Monday 24 October 2011

Are we close to the end-game in Europe?

Patrick Cockburn was the Independant's man in Iraq for a long time.

Patrick Cockburn: Greece in a state of shock as Troika reforms take effect

World View: A sense of injustice is growing. Elite politicians and notorious wrongdoers appear immune as ordinary Greeks reel from wage and job cuts

23 October, 2011

Up close, the most striking feature of the reforms being forced on Greece by its international creditors is their destructiveness and futility. The pay cuts, tax rises, cuts and job losses agreed to by parliament in Athens last week will serve only to send the economy into a steeper tailspin, even if it extracted a much-needed €8bn in bailout money from the EU leaders. "Nothing but a lost war could be worse than this situation," one left-wing ex-minister tells me. "What is worse, no party or political group in Greece is offering real solutions to our crisis."

On the right, there are similar lamentations. Asked if there is the possibility of a revolution in response to current disasters, Simos Kedikoglou, an MP from the opposition New Democracy party, says, "I wish there could be a revolution." He argues that a revolution might at least have a sense of purpose and direction but "we are in a state of shock, and the danger, rather, is that we will have a social eruption, because people have lost hope".

The mass rallies and 48-hour general strike that paralysed Greece last week were a sign of how far Greeks feel the reforms insisted upon by the Troika – the IMF, European Central Bank and European Commission – are a recipe for a permanent collapse in living standards. The marches were bigger than before and socially more diverse. Smartly dressed women working for new technology companies and retired bank officials mixed uneasily with garbage and dock workers, but all had a similar complaint: their incomes are being cut past the point where they can make ends meet.

Greeks feel, probably rightly, that the extent of their calamity is not understood in the rest of Europe – or, if it is, is thought to be a richly deserved punishment for greed, laziness and corruption. "Do you think we are the parasites of Europe?" Sophia Giannaka, an MP from the ruling Pasok party asks me, the day after she reluctantly voted for the EU/IMF reforms. She says that Nicolas Sarkozy had told the Greek Prime Minister, George Papandreou, that the Greeks "are the virus that is poisoning Europe".

Greece is certainly damaged by a perception abroad that borrowed money and EU subsidies have financed a life of self-indulgence. Articles in foreign newspapers about the Greek crisis abound in phrases such as "eye-popping waste" and "bloated workforce". Mr Kedikoglou reckons that the number of employees dependent on the state is 1.2 million, which should be cut to 600,000, but he is clear that this cannot be done at once.

Down at the union headquarters of the municipal employees – one of the prime targets of the reforms – their combative leader, Themis Basalopoulos, denounces these figures for public service workers as grossly inflated and propagandist. He says the number usually quoted, of 780,000 workers, "includes soldiers, policemen and even priests". He adds that his members' income is being cut by 40 per cent.

Mr Basalopoulos leads the 22,000 garbage workers in the Athens region, whose strike has left every city street with heaps of rubbish. The government is trying to end the strike by court orders and use of private contractors, but, in a sign of the authorities' increasing inability to get their way, neither has proved effective.

Below Mr Basalopoulos's office marchers from every district in Athens assemble behind their banners. Few are in their twenties and many are in their forties and fifties, reflecting that not many Greeks want to be manual workers. A strain on many parents' incomes is the money spent on extra tuition for their children, to get them to university or to gain professional qualifications. But, as the economy implodes, it is these jobs that are disappearing. "The younger generation don't have a future," says Mr Kedikoglou. "They don't even have a present. Our best minds are going abroad. If I was 25 years old and studying abroad, I would never return to Greece."

None of these deeply rooted economic and social problems is going to be solved by the Troika's prescriptions. These may raise taxes and broaden the tax base but, in a deepening recession, the government's receipts are less than expected. Greece should be trying to attract more tourists, but restaurants are becoming more expensive because of a steep increase in VAT.

There is a further reason why the EU-IMF imposed reforms – tax rises, public-service salary cuts, suspension of collective bargaining, 30,000 public service workers suspended and the tax base broadened – may not herald real change. They are being imposed by the very people whom most Greeks blame for misgoverning the country and benefiting from pervasive corruption. Nobody has been arrested. Ex-ministers live lavishly in Athens' most luxurious properties. Everybody speaks furiously of the immunity of the political elite.

"A feeling of injustice hangs over Greece and angers Greeks even more than the austerity measures," says Ms Giannaka. She is visibly uncomfortable with the failure of her own party to punish notorious wrongdoers. She admits that the party "has not been able to create a sense of justice".

An obvious solution to the government's lack of legitimacy would be a general election. The opposition complains that Mr Papandreou played down the impending crisis in the last election, in 2009. Furthermore, he is dissolving the welfare state that Pasok itself largely created over the past 30 years. "They are killing their own child," says Mr Kedikoglou. Ms Giannaka admits, "The socialist dream of Greece in the 1990s has been totally destroyed."

This leaves the ruling party without much identity and highly unpopular but, with 153 seats out of 300 in parliament, it has every reason to avoid an election.

For the present, the government feebly agrees to everything suggested by the Troika, but implementation is slow and episodic. The government's own isolation grows and parliament itself was under siege for part of last week. Greeks are still going along with changes that reduce many to poverty in the hope of avoiding total ruin, but don't see why they should pay up if personal disaster looks inevitable. Why, one politician asks, should "Greeks care if Greece goes bankrupt, if they are already bankrupt themselves?"

European Finance Ministers Driven To Despair As Reality Returns

Zero Hedge,
22 October, 2011

The release of the Troika report (stating the what-we-all-know that is much larger haircuts will be needed for any type of debt sustainability) seemed to bring events this weekend in Europe to an early halt, according to SudDeutsche (‘Troika-Bericht treibt Finanzminister zur Verzweiflung’).

As the sheer mathematical certainty of the event horizon that is Europe these days is slammed at light speed into the foreheads of the European cognoscenti, we finally see some actual frustration, foot-stomping, and 'throw-your-teddy-bear-out-of-the-pram'-ness. The Telegraph reports on some choice turns-of-phrase among the leading players, our favorite being:

"It was grim. The worst mood I have ever seen, a complete mess," said one eurozone finance minister.

But it only got better from there, with several of the major movers feeling the need to express their frustration (and what is German for Schadenfreude?) at the lunacy of what SudDeutsche reports was in the Troika debt sustainability report (via Google Translate).

"The numbers that the Troika on Friday evening on the debt situation in Greece is presented, have altered the agenda of the Euro-Finance completely. Really wanted the department heads to advise [if] they need to convince the country's private creditors to agree on a bigger discount on the bonds held by them, than the previously planned 21 percent.

But the "if" was suddenly a "how high?". Because the inspectors of the Greek lender describe in their "debt sustainability report," a scenario that far surpasses any fears. The country needs even under "normal" conditions, so if everything goes as planned with the reforming and saving, at least 252 billion euros , by 2020 to get back on its feet.

If the economy collapses further, state enterprises can not be privatized as hoped, nor do the reforms [produce the] € 444 billion needed to [please] the inspectors. So it is suddenly clear: the euro rescue fund EFSF is hardly sufficient for more countries to save, and his successor, the latest from 2013 operational ESM also not good".

..."It is clear that a substantial debt cut is necessary," however, said Swedish Finance Minister Anders Borg....

"The Exchequer George Osborne sharply criticized the actions of the euro partners: "The crisis in the euro-zone causes major damage in many European economies, including Britain," he shouted in Brussels, adding: "We have had enough of short-term measures, it enough, paving draufzukleben that bring us through the next few weeks. " Europe must tackle the causes of the crisis. Used to be a comprehensive and lasting solution to the crisis, so that growth in Europe could begin rising again".

... The Luxembourg Foreign Minister Jean Asselborn announced immediately to resist. "What we need now is rest and no whip," he said.

A stronger economic cooperation is also possible on the basis of existing treaties. "It is important that we do not open another front," said Asselborn. "It can not be that domestic political considerations of even the greatest country outweigh everything."
It was clear that the reality of the size of loan required to 'solve' Greece alone will likely leave the cupboard bare:

Jan Kees de Jager, the Dutch finance minister, told colleagues: "We've got to get real. People are talking about new defences but with one gulp the whole €440 billion could be gone, leaving the eurozone with no protection at all."

According to insiders, Wolfgang Schaeuble, Germany's finance minister, could not resist taking an "I told you so" approach - he had been, after all, the first to call for an "orderly" default for Greece 18 months ago, at a time when the cost of such a move was less than one third of the price today.
"Schaeuble is a man who does not mince his words, whose reputation for harshness and arrogance is well earned. He was, frankly, unbearable," said one diplomat.

And Baroin (France) to IMF swiftly followed by Lagarde (France/IMF)'s slapdown:

Francois Baroin, the young and inexperienced French finance minister, attempted to hit back, complaining that the IMF's default medicine would hit France the hardest; the country's banks are highly exposed and could threaten its "untouchable" AAA rating.

But Mrs Lagarde, who had held his post until taking up the IMF job this summer, "shut him up" by brandishing the report and pointing to it its detailed figures. "She really slapped him down - and in perfect English too, a language he cannot speak," said a diplomat.

We suspect many of the attendees (finance ministers) have not actually spoken to one another, read any serious research, or even attempted to comprehend the whole-versus-the-single sub-optimal decisions they face (until very recently) as their voluminous outbursts were incredible:

"Their shouting could be heard down the corridor in the concert hall where an orchestra was about to play the EU's anthem, Ode to Joy," said an incredulous EU official.

It did not stop there as the pointlessness of the meeting was highlighted as it became increasingly clear that the good old Franco-German comradeship may be fraying at the core and at the edges and without them.

Finance ministers - including George Osborne, the Chancellor - expressed frustration on Saturday that their emergency meeting could take no decisions of substance until Mrs Merkel and Mr Sarkozy had buried the hatchet.

"This Ecofin meeting has been reduced to an academic seminar, an exercise with absolutely no purpose," complained one finance minister.  complained one finance minister.

For those expecting any solution that is more than a simple kick-the-can hold-your-breath for the final solution, we suggest hedges asap on Sunday night as it is crystal clear that nothing of substance will be created soon and furthermore, we wonder whether this is some elaborate global game to force the Fed to rescue everyone by flooding it with greenbacks.

Bombshell Report Says Eurozone Meeting Is Filled With Despair, As German-French Relations Collapse

22 October, 2011

Now, bear in mind that The Telegraph is one of the most anti-Euro papers around, but regardless, this latest dispatch from the meeting of European Finance Ministers happening this weekend sounds horrible.

Just the title Eurozone summit - despair and backbiting in the corridors of power says it all.

The gist: France and Germany are in their worst divide ever, and it's dawning on everyone that there may be no good solution that allows the EFSF to keep its firepower, Greece to avoid a catastrophic default, and the banks to avoid getting crushed in that default.

And this:

Compounding the trauma, Christine Lagarde, the French finance minister turned IMF chief - and one of the few key players who appeared to be enjoying herself in her new headmistress-like role - issued a grim warning to her former European peers.
The IMF would no longer be willing to pick up a third of the total bill for rescuing Greece, a contribution worth €73 billion, unless European banks were prepared to write off 50 per cent of Greek debt.

"It was grim. The worst mood I have ever seen, a complete mess," said one eurozone finance minister.
Anyway, you should hope that A) they somehow turn it around in the next few days or B) This is just The Telegraph being The Telegraph, and that actually Merkel's previous comments about expecting a big breakthrough this week are closer to reality.

You Won't Believe What Nicolas Sarkozy Said To David Cameron This Weekend

21 October, 2011

Want to know how bad the discussions in Europe are going?

All you really need to see is this.

The bust-up between Cameron and Sarkozy held up the conclusion of the EU-27 summit for almost two hours, with the French president expressing rage at the constant criticism and lectures from UK ministers.

Sarkozy bluntly told Cameron: "You have lost a good opportunity to shut up." He added: "We are sick of you criticizing us and telling us what to do. You say you hate the euro and now you want to interfere in our meetings."

Add in the collapse of German-French relations, and the fact that everyone's turning on Italy and you have all the makings of an extraordinarily depressing, dysfunctional currency union that really looks like it could collapse barring something remarkable.

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