It seemed things had been put in order after last Wednesday’s EU summit in Brussels. EU leaders had collectively decided upon a comprehensive rescue package that would help Greece write-down its huge debt, recapitalize troubled European banks, and leverage up the European Financial Stability Facility (EFSF). Even markets seemed convinced that this could work. However, Greek PM, George Papandreou, comes to shake the waters once again. His decision to lead the country to a referendum with respect to the newly agreed rescue deal, fills with extra uncertainty Europe’s future.
Shocking the rest of the Europe’s leaders, Papandreou announced yesterday a referendum that will take place in two months time, which translates into two months of utter uncertainty and further market volatility. This is two months of no progress on solving the European debt crisis, just so that Mr. Papandreou and his party can gain a confidence vote.
If Greek people vote ‘NO’, then Greece will be exiting the Eurozone. If its people boycott the referendum and the turnout is less than 40-50%, Papandreou would have to step down leading to national elections, prolonging the period of uncertainty and poor governance. A ‘YES’, will give him the popular vote to move ahead with the anti-popular reforms and policies, but will definitely not tranquillise the nation as the economy will be in a deep and protracted recession.
This is a rather selfish and naive decision on Papandreou’s part as he attempts to buy some time to calm the nation down and gain some ‘political capital’ to materialise his announced measures. Nevertheless, what is the point of leading your people to a referendum where the question is effectively “Eurozone or Bankruptcy?”. This referendum is an abuse of democracy’s top instrument and is a major threat to Europe’s efforts to try to find a solution to the European sovereign debt crisis. In times when EU leaders have to think big and consciously, Greece’s PM falls short. It’s not too late to reconsider..
The euro is definitely worth preserving. It’s existence is at the best interest of all of its member states. Conflicts of national interests, the ruthless financial markets, and political miscommunication, are the major threats to the future of this currency. France and Germany, Europe’s most influential states, have an obligation to prevent the demise of the Eurozone.
Consequences of a Collapse
A collapse of the eurozone would not only damage its existing member states but also the EU and the global economy as a whole. Markets would shift attention to Spain and Italy, their yields would explode, and the two countries would default. Their default would, in turn, bankrupt most of the world’s largest banks exposed to their debts. Political tensions would exacerbate market conditions and Europe’s recovery would take too long to happen. The costs would just be ‘too much to take’. A return to national currencies would lead to massive currency devaluations for the illiquid states and further deterioration in their standard of living. Germany has no much of a choice too. Intra-European trade is a main booster to its growth. Abolishing the euro would take away that advantage. A strong and stable currency is of paramount importance in an era of slow growth and high-volume trades. The problem, however, lies on the actual functioning of the Eurozone.
What to Do
Firstly, restructure immediately the debt in the countries that are unable to repay it (i.e. Greece). Secondly, run extensive stress tests on European banks to ensure their capacity to absorb losses from a potential sovereign default. Thirdly, initiate an immediate EU growth plan. Without development, state revenues, employment levels and foreign direct investment will remain suppressed in the EU region. Fourthly, reshape Eurozone’s framework. Urging a fiscal union and reconsidering the Maastricht criteria are critical. Monetary union cannot function properly without a common/unified fiscal plan and proof to that is today’s situation.
The Eurozone has offered its member states great gains over the past decade. It’s the irresponsibility of individual countries and the negligence of the Union that brought us here today. One should be able to see the broad picture. The way I see it, this is a one-way road with no way back. Saving Eurozone should be out of question once and for all.
It’s been more than a year since Greece signed the notorious EU-IMF €110 bln aid package in an attempt to deter the country’s economic default. Today, Greece faces even greater challenges, domestic and external. This week’s cabinet reshuffling aimed at unifying the ruling party to make it able to pass new highly anti-populist austerity measures, necessary for disciplining its ‘home economics’. Reshuffling is obviously not the solution to the problem. It’s just a tactic to shift public aggravation towards new political faces, earn some time, and maximise the likelihood of staying in power.
This time last year, I was one of those people who believed that in a year’s time, things would be on a positive course. I was deeply mistaken. I even read recently from a highly-respected source that CIA fears a potential coup d’etat in Greece. I am sure some people in Greece wouldn’t mind such a twist of events. Greek politics are the source and the outcome of Greece’s today’s ‘tabescence’. The idea of a universal government with an independent Prime Minister seemed like a good idea. However, egos, individualism, thirst for power and lack of vision prevailed once more.
I find it hard not to comment on the talks being made about offering a new ‘rescue’ package estimated around €120 bln. A package I am highly confident was already in the minds of the people who offered the first one. Now, if you add this to the €110 bln you get a total of Greece’s GDP. In other words, the country is if not for sale, then definitely for a long rent. The idea of that is simply sad.
The truth to the matter is that no reshuffling, no new government, no massive protests can change the faith of the Greek economy. Mr. Sarkozy and Chancellor A. Merkel are those two that will decide Greece’s future. All that Greece and its people can do is live with the idea that this country is and will be for the next five to ten years under strict financial occupation. In the meantime, deregulating the energy industry, opening up the closed professions, investing in tourism and services and reforming education are all of paramount importance for its economy to become attractive to investors and eventually bounce back. The resources are there, the determination is yet to be seen.
The G20 summit in Toronto was highly anticipated due to the vast number of threats the global economy is currently facing. China’s move, days before the summit, to slightly appreciate its currency (yuan) was a good warm-up for the summit as it cleared the road for a more constructive discussion focused on more crucial and urgent issues like EU’s fiscal crisis and the financial markets regulation.
Prior to the summit, the US government had asked from Europe not to de-escalate their fiscal spending as this would jeopardize global economic recovery. Response from Europe was negative as fiscal adjustment is the unambiguous top priority of the EU member states. It’s definitely not the time for Europe to be a big spender. Fiscal discipline is far more important as it influences other areas like the the ‘free-falling’ euro and credit spreads (cost at which countries borrow).
USA has to wait a bit more for Europe to match them in the ‘spending gear’. The kind of measures countries will adopt to tackle their fiscal crisis will be different for each of them given the heterogeneity of their economies and dissimilar scale of the crisis in each of these countries. Germany and the UK have been the main advocates of this effort to postpone government spending and make sure that fiscal crises do not spread out to other EU countries.
Europe’s firm stance on curbing the fiscal crisis is really promising as it fashions patience, long-term thinking, and solidarity. The EU oughts to first restructure its domestic affairs and then gear its economy up. The situation could go out of hand, should the EU decide to focus on expansionary fiscal policies and neglect its uncontrollable deficit. On other news from the summit, the G20 ‘froze’ the prospect of implementing an ‘international bank tax’ but committed on gradually setting stricter bank capital requirements from the late 2012. Isn’t that the year the world is supposed to come to an end?!
President of the EU Herman Van Rompuy announced yesterday that EU leaders had reached an agreement on helping Greece tackle its debt crisis. EU rules forbid the collective bail-out of a Euro member state but the scale and urgency of the Greek crisis has forced EU leaders to improvise. No deal-specifics have been given yet but it is obvious that rules and foreign involvement will be greater than ever in the Greek economic affairs.
German Chancellor, Angela Merkel and French President Nicola Sarkozy have clearly established their intentions to stand by Greece and assist in solving the problem as soon as possible in order to preserve the sustainability of the Eurozone and the EU as a whole. Greece has been suffering from ballooning fiscal deficits (12.7% of GDP) and mounting debt payments which account for almost 12% of its GDP every year. The government looks for raising 53 billion euros from the debt markets to repay previous debts.
In the midst of all the economic mayhem going on, EU leaders have given hope and courage to the Greek people who have been struggling for decades to enjoy lasting prosperity. The credibility of the Greek government and its economy were smashed after it surfaced that past administrations had been cooking the country’s books to contain deficit and debt levels.
The underlining reason behind this agreement is the realisation of the EU leaders that the Greek crisis has severely impacted European debt and equity markets destabilising the recovery trend of many other member states. Euro has plummeted to a 14-month-low against the dollar as uncertainty for the Greek case is still prevailing within the markets.
Let me just remind you that as distinguished economists, like Krugman and Roubini, have stated, a Greek default is not a realistic scenario. Having said that, the purpose of the aforementioned EU agreement is clearly to calm down the markets and highlight the unity and solidarity of the Union, something that was intensively questioned within the EU parliament per se.
Greece has been Europe’s playing doll and until Europe grows up, that doll will be an everyday experiment.
There is so much fuss going on about the Copenhagen environmental summit these days which has inevitably raised expectations really high. There is a broad public and political consensus that seems to be converging to a climate change deal that would curb CO2 emissions but there are several hurdles that are yet to overcome.
The major issue that arose during this first week of talks was the funding for the developing nations. Tormented by the recent financial crisis, poor countries are unable to commit to large funds for the environment. It’s more an issue of inability rather than of unwillingness. Rich countries have been historically responsible for the climate menace we face these days and are hence expected to significantly contribute to developing nations.
On Friday, the EU 27 agreed on pledging $3.6 billion per year for the next three years to the poor countries, a figure labelled as puny by the G-77 (a coalition of developing nations), compared to the 2020 total target of $100 billion per year. What is more, the EU fails to commit to a long-run strategy which raises concerns about the sustainability of any deal. If there is one thing I can detect, that is signs of scepticism from EU’s part towards the climate battle.
The talks can highly reflect to a game theory. This week, the EU Commissioner Jose Manuel Barroso announced a ‘conditional’ plan of a 30 precent emissions cuts of 1990 levels by 2020. He demanded that other leading polluters make comparable commitments first, for EU’s plan to materialise. Now, what sort of politics is this..?
It’s really sad when politicians undermine the importance of such a sensitive issue like the environment, by bringing it down to micro-political level. Let’s just hope that EU’s funding proposal will just be the platform for a longer-run and more generous package towards the multi-suffering developing nations.
‘Kalimera’, ‘Kalispera’. As a concerned Greek yet global citizen, I enjoy keeping up with global news especially from the worlds of politics and economics. In times of extreme uncertainty I find it challenging to try and shape an opinion on major events. My motives for running this blog are rather ... Continue reading →