Monday, August 20, 2012

Greece back in the spotlight of the European crisis this week

I haven't posted for several days about the European crisis. It has been going on so long that "European crisis continues" isn't exactly news. But it is a very serious deal and the outcome is highly unlikely to be good.

But there will be interesting reporting this week around senior Greek visits to Berlin to kiss Angela "Frau Fritz" Merkel's ring. Foreign Minister Dimitris Avramopoulos arrives Monday. Prime Minister Ministerpräsident Antonis Samaras is schedule to meet with Frau Fritz on Friday. As usual, Angie is demanding more austerity, austerity, austerity. Avramopoulos and Samaras will beg for more time to comply with their killer austerity policies Frau Fritz and the EU have imposed on Greece. Rainer Buergin and Brian Parkin report (Schaeuble Rules Out New Aid Plan for Greece, Cites ‘Limits’ Bloomberg Businessweek 08/18/2012):

German Finance Minister Wolfgang Schaeuble ruled out another aid program for Greece even though the country is in a “very difficult situation” with a shrinking economy.

“It can't be helped -- we can’t make yet another new program,” Schaeuble told visitors today at his ministry’s open day in Berlin. "There are limits."

Gross domestic product has declined by more than 20 percent in four to five years in Greece, which also has high unemployment, he said. Two bailouts totaling 240 billion euros ($296 billion) have been implemented for the nation since the European debt crisis began, and the country is now contending with austerity measures needed to qualify for more aid.

Yannis Ioannou depicts the EU leaders applauding as Greeks are tossed off a cliff in this 07/23/2012 cartoon he calls "Athens Festival":


Greece needs more bailout money, the next tranche due to be released this week, though Greece isn't technically in compliance with Frau Fritz' austerity demands to date. Spain is reportedly close to asking for one. As their economies shrink in the latest recession, their debt as a percentage of GDP will increase unless the debt is paid down at a faster rate than that at which their economies are shrinking. Jack Ewing reports on the current recession news in For Europe’s Economy, a Lost Decade Looms New York Times 08/16/2012:

The figures suggest that Europe is already well into what could become a lost decade — a period of pernicious stagnation and wasted potential that could have lasting effects on ordinary citizens.

Economic growth not realized represents investments in education that were never made, research that was never financed, businesses that failed and careers that ended too early or never got off the ground.
We're now half-way into such a lost decade in the United States, as well. But we don't have the problems Greece, Ireland, Italy, Spain and Portugal are having because we have our own currency, which is also the world's reserve currency. And also because there was a at least moderate stimulus during the Obama Administration, though we're more in austerity mode now.

Stephen Walt poses the same question our Savior-General and now CIA Director David Petraeus once asked about the Iraq War: 'Tell me how this ends': European edition Foreign Policy 08/17/2012. But even with great skepticism, he places way too much faith in the possibilities for austerity economics in a depression:

The happy ending to this story, if there is one, is that the various structural reforms now being imposed on these countries will simultaneously cut government costs (thereby freeing up money for debt service) and eventually trigger robust economic growth (thereby increasing tax revenues and providing even more money). But thus far this doesn't seem to be happening. Instead, we get recurring crises, each dealt with by some sort of hastily improvised mechanism mostly designed to kick the can down the road and wait for a miracle to occur. But unless the curves in the graphic cited above hit an inflection point and start heading upward, I don't see how this favorable outcome ever gets reached.
The European Central Bank (ECB) is juggling creative measures frantically, such as extensive lending directly to Greece, to keep the current eurozone afloat. Their charter does not allow them to officially perform an essential function of a central bank, which is to act as borrower of last resort for sovereign debt. They have found ways to do some of it through the backdoor.

If French President François Hollande is offering any meaningful resistance to Frau Fritz' destructive austerity policies, he's keeping it well concealed. He comes to Berlin Thursday, presumably mainly to show his diplomatic support for Angie's draconian policies prior to her meeting with Samaras the following day.

Former German Foreign Minister Joschka Fischer, in an interview with Bild am Sonntag (Es war noch nie so gefährlich 19.08.2012), criticized Frau Fritz' government saying, "Die Grundfehler sind, dass die Regierung von Beginn an national und nicht europäisch agiert hat. Und dass zu spät und zu unentschlossen gehandelt wird." ("The fundamental errors are, that the government form the beginning on reacted on a national basis and not on a European one. And that it was dealt with too late and too indecisively.") And he warns about the financial impact on Germany from Frau Fritz' foolish policies: "Am Ende kommt dann meist die teuerste Variante heraus. Griechenland war am Anfang ein 50-Milliarden-Problem. Heute sind das ganz andere Dimensionen." ("In the end, the most expensive variant emerged. Greece at the beginning was a €50 billion problem. Today they are of a completely different dimension.")

Fischer describes the measures that would make the euro work without imposing economic and social catastrophe on much of the eurozone: a complete fiscal union, with eurobonds based on the credit-worthiness of the eurozone as a whole, common social policies such as standard retirement ages and common tax policies. Given the atrocious failure of European leaders to master the euro crisis the last few years, such a drastic change is exceptionally unlikely. And the clock is ticking on the current solution, which Fischer rightly believes cannot work; he says it's believing in an illusion to think it can.

But in this interview, he doesn't say he's given up hope for the EU or the euro. Not that he's starry-eyed about the possibilities. He says, "Je näher wir an den Abgrund kommen, desto klarer werden die Alternativen." ("The closer we come to the abyss, the clearer the alternatives will become.")

Fischer is addressing Germany's role and speaking from the pro-European (pro-EU) position. What he doesn't say is that for countries like Greece, Ireland, Spain and Portugal, the "Argentine" alternative of leaving the currency union and defaulting on the sovereign debt is almost certainly a better alternative for their individual countries right now than staying in a likely-doomed currency union at the cost of what is really economic suicide with Frau Fritz' austerity policies.

Interestingly enough, Fischer does think Frau Fritz is aware that the consequences of a Greek exit from the euro are unpredictable. And that one of the live possibilities is that it would lead to bank runs in Spain and Italy, and "wäre das das Ende des Euro" ("that would be the end of the euro").

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