Greece is being pieced back together, financially at least. Next week, plans to slash its budget deficit are likely to be approved by fellow Europeans, and in return it will receive implied aid through various bank guarantees. German taxpayers, the most solvent in the eurozone, will be the ultimate backstop, although Brussels will pretend that the private banks are taking the strain. There will be legal challenges and German parliamentary rancour, alleging that the aid contravenes a ban on bail-outs of one member of the euro by others, but Greece will be more stable.
That won't be the end of the matter. For ordinary Greeks, out on strike and rioting again yesterday, the aggressive austerity measures are likely to mean years of soul-sapping recession. The country's leaders hugely misled their partners and the markets about the state of its finances; the correction is particularly brutal as a result. As Warren Buffett says, it is only when the tide goes out that you see who has been swimming naked. Greece is chief nudist at a naturists' convention, and a very cold wind is blowing.
Meanwhile, Spain, Portugal and Ireland are also heading for years of darkness. Nor can other economies in the eurozone rest comfortably. A system better equipped to handle massive economic shocks is needed. The rest of the European Union might be smug now, but that will change once they are dragged into debate about referendums and treaty changes needed to install such a system. This comes just a few weeks after the deeply divisive Lisbon Treaty finally came into force and was supposed to end further constitutional change for a decade.
The course of the deep global recession has exposed the weak system of management of the euro. When the European Monetary System, a precursor to the euro, was put in place in 1979, it was envisaged that a European Monetary Fund would also be created. It, like the International Monetary Fund, was supposed to be there to help countries in trouble and also impose policy conditions for any aid disbursed. The EMF never happened; such strong political interference from the centre was a federal step too far.
Instead, the euro launch was fudged. Countries such as Greece, Italy and Belgium effectively cheated to make the qualifying criteria. The euro countries agreed to a stability pact that governed fiscal discipline, but was too weak from the outset and has been breached repeatedly since. It was never capable of dealing with vast
By Adrian Michaels Published: 8:26AM GMT 12 Mar 2010
Comments 12 | Comment on this article
Greece is being pieced back together, financially at least. Next week, plans to slash its budget deficit are likely to be approved by fellow Europeans, and in return it will receive implied aid through various bank guarantees. German taxpayers, the most solvent in the eurozone, will be the ultimate backstop, although Brussels will pretend that the private banks are taking the strain. There will be legal challenges and German parliamentary rancour, alleging that the aid contravenes a ban on bail-outs of one member of the euro by others, but Greece will be more stable.
That won't be the end of the matter. For ordinary Greeks, out on strike and rioting again yesterday, the aggressive austerity measures are likely to mean years of soul-sapping recession. The country's leaders hugely misled their partners and the markets about the state of its finances; the correction is particularly brutal as a result. As Warren Buffett says, it is only when the tide goes out that you see who has been swimming naked. Greece is chief nudist at a naturists' convention, and a very cold wind is blowing.
Meanwhile, Spain, Portugal and Ireland are also heading for years of darkness. Nor can other economies in the eurozone rest comfortably. A system better equipped to handle massive economic shocks is needed. The rest of the European Union might be smug now, but that will change once they are dragged into debate about referendums and treaty changes needed to install such a system. This comes just a few weeks after the deeply divisive Lisbon Treaty finally came into force and was supposed to end further constitutional change for a decade.
The course of the deep global recession has exposed the weak system of management of the euro. When the European Monetary System, a precursor to the euro, was put in place in 1979, it was envisaged that a European Monetary Fund would also be created. It, like the International Monetary Fund, was supposed to be there to help countries in trouble and also impose policy conditions for any aid disbursed. The EMF never happened; such strong political interference from the centre was a federal step too far.
Instead, the euro launch was fudged. Countries such as Greece, Italy and Belgium effectively cheated to make the qualifying criteria. The euro countries agreed to a stability pact that governed fiscal discipline, but was too weak from the outset and has been breached repeatedly since. It was never capable of dealing with vast external upheaval and the contagion we have seen since 2008.
So, on one level, the Greek crisis is an opportunity to implement a long-needed fix. No doubt, some of the most ardent believers in the European project are rubbing their hands in anticipation. But none of the decent solutions is viable. The political fears that ruled out the creation of an EMF are still there; France in particular is opposed to stronger outside oversight of its economy. Angela Merkel, Germany's chancellor, says an EMF could be a good idea, but she also says it would need a new treaty. This enables her to back an idea she knows full well will never fly.
Meanwhile, Brussels is struggling to demonstrate its worth to a sceptical public after the years of infighting over Lisbon. The European Commission will therefore probably try for something more informal and necessarily weaker than an EMF: a push for member countries unilaterally to restructure their economies, and greater fiscal surveillance from the centre. Even that, though, will land it in trouble with countries such as Germany, which see such surveillance as a potential breach of their constitutions.
In the UK, the debate is a nuisance for both Government and opposition. Gordon Brown has promised to oppose any further European institutional change, but what constitutes change? Proposals from Brussels will doubtless be dressed up as anything other than triggers for a referendum, just as Lisbon itself was misrepresented by the Labour government to avoid honouring a promise of a poll.
Meanwhile, David Cameron and William Hague have only just managed to silence their internal Conservative critics over Europe in advance of the election. They have pledged to hold a referendum on any future treaty changes, but they desperately don't want that distraction. Mr Hague said this week that if elected, the Conservatives had decided not to go into battle with Europe. "We have enough on our hands without an instant confrontation with the EU," he said.
There is another reason why Brussels wants talk of a new treaty to go away. If debate started in Brussels on what would be needed to create an EMF, Mr Cameron as prime minister would start demanding all sorts of other changes to the rules that bind together EU countries. This would be just the opportunity to seek an unwinding of EU social and justice policy and much else besides. Every other country has a wish-list, starting with the Spanish desire for more MEPs. Weak reforms of the euro will be the result, because no one wants Pandora to open that box.
Comments: 12
Hague and Cameron can sweep the EU under the conservative carpet if they like but running away from their referendum promise is the reason they are going to lose the next election.
MMB 09.07: Are you sure? After all Brown, in his opinion and he is never wrong, saved the entire planet and so we should expect such help!
The EU is a pack of cards and all our leading politicians appeasers.
Simon Coulter I generally agree with your first para. I can also believe that this is the "politicians' dream con" from the point of view of the French dominated Brussels bureaucracy, but I cannot see German industrial circles having much stomache for it at any level, let alone other working citizens (even in EU-tolerant-til-it-busts Germany.)
"Mr Hague said this week that if elected, the Conservatives had decided not to go into battle with Europe." - UKIP Anyone?
So the old argument about monetary union can be put to rest. Does weak money get pulled up by strong money? Or does strong money get dragged down by weak money? Answers on a postcard to Angela Merkel Bundestag Berlin Germany Please mark all entries "Free Zorba Tickets competition"
Not sure you understand the EU's modus operandi of doing it anyway and begging for forgiveness in the interest of unity.
The reason France is "opposed to stronger outside oversight of its economy" is that its Socialist Governments since Mitterand have pushed the National Debt from €300bn to over €1 trillion. As a result, Europe is what France does to other countries and in no way does it want the creation of an EMF. Sarkozy et al are content to issue pious and sanctimonious economic statements to European neighbours, but France is fundamentally bankrupt. The income tax take in 2005 was insufficient to pay the interest bill on the national debt.
Nothing in the EU will make sense until it has one location for its government (and bureaucracy) and one common language. Wake me up when it does!
Bubbles form when there is an over supply of investment moneys looking at an under supply of good investment placements . When the bubble bursts it is the market correcting the situation by reducing the value of the investment moneys - by making part of it disappear . Since the mid 70's the market has developed a debt culture - much like that which occurred in the 20's . This has created a largely safe set of investment placements . However like 29 it finally crashed in 08 - there was a massive unbalance which was not avoided - not dealt with - so the market carried out the re-balancing exercise itself - hence the crash . The current situation is that the investors desperately need safe investment placements . If they can keep the indebted countries in debt and viable , by any means , then they continue to receive income . If , however , the countries go under then the investors stand to lose a lot of money . Unfortunately the fact is that investors often don't deal with the whole picture - they invest on a day to day basis . As such they end up often shooting themselves in the foot - feeding the bubble . The money will have to be moved out of public and private debt . The question is "where will it go ?" or rather the question should be "where should it go ?" . Bricks and mortar , investments in private industry etc. are probably a good way to go . We do certainly need our industrial base rejuvenated . We've also got the situation where industries such as the software industry are like the car industry of the 20's and they need to go through transformational change . There also has to be a massive cultural change - our current culture is causing problems - not dealing with and curing them . After re have rejuvenated ourselves I suggest looking further afield for investment placements . Investors could develop economies in , say , well governed parts of Africa , likewise in similar developing parts of Asia and Latin America . They would have ground up investments and would develop markets for Western goods - a win win win situation . Just pouring in money with out any strategy for the country as whole - without any industry wide co-ordinated plan , as is currently happening in China , will only create another bubble . The balancing point has to be determined and the balance maintained .
At least the eurozone members are addressing their problems. The Irish and the Greeks have taken the necessary and painful steps to get their economies back into order. It is highly likely Spain, Portugal and Italy will have to take serious corrective action although probably less draconian than that of Greece and Ireland. Meanwhile, the biggest economic delinquent of them all - Britain - stands on the sidelines and does nothing but talk a load of pre-election rubbish. We read in today's DT that Liam Byrne (2IC to Treasurer Alistair Darling) went onto the BBC and assured the interviewer there would be no post-election tax increases. At the risk of having this post binned, I say to Liam Byrne that you are a dead set, 24 carat liar. I base that charge on my own ability to perform simple arithmetic supported by the opinions of respected economists at the Institute of Fiscal Studies. At one level, as one who neither lives in or is eligible to vote in the UK or has any assets there, my views are irrelevant. As someone who takes an interest in what is happening outside my backyard, the very idea of a senior British government minister lying through his teeth on the national public broadcast system is quite shocking. After the election, regardless of the victor, and the multiple swingeing tax increases occur, Liam Byrne's lies will be lost amongst the shrieks of pain from the poor, long-suffering, serially misgoverned British taxpayers.
What is happening in Greece is another gift to Socialism which does not believe in wealth per se but only the ability to use fiat currency to build an archipelago of Shangri-la Welfare State nations. No gold is being sent to Athens. No real money is being scrimped and saved to be tipped into Greece's coffers - no, instead what happens is that other nation states, mainly Germany, agree to absorb the debasing effect of printing money - inventing something to compensate deficits. It's a politician's dream con.
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