On Sunday, the new German party 'Alternative für Deutschland' will have its first party congress. Its basic message is that there are always alternatives in life (as opposed to Chancellor Merkel's position so far that there are no alternatives to saving the Euro). Their basic position is that the Euro - as it is - is setting the peoples and nations of Europe against one another.
When looking around what is happening these days, one has to consider this party as a breath of fresh air. I mean, first, the Troika treats Cyprus like a pawn on a chessboard. Then, George Soros tells Germany to leave the Eurozone (if it does not accept Eurobonds). Then, a former Dutch EU Commissioner says that the Netherlands should leave the Eurozone. Just about every pundit in the world has identified Germany as the culprit. And to top it off, the Greeks consider it now as the proper time to claim from Germany the settlement of WW2 debts in 3-digit BEUR amounts.
The other side is beginning to show nerves. Hans-Ulrich Jörges, a famous commentator of "stern" magazine, considered a liberal leaning to the left, wrote the other day: "I have had it! Here I defend Europe all the time. I want the Euro. But I don't want to keep the Europe we have today at any price. I don't want to be called a Nazi any longer! I can't take it any longer that our Chancellor is taunted as the reincarnation of Adolf Hitler!"
The situation reminds me of a cartoon which was published in a Chilean paper as the war over the Falklands was beginning to unfold. The cartoon showed the Southern Atlantic where a British armada was steaming from the North and the Argentine armada was steaming from the South. And there was a stone-faced observer who said: "Either the home team will win or the visiting team, but there is not going to be a draw!"
The way things are developing in the EU and the Eurozone, it's getting harder and harder to envisage a fair draw as the result!
When looking around what is happening these days, one has to consider this party as a breath of fresh air. I mean, first, the Troika treats Cyprus like a pawn on a chessboard. Then, George Soros tells Germany to leave the Eurozone (if it does not accept Eurobonds). Then, a former Dutch EU Commissioner says that the Netherlands should leave the Eurozone. Just about every pundit in the world has identified Germany as the culprit. And to top it off, the Greeks consider it now as the proper time to claim from Germany the settlement of WW2 debts in 3-digit BEUR amounts.
The other side is beginning to show nerves. Hans-Ulrich Jörges, a famous commentator of "stern" magazine, considered a liberal leaning to the left, wrote the other day: "I have had it! Here I defend Europe all the time. I want the Euro. But I don't want to keep the Europe we have today at any price. I don't want to be called a Nazi any longer! I can't take it any longer that our Chancellor is taunted as the reincarnation of Adolf Hitler!"
The situation reminds me of a cartoon which was published in a Chilean paper as the war over the Falklands was beginning to unfold. The cartoon showed the Southern Atlantic where a British armada was steaming from the North and the Argentine armada was steaming from the South. And there was a stone-faced observer who said: "Either the home team will win or the visiting team, but there is not going to be a draw!"
The way things are developing in the EU and the Eurozone, it's getting harder and harder to envisage a fair draw as the result!
If there is a DE-xit, then who stands to lose the most credibility; who faces the prospect of being cast into the actual dustbin of history?
ReplyDeleteNot Germany, or any other Euro-zone country; they'll all survive one way or another, Cyprus might even get to be a united country again.
I would think the ECB would be in #1 spot to disappear. It stands to be the biggest central bank in charge of managing a major trading currency to fail since... maybe Banque Generale in 1720, or perhaps ever.
I recently read an interesting paper (sorry, I neglected to bookmark or clip) that directed more of the responsibility for the nature & structure of the Euro-zone bail-out, bail-in and bail-up schemes towards the ECB than is normally acknowledged. It didn't let Germany or the borrowers off the hook, but it presented an argument that behind the scenes it's the ECB that controls the most strings. From memory, it was written by an American— maybe a lawyer.
Trying to retrofit lifeboats to a sinking ship is more than a big ask, it’s an impossible task— think Titanic and Kursk.
An even bigger ask is trying to devise, design and retrofit a banking union, fiscal union and an economic union (fully-fledged single market across all sectors) onto an existing fragile monetary union and an old-fashioned customs union. It's probably beyond human capacity to do it in the best of times, in the middle of a financial crisis— some might say you'd have to be a cloud cuckoo lander to even try it.
To attempt it without a viable political union and a widely accepted social union will surely exacerbate tensions between the nation states and between their peoples.
If it were done, then it would inevitably mean further loss of national sovereignty, member states would be reduced to the status of provinces like Scotland and Wales. Sure, Euro-zone countries might get to field teams in the World Cup. But there will only be one seat for the USE at the UN, the one that's currently occupied by France, same for IMF, ILO, WTO, IOC etc. Otherwise, we'll be back to Yalta like arguments— why should the province of Finland get a UN seat and not Louisiana or Gujarat... they have similar GDP's, their areas are in the same 'ball-park', Finland and US-LA have similar populations, although Gujarat's is ten times bigger.
In its relentless pursuit to save itself, the ECB may end up destroying itself and its creator. Whilst the European Union is flawed, it's arguably worth keeping; providing it promises, and measures are taken to ensure that it learns from previous errors.
CK
I have a suspicion that the problem doesn't lie in Europe as such.
ReplyDeleteI mentioned the other day about organizations (I called them banks) who were not standing by their responsibilities. That is to say in that case investments rated as AAA.
What would be the consequence of a Cyprus default? For the eurozone, would it be containable? Possibly. Hence the fear in Europe. However the real problem is in the US. There is no "possibly" there, it is an absolute. They cannot pay out on their CDSs - better put, all the derivatives of these insurance-like certificates.
The point is that in staving off a default, the US banks (and others?) are not standing by their responsibilities - CDS payouts in this case. That means someone else has to pay to keep Cyprus afloat. The European taxpayer.
Off topic: I recall a cartoon in Die Zeit at the time of the Falklands dispute - it showed two fat, bald men both grasping for a comb.
Mrs Gemma,
DeleteCyprus isn't "staying afloat". Cyprus entered the EU for geopolitical reasons (a political shield vs Turkey), not economic ones. The nature and speed of the "help", is equal to economic assassination of a nation. The banking makes the majority of the GDP and 75% of populations is employed in operations directly or indirectly related to banking. The rest is tourism and 2% agriculture.
The whole troika plan is based on ridiculous assumptions on the economic data and also the "debt sustainability" projection is based in a ridiculous joke.
But the alternative for Cyprus, while economically makes sense for many and would probably win in a referendum, would be to become an unofficial russian protectorate, which is something that the political system doesn't want. For the same reason, the new plan wasn't passed from the parliament to ratify, as they are afraid of pubblic reaction.
Simply, Cyprus will be paying with gas for her debt, for a long, long time. Ah, yes, while the cypriot gas wasn't good enough as collateral during the "help negotiations", it is now good enough for the troika to be included in calculations for the long term state income.
The default of Cyprus wouldn't threaten the euro, Cyprus is too small to have any significance. Probably only Greece would take a hit, but this happes already now (it is calculated the Cyprus salvation plan as is now, will cost 1% to greek GDP). About 300 medium and big greek companies have their money trapped and lost in cypriot banks. Also in recent poll, 70% of Greeks expect haircut on greek bank deposits next. This will impact the goverment's plans to bring back bank deposits.
"the Greeks consider it now as the proper time to claim from Germany the settlement of WW2 debts in 3-digit BEUR amounts."
ReplyDeleteI will be very surprised if the greek parties that have ruled in the last 30 years, REALLY intend to bring the issue to international courts. It sounds more like a political move to neutralize SYRIZA's rhetoric, which is the one that has made it a frontline issue, since Manolis Glezos, a SYRIZA PM and resistance hero, is at the head of a movement for the war reparations. SYRIZA has been accusing the goverment for long for cowardise and submission to Germany for the fact that doesn't dare to do something substantial about it.
But you are mistaken on the timing. The german press, for internal mediatic reasons, may try to present as if this was "discovered" by Greeks just now. Greeks, as in individuals, have started this much earlier.
http://en.wikipedia.org/wiki/Distomo_massacre
The interesting factors here are these:
1) The greek court's ruling where the victims could be compensated by seizing german assets in Greece, was never put in force, because the goverment refused ratification.
2) The International Court of Justice, didn't dismiss the issue on the grounds that mr Schauble often says (that this is "closed matter, settled in the past"). The Italian Court actually ruled in favour of the greek victims. What the International Court said, was that Germany had "State Immunity" (other countries' courts could not enforce their ruling on Germany, because german courts are responsible for privates' claims against the german state).
The Distomo case, is "guideline case". After this, a private can't hope to win in german court. So, the ball, is passed onto the greek state, which is now the only one that could sue German in international Court on behalf of the citizens and being a state, cannot be "redirected" by the International Court to a local german Court. It will be state vs state and as such, it will be judged in "neutral ground".
But, not to worry, the current greek politicians, have proved that "it is never the right time". Theoretically, Greece could have raised the issue after the reunification of the 2 Germanies, since by the London Convetion, reparations would be frozen until then. For obvious political reasons the greek politicians didn't raise anything, other than in some diplomatic notes, which were promptly rejected by Germany. The same goes for the "occupation loan" , which according to pretty much every greek expert, is very easy case to win in a Court, since it was recognized as loan and started to be repaid, even by Hitler himself and there are also official german state documents, recognizing it as a proper interstate loan.
Do not expect any real greek claim IMHO, under the current goverment. I have my doubts that even SYRIZA will really dare do it.
The dissolution of the euro, would make everyone happy. But alas, Germany will not so easily abbandon the project. In the long run, the euro wasn't designed in a way to suit Greece. The euro when joined was 0.9 to the dollar, now it's 1.38 to the dollar and if it wasn't for the crisis, with all the moneyprinting in USA, it would go to 1.60. This isn't the same euro of 1999. And Greece won't be competing with Chinese machinery or hitech in the future. It's the big industrial countries of Europe, that are those with most to lose from losing the euro and Germany itself, in the short term, will pay it with unemploeyment. In the long term, it will have to deal with the BRICS, some of which have much higher internal market and won't forever be just an "emerging middle class to which export german goods". They will grow, start producing the same things and will compete more with them.
(continues)
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ReplyDeleteGreece will be able to have a weaker currency and put import taxes, which will work much better for her economy. Cyprus will have to do without bank expansion, but wait, that's already happened!
Germany till now has made some good money (double digit billions)out of the crisis, both by decrease of state bonds interest and influx of foreign deposits, as well as lower euro value. Not too bad for a country that is always complaining as the one paying for spendthrifting, lazy, southerners. Imagine if you were Italy! You pay high interests, you give money to the southerners, you lose bank deposits, yet you do not complain as Germany does.
So yes, a D-Exit would be good, but not good for Germany. So it will not happen, unless everything comes down to pieces.
In the meantime, we proceed, with german recipe of "everyone make themselves a surplus country, like us!". Like to say "everyone in the poker table should win". And we proceed with the german impossibility to understand, why they are not popular... Mr Schauble apparently found recently the answer: "Because they envy us, like the best student of the class". Another pearl of wisdom, after explaining how Cyprus will be "helped" by "amputating" the major pylon of the economy overnight, but rightly so, because the Russians launter their money. Quiz question for Mr. Schauble: Where do the 3 italian mafias (Cosa Nostra, Ndranghetta, Camorra), money launder their money for the last 20 years? In German banks. In deed, a Cypriot should envy how such a successful money laundering is done, by the most famous mafia in the world, without conseguences.
May God help us all. Μωραίνει Κύριος ον βούλεται απωλέσαι. (The Lord makes a fool, the one who wishes to be perished).
For the (cypriot) history, AKEL, the Cypriot major opposition party, has "hired" Kostas Lapavitsas (http://www.soas.ac.uk/staff/staff31299.php) and ex german deputy finance minister Heiner Flassbeck to prepare a plan for a cypriot euro-exit. Lapavitsas was actually a supporter of GrExit since the beginning.
ReplyDeleteMr. Flassbeck also gave an interview:
http://freepen.gr/2013/φλάσμπεκ-τ-υφ-υποικ-γερμανίας-υπάρχ/
Some points:
"The Eurogroup has created a precedent. It showed its power and destroyed overnight the economic model of an entire country, i think with catastrophic repercussions for the entire euro".
"Since the begining of the crisis, the Europeans chose to label the bank crisis as "sovrereign debt problem". It was never so. The goverment debt increased in order to save banks, that were bankrupt. The real cause behind is the competitivity gap between Germany and the rest."
... "Germany insists, that having a 6% surplus, is something normal.Bundesbank says the same. In 2000 the SPD chose the wages dumping as a defence against unemployment. The repercussions of this, were exported to the other members. Germany, exported her unemployment, under the form of surpluses. But you can't behave like that in a monetary union. We had agreed to a 2% inflation and Berlin violated this. It's that simple".
Is this policy still going on in Germany?
"Of course. Last year, there was 50-60 bln surplus and huge unemployment export. Some in Brussels start to see the problem. But this in Germany is perceive the critique as insult and thus reject it."
- Mr. Schauble recently said that it's just that the other countries are envious of Germany.
"Nonsense. You can't have all countries following the same model. He says that to be competitive, we all need austerity and cuts. But this leads to recession. Many in Germany don't want to understand it and even more, 90% of economists support the goverment and say "we are the good ones, all the others are the bad ones!". This isn't just anti-european, it's just wrong.
About Cyprus:
"What i told them is to negotiate with Brussels an orderly exit from the euro, with economic and political support. To speak to the people and say "this is the only way, we will hurt all together for a while". The Cypriots are very shocked with the events, so much, that they would be open to the idea.
- Was the cypriot model wrong?
"Hard to say. Small countries were seeking for an advantage. You can't have everyone with industry. And up to a few years back everyone was saying financial services was the future. See the example of Luxemburg. Now if asks for money, they will treat it the same way.
It was about time we got this new party in Germany. People are fed up and angry with having to guarantee the debt of countries which would otherwise be bankrupt due to their reckless financial behaviour, and with getting insulted on top of that.
ReplyDeleteThe Euro is practically dead; all rules (the no bail-out clause, the ban of financing of governments by the central bank, the limits for the public deficit) have been broken again and again. It seems naive to me to hope that such rules will be followed in the future.
It is time to admit that the Euro experiment has failed and to stop it before further damage to Europe is done.
Regarding Cyprus. I think at this time it's worth staying very close to the numbers, and inferring things from them.
ReplyDeleteConsider two things:
A. Non-Performing Loans:
According to World Bank Figures for 2011, Cyprus had 6.2% non-performing loans. But it also had a non-standard definition of a non-performing loan. According to international definitions (90 days in arrears, it's NPL was 27%
http://www.news.cyprus-property-buyers.com/2012/12/13/nonperforming-loans-at-e23-billion/id=0013568
Now, the Association of Cypriot Banks fought that redefinition of NPL all the way. Lobbying the Troika, Lobbying the Government, attacking the Central Bank Head Demetriades for agreeing to it. They spent months arguing about "methodology" of Bank Recapitalisation needs. Mostly, they were arguing about NPL.
What does that tell me about Cypriot Banks? That they were running the country, basically, whichever figurehead, of whatever party, went off to negotiate in Brussels. And as far as those Banks were concerned. They most definitely were "too big to fail".
B. Troika Estimates for Cypriot GDP 2013.
Source: http://www.economist.com/blogs/freeexchange/2013/04/cypriot-blues
"In late February the commission had forecast a cumulative fall in GDP between 2012 and 2014 of 5%; now it expects a decline of 12%."
And the difference is. In February the commission thought Bailout A (smaller levy on all depositors of all banks) could get the recapitalisation money together. In April, Bailout A had been rejected by the Cypriot Parliament with no votes in favour, Capital Controls are in place, and the recap is coming from non-insured depositors of Laiki and BoC. With the implication that a wave of cash-flow induced business bankruptcies is coming.
Effectively, the big Cypriot Banks bet their depositors money on the Troika bluffing. And no cypriot politician had the guts to point this fact out. Instead they all voted down the bailout, and had a night of celebrating their Parliament's "bravery" against the nasty neo-liberals.
Again: the Banks were running the country. In their own interests. And seemingly kept their tame politicians in a reality-resistant bubble.
If they hadn't been in the Euro, this wouldn't have mattered. The state could have defaulted, or similar radical measures.
But they were in the Euro. And if "European Banking Union" means letting obviously insolvent Banks blackmail everybody else via the politicians of their puppet state, then my name is Mario Draghi.
So the reality-resistant cypriot Politicians had to be either outlasted (President Christofias) or ambushed and sand-bagged (President Anastasiades).
To be fair, Anastasiades actually negotiated well under pressure. The IMF wanted to wind up BoC as well! And then, cypriot business wouldn't have any full-service banking sector left at all.
Sorry, I realise all this sounds cynical. But hell! 6.1% to 27%, just by redefining NPL.
The euro has two basic problems: a) it amounts to a fixed exchange-rate regime internally, b) it is a hard currency externally.
ReplyDeleteEverybody knows that fixed exchange-rate regimes are unsustainable for deficit countries. Quite why the Europeans persist, I do not understand, especially since they rule out redistributional policy. It is just unworkable.
Effectively, Greece has been relying for some time on it's pool of savings. At some point, they will run out. Yes, the troika is temporarily covering for the government deficits, but they're only covering for the government deficits, and with private credit stagnation, that's not enough to run the economy. So the argument that Greece isn't self sufficient, and thus shouldn't exit the euro, goes out of the window. Because the euro is only a hard currency. It doesn't include an option to borrow ad infinitum so that a country pays for it's imports.
A currency is not a commodity, nor should it be treated as such. A currency is a medium of exchange, which the twin axis of a government and a central bank should use to promote growth, employment and prosperity (through fiscal and monetary policy).
I am afraid the euro has been undermining growth, employment and prosperity for some time now, exactly because those who run it are treating it like a commodity (store of value).
Germany is an admirable country in many ways. Germany is telling us "we produce fancy cars; you produce fancy stuff too because we don't want to subsidize you". Our answer to this should be "fair enough, we'll try to rebuild our economy and produce things of value, either for us, or for foreigners; but not on deflation, not on a fixed-exchange rate with you, and not on a hard currency, because that doesn't work for our unsophisticated economy".
"A currency is a medium of exchange, which the twin axis of a government and a central bank should use to promote growth, employment and prosperity (through fiscal and monetary policy)."
DeleteThat's the Fed's mandate. The ECB's mandate is financial stability, and only financial stability. That mandate is set by a treaty negotiated by 27 sovereign states, with lots of horse-trading, that then has to be ratified by 27 parliaments, and then has to withstand constitutional challenges in 27 supreme courts, and several referenda. It takes years, and can and has failed to be passed, in the past.
It's not that I'm disagreeing with you, precisely. I'm just pointing out the aspect that I think you're not acknowledging.
"Germany is telling us "we produce fancy cars; you produce fancy stuff too because we don't want to subsidize you" "
Correct, that's what they are saying.
"and not on a hard currency, because that doesn't work for our unsophisticated economy"."
I'm afraid the hardness of the currency isn't negotiable, from a german/core-country point of view. The ECB didn't get that narrow mandate by accident.
And Cyprus, incidentally, isn't an unsophisticated economy, nor an uncompetitive one. It's an extremely sophisticated (if very unbalanced) economy. Regrettably (and I do regret it bitterly, and rail away in german, on german-language fora about the treatment of cyprus), it's most competitive industry (financial services) has just been decimated.
There's lots of blame to go around, on this one. But a sophisticated finance-service industry, negotiating with international lenders who have already spent the last four years struggling with the consequences of statistical manipulation in greece, somehow imagining that they could hold on to their statistical manipulation of cypriot banks' solvency (through the NPL definition), do bear plenty of it too.
!!! Aktive Unterstützung der AfD, der Alternative für Deutschland !!!
ReplyDeleteAn alle deutschen Leser dieses Blogs, die zugleich Euro-Skeptiker sind:
Werdet Wahlkämpfer für die AfD.
Es reicht nicht, nur zu bekunden, die AfD wählen zu wollen.
Man muß sie im Wahlkampf auch unterstützen.
!!! Werdet als ganz normale Bürger und Wähler für die Ziele dieser Partei aktiv !!!
Engagieren wir uns für die Ziele dieser Partei in aller Öffentlichkeit!
Wahlen werden auf Straßen und Plätzen, in Fußgängerzonen entschieden.
Die grün-linken Blockwarte dieser Republik sollen das Muffensausen bekommen.
Die AfD muß von uns ganz normalen Bürgern unterstützt werden; der Widerstand gegen die Eurorettung muß aus der Mitte der Gesellschaft kommen! Also von uns!
Man muß in der Familie, im Freundes- und Bekanntenkreis, unter Arbeitskollegen Überzeugungsarbeit leisten. Es gilt, möglichst viele Wähler zu überzeugen.
Ich gebe zu bedenken:
Die AfD ist eine Professoren- und Intellektuellen-Partei.
Bei der Masse der Wähler sind Intellektuelle höchst unbeliebt, sie sind ihr suspekt.
Daher ist es umso wichtiger, daß wir ganz normalen Bürger für die AfD Wahlkampf machen, für die Ziele der AfD durch persönliches Engagement einstehen.
Wenn die AfD nur 2 bis 3 Prozent bekommt, dann hilft das nur den Rot-Grünen! Die wollen noch mehr Milliarden dem Club Med in den Rachen werfen.
Ich werde mich sowohl bei mir in Buxtehude (bei Hamburg) als auch in Düsseldorf der AfD als Wahlkampfhelfer an ihren Wahlkampfständen zur Verfügung stellen.
Bakwahn
PC-Support und Netzwerkadministration
Hamburg Bangkok Düsseldorf
PS:
Vor vier Monaten hat mich ein Schlaganfall – Lähmung der rechten Körperhälfte – außer Gefecht gesetzt. Nach 6 Wochen Reha kann ich meinen Rechner, Maus und Tastatur nur mehr mit der ungeübten linken Hand bedienen. Ich bitte um Nachsicht.