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 a while since I last posted on this blog due to my busy schedule and the global unfortunate events – apologies to the loyal readers.
Greece has been at the centre of interest the past month on its possibility of defaulting on its national debt and jeopardising the sustainability of the monetary union. Investors have been speculating on that scenario on the Greek equity and debt markets which unavoidably makes an impact on the Euro.
My perception of things is the following. Things are indeed bad for the Greek economy. An above 12 percent of GDP fiscal deficit, over 120 percent debt and reluctant banks to lend money and assist in the recovery of the economy can not describe a prosperous economy. I might say this is the worst economic crisis for Greece since the 1999 stock market bubble. Media have accurately drawn this frame for the state of the Greek economy on that front. But,..
Does this justify the ‘pandemonium’ that is taking pace all over the media and the markets. Is really Greece threatening the monetary union to the extend that ejection should be considered? The answer is NO! With great frustration I have noticed certain British papers devoting great share of their front page on the Greek case, exerting harsh criticism on the government and the EU as a whole. It comes as natural to presume that the ‘Greek debacle’ and its exposure in all media is a product of a Eurosceptic-driven propaganda that aims at hurting the Eurozone and subsequently the Euro.
Markets and media are much smarter than we might think. There never was, nor will be in the the short future a possibility of default of the Greek economy (see Roubini, Krugman), yet some people and institutions fill the market with lies and false impressions in an effort to mislead and manipulate it at their benefit and Eurozones’ expense.
What is more, how come people focus on Greece and not on Spain, as professor Roubini said, which is a much bigger threat to the Eurozone? Is it a matter of who can take more punches on the stomach or a matter of who is easier to manipulate and speculate on? Whatever that might be, certain people are playing dirty games against Greece which happens to be the innocent victim of a market conspiracy. I can’t seem to remember last time David was portrayed as Goliath..
‘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 →