with a bank which has got itself into a mess? Is it fair that people – i.e. taxpayers – who did not even sign up to that bank should be compelled to ride to its rescue? Those taxpayers are even more innocent (if you want to use that emotive term) than the lowly deposit holders who did sign up.

What is clear is that we can never again allow ourselves to be held to ransom as we were with the 2008 rescue of British Banks. We have suffered as a result of that rescue for coming on five years now and there is no end in sight to the misery that it has inflicted. High Street banks – the ones we need most to trust implicitly – must be ring fenced against the sometimes crazy risk takers in their investment arms.

In view of the banking industry’s unique capacity to bring the whole system down – even discrediting capitalism itself – they must all be closely monitored. Had this been done it is arguable the catastrophe which has overwhelmed us could have been avoided, or at least mitigated. In addition to all this we must enact laws that permit us to send bankers to jail, where reckless conduct and dodgy practices puts all our livelihoods at risk. Amazingly, there was no law in place that could hold ‘Fred the Shred’, to account: he broke no laws. This must change.

What really sticks in the public craw is that not a single banker is behind bars. Even members of the political class including peers, have ended up sporting prison blue. Their crimes, by comparison with the enormity of what the bankers did and are still doing, is of no consequence. Soon, no doubt, those numbers will be swelled by overzealous newspaper hacks and policemen who have had the temerity to keep them in the picture, even where no money has changed hands. Everybody – ministers included – it seems, can be jailed except ‘fat cat’ bankers. But even before consideration is given to criminalising certain banking activities, the Libor manipulation was an actionable crime. Why then is there no move to bring those fraudsters to justice? Their scams involved tens of billions of pounds worldwide. That question is doubtless answered by recently released figures which showed that access to Downing Street by bankers was of an order of ten times greater than that of anyone else – captains of industry and their like. Meantime the bonus culture continues on its lucrative way rubbing salt into our wounds and insulting us. These ‘gentlemen’ really are laughing all the way to the bank.

It has to be said that the Germans were unfairly treated by the hot-headed Greek Cypriots when they lampooned them as Nazis. The Germans had not wished for deposits to be seized from small depositors: that was a decision by their own Cypriot ruling class. They were fearful of upsetting all that hot money – much of it illegally acquired in Russia and stashed in Cypriot banks. It now seems that a benchmark has been set that only big investors and that, regrettably – since not all are crooks – is how it should be. If you have big holdings you should have the sense to see that when banks are offering returns out of kilter with banks generally there is likely to be a catch somewhere. If still you are prepared to take that risk, then so be it. You cannot look to others to save you from your own folly. Also you should not expect careful Fritz, who does pay his taxes and beavers away in a cold climate, along with other diligent north Europeans, to bail you out. At least the so called PIGS (Portugal, Italy, Greece and Spain) have the inestimable luxury and consolation of making a living under the Mediterranean sun. It tells you everything you need to know – that whereas Germans over the last two decades have voted themselves a 20% pay rise, the French have voted 90%.

Apart from anything else it was an affront to north European taxpayers that they should be expected to protect the ill-gotten gains of Russian oligarchs and the like and that a Euro country was being used to launder money. But you could say much the same about Luxembourg except that with more rigorous stewardship its banks have not gone belly up.

As for the future of the Euro itself, on which our own recovery is so heavily dependent, the storm clouds refuse to go away. This is because of the disparities between the economies of the north and south and the huge differences in competitiveness between them. It is so great that it has built up debt levels in the Club Med countries that are unsustainable. My belief is that the Euro will survive, but the weaker members, which never qualified for entry in the first place, will be let go. If only those rules of entry had been applied, so much of the pain currently being felt could have been avoided. But, as is so often the case, politics triumphed over sound money and we are all left with the consequences.

A Marshall Plan for PIGS

I recently watched a BBC interview with Angela Merkel, the German Chancellor – a very rare event since she has only once before given an interview to the foreign media.

The interview represented a considerable feather in the cap of the BBC, further confirming its status as the world’s premier broadcaster.

The interviewer, Newsnight’s Gavin Esler, wanted to get inside the head of the person who will largely determine the future of the eurozone and, to some degree, the rest of the world.

The visual aspect of TV makes it very difficult for an interviewee to ‘fake it’; to pass himself off as someone else. His body language and emotions are often plain to see; and when his face occupies most of a 42″ screen in your living room, you feel you can almost look into his soul. TV greatly assists in our quest to sort out the wheat from the chav.

Merkel came over as a pleasant, but no-nonsense, woman – interested more in getting the job done than in sound bites. Astute as she was with thoughtful responses, she seemed genuine.

And there was more than a little guile there too (but you don’t get to lead the most powerful economy in Europe without a level of that).

It was not difficult to understand why she had taken a shine to our own prime minister – the polished, well-mannered product of England’s leading public school. She may even have fancied the younger man a little, or perhaps felt a tad motherly, seeing him as the archetypal English gentleman as opposed to the coarse, bling-loving French president who wants to smother her at every opportunity with Gallic kisses. The contrast is stark.

Cameron is a most courtly emissary from a fellow Teutonic power which, from early childhood, she had come to respect. Yet despite its bombing of large areas of her beloved homeland almost back to the Stone Age only a generation or two before, it is apparent that – in economic terms at least – Merkel regards Britain as a natural ally and one she is most unwilling either to offend or marginalise.

The BBC was right in picking Gavin Esler as the interviewer, since Paxo might have been too adversarial by adopting his characteristic ‘master inquisitor’ approach.

But what I really gleaned from the interview is an appreciation of the lengths to which Germany will go to save the single currency.

Up to now, Angela Merkel has, understandably, played hardball. The German taxpayer is not going to throw his money at profligate nations which show an unsatisfactory willingness to change their ways.

The Germans want a new economic order in Europe so that nations act responsibly in the future; and to this end they want robust systems in place in the form of a fiscal union.

Germany is not interested in imposing a German jackboot, but wants the whole exercise to be seen as a pan-European affair – even though a fiscal union would result in all 17 eurozone nations’ budgets being overseen by EU officials: a fact masked by a Byzantium-level of cunningness or ingenuity (call it what you will).

I came away from that interview convinced that the German political elite do not want a single member – not even Greece – to drop out of the eurozone. And when push comes to shove, they will do everything in their power to see that this does not happen. They see the loss of a single country as the trigger that will begin the unravelling of the entire single currency and, more than that, of the whole ‘European Project’ to which it is so utterly and irredeemably committed.

So now, it would seem, it is down to the individual eurozone member states to do what is necessary. Only time will tell whether the eurozone’s peripheral countries’ impoverished citizens will – or even can – stay the course.

Pain levels in Greece – and now, more alarmingly, Spain – are at breaking point. A pistol shot to the head outside the Greek Parliament of a 77-year-old retired pharmacist has a terrible resonance with that pistol shot long ago at Sarajevo which set in motion the chain of events which led to the First World War.

Germany has to understand that PIGS’ (Portugal, Italy, Greece and Spain) citizens can take little more pain. While it was necessary to start the austerity drive and change PIGS’ spending habits, it is clear that austerity alone is fast becoming counter-productive.

If Germany wishes them to hold on, she must give them hope – and this can only mean a plan not just for cuts, but for growth. She must put together and spearhead a new Marshall Plan of aid – such as saved Europe in the aftermath of the Second World War.

Germany does not wish to be cast as the villain all over again; the one who did wrong by Europe for a third time, only now by economic, rather than military, might.

Now that we have all come to understand that we must stop living beyond our means, and that the social model we have developed is unsustainable, we are in a position to go forward.

Only by means of growth and a smaller state sector have we a chance of paying down our debt.

Fearful and envious as we may be of the developing countries – and that includes the oil producers – they are as one in wanting us to succeed; for if we go down the pan, we are as likely as not to drag them down with us – and they know this.

They might even feel that it is in their interest to involve themselves in such a rescue plan. But they will not do so if they see north Europe, and in particular the Germans, sitting on a pot of gold but refusing to use it to kick start their own salvation.

God, as they say, helps those who help themselves.

The euro

How could Greece’s economy, which makes up only 2% of the Eurozone, potentially bring the whole house of cards crashing down? It is down to what the jittery markets make of it all. If they believe that the new bailout’s austerity demands (the second tranche) are unenforceable on a people who are now close to ungovernable, then they will panic, and a panicking bond market cannot be resisted. Indeed, we British had firsthand experience of this on ‘Black Wednesday’. And besides, the Greeks don’t have the stomach for more austerity: they would rather default on their debts and tell north Europe to get stuffed; they see only a future of unending misery as things stand.

As for the still fragile and barely recovering banks, there would inevitably be huge shockwaves all over again. But it’s the thought of a domino eftect on the other tottering economies of south Europe (Britain in extremis will save Ireland from going under) which is the stuff of sleepless nights. No body (neither the ECB nor IMF) can raise the sort of money needed to save the likes of Spain or Italy: it is truly a doomsday scenario which, amazingly, has got even China and India thinking they might have to step in.

The Euro is going to have to go back to the format which it originally drafted; that’s to say that only economies which can meet the five strict criteria laid down can be members. Alas, it was the failure to adhere to these requirements and the mad rush to admit anybody and everybody – and all the fudging that took place besides – which has led to the present situation. In that sense, north Europe has only itself to blame for not insisting on admission rules being sacrosanct. It is perfectly understandable that the hardworking, tax-paying, late-retiring North resents the happy-go-lucky, tax-avoiding and lets-play-the-Euro-system-with-its-cheap-loans South, which told a string of porkies about its indebtedness and then, to cap it all, wants to put its feet up early. But the South did only what most would do in the circumstances, given half a chance. Any thinking person could have seen it coming.

Watch this space!

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