Schäuble needs a history lesson
Poor, benighted Greece. Yes, it lived beyond its means, encouraged by greedy bankers all too willing to see it mortgage its future. And, yes, the Greek way of doing things seems decidedly un-Germanic.
What an unedifying carry-on that scrambled, weekend marathon was, called to decide Greece’s fate and preserve the integrity of the euro. A two days’ notice summons went out to the nine heads of government not in the euro who were told to attend that Sunday. Then they were told to stand down. They didn’t need a grand council of all twenty-eight EU members after all. Talk about an omnishambles and the Grand Old Duke of York.
It was always meant to be that, once enrolled, you were as locked in as all fifty states of the American union are to the dollar. But it turns out that that this is not the case. Former Foreign Secretary William Hague once made the mistake of saying that belonging to the euro was like being in a burning building in which all the exit doors are locked. Really! Wolfgang Schäuble, the hard-line German finance minister, had actually drawn up a plan to show Greece the exit door if it did not comply with EU terms.
There are many truths to this latter day Greek tragedy. Ironic it is that it should happen to Greece of all countries, which wrote the scripts of the very first tragedies concerning the foibles of human nature. Just as it was beginning to make progress under austerity – though there remained much to do, as the latest Brussels proposals made clear – a crazy, economically illiterate cabal of schoolboy lefties gained power. (They once believed that Communism was the answer.) Their silly promises of an end to austerity were seized on by a weary electorate. But how could they work that particular piece of economic sophistry? It was like asking someone to turn base metal into gold.
We are today in a situation in which a mere eleven million Greeks labour under a mountain of debt equal to what our sixty-four million people spend on the NHS in a year and a half. It was, and is, insupportable.
Once again the banks have a case to answer. It is a truism that a lender has as much of a responsibility as the borrower. What is abundantly clear is that the lenders did not exercise due diligence. They knew the Greek character and that once they enjoyed the security of the euro with its low borrowing costs would, likely as not, go on a spending spree and end up living high on the hog, enjoying a standard of living way beyond what their productivity justified.
But while the good times rolled the banks looked the other way and that fatally flawed conception – a currency (monetary) union without a fiscal and banking one was able to bumble along… just. But it was never going to avoid the attention of the speculators on the world’s money markets when the good times ended, as they always do. And boy, did they end! When the banks were exposed as having lent to millions of mainly Americans (but, yes, us too) on mortgages that they knew were likely to go belly-up, they then artfully – and I believe criminally – wrapped up those toxic, sub-prime debts in packages mixed in with sound debts and unloaded them to unsuspecting other banks all around the world. The consequence was that every bank viewed every other bank with suspicion and would not lend to them (an absolutely necessary requirement under the capitalist system) for fear that the other bank had saddled itself with lashings of toxic debt and may actually be insolvent.
When the giant Lehman Brothers bank went down and the Federal Reserve refused to save it, shock waves went round the world. It was a seismic event in that cloistered world of banking which everywhere shut down on lending. It sent the system into a tail spin. Thus we became familiar with a new term: the credit crunch.
Returning to Greece, the bailiffs of the big boys, (the Troika’s IMF, ECB (European Central Bank) and the European Commission) have effectively moved in. Proud, humiliated Greece is being told it must provide collateral for the monies advanced. It must sell off all it can of its public sector along with whatever else can raise hard cash. The next thing we’ll be hearing is that they’ve slapped a ‘For Sale’ notice on the Parthenon. What has been needed throughout, but which has been totally lacking, is a generosity of spirit. If the 520 million people of Europe cannot handle 11 million, admittedly errant, citizens, then something is seriously wrong.
The fact is it is perfectly possible to be a member of the European family (i.e. the EU) – after all, there are nine of us who are not using the euro – without being beholden and tied to that flawed currency. It is equally possible that if one day that currency proves itself by correcting its inbuilt defects and then goes on to become the world’s reserve currency, replacing the dollar, we may ourselves rethink our position and apply to join. But that day is a long way off.
Meantime what of Greece and its mountain of unrepayable debt? 92% of the monies advanced to Greece do not go to helping that country get back on its feet, but to servicing its debts. As a deadline for repayment looms, Greece is handed monies which it must immediately pay back. Thus, while for book-keeping purposes, the situation seems under control it is anything but. It is an altogether hopeless situation. In essence it’s no different from that of a person taking up ever more credit cards to pay off a loan from his bank.
Europe, and in particular Germany, should remember that when the Americans put together that incredibly generous Marshall Aid programme to rescue them from an even more dire situation than present day Greece’s at the end of World War II, there was a total forgiveness of debt. Without that there would have been no recovery of Europe for decades. It remains my hope where little Greece is concerned that our great continent will show a generosity of spirit similar to what the Americans showed with their Marshall Aid programme and declare a forgiveness of debt. Without it Greece has no hope.
A tragic consequence of the present situation which few have thought about is that we are in danger of losing, through neglect and vandalism, much of that peerless heritage we so like to visit and wonder at. The treasures of European antiquity, of which the Greeks are custodians, are already suffering terribly from thefts and shocking neglect. What with the destruction going on in Aleppo, the oldest inhabited city on earth, at Palmyra, Babylon and indeed throughout the Middle East – the very cradle of civilisation – the world will wake up one day and realise that it wasn’t just present day humans who paid the price, but the surviving evidence of what its distant ancestors achieved down the ages.
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.
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.