Aug 252012
 
 August 25, 2012  Posted by at 1:25 pm Finance
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Image: Ilargi, The Automatic Earth

Dear Angela,

You know, it's sort of funny that just as I started to write this letter, I read about a plan (yours?) for a possible temporary Greece exit from the eurozone.

Germany May Ask Greece To Exit The Euro 'Temporarily'

Market News International is reporting that the German Finance Ministry may ask Greece to exit the euro "temporarily" while it straightens out its finances. From MNI, citing unnamed "senior eurozone officials" as sources:

The officials said that in the view of German Finance Ministry officials mulling the plan, it is now the most likely scenario. But it is not a done deal. There is strong opposition to such a plan among some key European officials, and no decision is likely at least until the end of the year.

“It is another working scenario which is not new but has emerged in the past month as the most likely outcome for the German finance ministry,” one of the officials said. “There is a team under [German Finance Minister] Wolfgang Schaeuble that believes Greece’s public finances will need many years to return to acceptable levels.”

“It all comes down to the fact that Greece will need a third loan. Even if everyone denies it, we all know it’s unavoidable,” this official said. But because of rising political pressure in Germany and other core Eurozone countries, “this decision will be delayed as much as possible.” He added that, “the hawkish team of the German finance ministry believes that since Greece will need more money, it would be better given as a bridge loan to facilitate a temporary exit.”

The official noted: “It would be better received politically within Germany, the Netherlands, Finland and other countries like Slovakia and Estonia if the new loan were sold as the final one and tied to a Greek exit from the Eurozone, which would be regarded as punishment.”

Perhaps even funnier is this report in the Independent :

Barack Obama asks eurozone to keep Greece in until after election day

Representatives from the International Monetary Fund, the European Central Bank and the European Commission are due to arrive in Athens next month to assess Greece's reform efforts.

They are expected to report in time for an 8 October meeting of eurozone finance ministers which will decide on whether to disburse Greece's next €31bn aid tranche, promised under the terms of the bailout for the country.

American officials are understood to be worried that if they decide Greece has not done enough to meet its deficit targets and withhold the money, it would automatically trigger Greece's exit from the eurozone weeks before the Presidential election on 6 November.

They are urging eurozone Governments to hold off from taking any drastic action before then – fearing that the resulting market destabilisation could damage President Obama's re-election prospects. European leaders are thought to be sympathetic to the lobbying fearing that, under pressure from his party in Congress, Mitt Romney would be a more isolationist president than Mr Obama.

Yeah, we get it, we all understand that Obama, like you, would rather see everything appear quiet and papered over (when's your next election again?). What we don't get is why US elections should rain down on the Greek people. It's after all not as if major changes are to be expected across the pond.

Though, admittedly, it is a nice touch that Europe's conservatives, like yourself, would probably rather see Obama stay on in his job than be replaced with a fellow conservative. And that none of that should really surprise anybody. A very substantial part of Europe by now, for good or for bad, sees American politics as a two bit sequel to One Flew Over the Cuckoo's Nest anyway. You for one certainly do.

A temporary Grexit? Hmm. Greece is bankrupt many times over. We know that it will need more money, a third loan, fourth loan, rinse, repeat. By now the amounts borrowed guarantee it will never be able to pay back everything, no matter how many islands and monuments it sells. Moreover, Greek economic numbers consistently come in "worse than expected". Not worse than you or I expected, of course, but then we both know better, just worse than the official version that's fed to the media who feed it to the public, no questions asked.

Samaras told you this week that Greece needs more time. He wants another additional two years to fulfill all of the troika demands. And again, Angela, you and I know better. Greece is in no position to meet the demands, not now and not in two years. Or ten, for that matter.

There's a good article today in your own – German – Spiegel magazine, and I'm sure you're aware of it, on the depths of Greek austerity. It painfully paints the picture of where the limits are to what the Greek people can reasonably be expected to suffer.

Athens Shows Its Commitment to Austerity

[..] … calls for more time to implement austerity measures in Greece have already met with resistance in a broad section of the German government. "Europe and the euro cannot be allowed to fail because people refuse to implement reforms," Economics Minister Philipp Rösler told SPIEGEL ONLINE on Sunday. And the accusation being heard in the run-up to Samaras' important meeting with German Chancellor Angela Merkel is that the Greeks are exactly these kinds of reform refuseniks.

However, the reality is much different. Measured according to GDP, the Greeks are clearly making much deeper cuts than all other crisis-hit countries in the euro zone. This was recently confirmed by a study from the central bank of Ireland, which itself has a reputation as a model cost-cutter.

The report finds that, since 2010, Greece has responded to pressure from the European Union and the International Monetary Fund by slashing expenditures and raising taxes worth the equivalent of 20 percent of GDP — which represents the most brutal belt-tightening program in the history of the EU. This achievement is particularly noteworthy given the fact that it has taken place in the midst of a severe recession.

Given these circumstances, why do there continue to be doubts about the seriousness of the Greeks' efforts? On the one hand, this results from the fact that, despite all the cuts, Greece's debt burden will continue to grow if its economy doesn't grow as well. On the other hand, media reports about phantom retirees or bureaucratic chaos continue to create the impression that ongoing waste in other areas will negate all of the successful belt-tightening efforts. [..]

[..] … the prime minister has made clear that he has recognized the problem. And that's already more than one can say about most of his predecessors.

In addition, concrete measures have been agreed to under Samaras — first and foremost a further austerity package worth €11.5 billion that the prime minister pushed through despite resistance from the opposition. "Greece is bleeding," the German tabloid Bild wrote in a headline ahead of Samaras' visit to Germany. During the past three years, quality of life has dropped by 30 percent and pensioners have lost one-fifth of their monthly benefits.

One can't really claim that Greece under Samaras hasn't been economizing enough. But have the efforts also been successful? Will Samaras succeed in modernizing the Greek state and, especially, the country's ailing political culture? It is still too early to answer these questions. After all, the man has only been in office for two months.

And yes, I know, Angela, there's a troika report coming up soon that you want to wait for. And of course there's the September 12 decision by your constitutional court on the legality of the European bailout funds, which might throw a real cold shower on things (also on September 12, Holland has parliamentary decisions, which could shake up the whole discussion). And then there's another EU meeting on October 8, and what's 6 weeks in the grand scheme of things after all?!

Undoubtedly there are more meetings and more dates and more reports that you could wait for, no shortage of politically perfectly acceptable schemes to hide yourself behind.

But it's time for you to recognize in public that it's not worth waiting for, none if it, my dear Angela. And here's why.

In another Spiegel piece, philosopher André Glucksmann puts a big painful finger exactly where it hurts most:

A Dark Vision of the Future of Europe

The European Union came together to oppose three evils: the memory of Hitler, the Holocaust, racism and extreme nationalism; Soviet communism in the Cold War; and, finally, colonialism, which some countries in the European community had to painfully abandon. These three evils gave rise to a common understanding of democracy, a civilizing central theme of Europe.

SPIEGEL: Is a new, unifying challenge what's missing today?

Glucksmann: It wouldn't be hard to find if Europe didn't act so heedlessly. In the early 1950s, the core of the union was the establishment of the European Coal and Steel Community (ECSC), the first supranational economic alliance in the area of heavy industry; (it was) Lorraine and the Ruhr area, the ECSC as a means of preventing war. As everyone knows, the counterpart today would be a European energy union.

Instead, Germany decided to embark on its transition to renewable energy on its own, ignoring the European dimension. Everyone is negotiating individually with Russia for oil and gas, Germany signed an agreement to build the Baltic Sea pipeline despite the resistance of Poland and Ukraine, and Italy is involved in the South Stream pipeline through the Black Sea.

SPIEGEL: So each country is pursuing its own interests amid changing alliances and bilateral agreements that ignore the spirit of the European Union?

Glucksmann: (This is a) grim example of cacophony because it shows that the member states are no longer willing and able to form a united front against external threats and Europe's challenges in the globalized world. This touches on the nerve of the European civilization project, in which each person is supposed to be able to live for himself, and with which, however, everyone wants to survive together.

And it makes things easy for Russia under (President Vladimir) Putin. Despite all the weakness of that giant of natural resources, its capacity to cause damage remains considerable and is something its president likes to use. Recklessness and forgetfulness create the conditions for new catastrophes in both the economy and politics.

Glucksmann is oh-so right. The damage has already been done. Even after 60 years, the great unified Europe is not unified at all; it allows Putin to play its separate parts against each other. And again, that's not a big surprise to you and I, is it Angela? You may meet with newly-fangled French president Hollande as often as you can, but your heart's no longer in it, you're just going through the motions.

And that is A. BAD. IDEA. Because this is, of all times, the time of times to stand up and show what you're made of.

Dear Angela, you need to stop playing the waiting game, for the sake and the grace of Greece. A temporary Greek exit from the Eurozone or the EMU doesn't solve any of the major issues involved. And you know it.

The Greek economy can't possibly start growing again in any meaningful way as long as it's part of the Eurozone. It faces 25% overall unemployment, and 50% youth unemployment. It faces a European economic situation that is extremely weak and highly volatile at best. And it faces a world economy that is hardly any better. A Greece inside the eurozone has no chance to return to growth, not for a very long time.

And all these plans for the ECB to put limits on sovereign bond yields, or the new one just announced, a "band" of limits (markets are shooting up as we speak), come on, Angela, are you really willing to explain to your people what price they would potentially face for that? And by the way, is there any real difference between imposing those limits and banning shorts?

Are we supposed to believe that Mario Draghi wants to instill confidence in the markets with a "tool" that invites the markets to play the ECB into buying more bonds than it can afford?

What Greece really needs is for its people to be able to afford to buy locally produced goods, life's essentials, basic necessities, at a much lower price than they are available for now. And for foreigners to have the same advantage for both what can be exported and what can be enjoyed within the country. That cannot and will not happen as long as Greece is in the Eurozone. Neither will getting rid of their pseudo-feudal ownership class.

The right thing to do for Germany, and Holland and Finland and whoever else can, and is willing to, contribute, is to allow and accommodate for Greece to make the painful transition to renewed independence. Germany has much to gain, indeed immeasurably much, from being seen as the country that is lending an active helping hand in this process, specifically aimed at alleviating the present and future suffering of the Greek people. In other words: Put your money where it counts. If and when, alternatively, Germany is perceived as the country that broke Greece's back, there is immeasurably much to lose.

But yes, that means you will need to put aside the interests of your own banks and industries for the time being; they won't like it, it will cost them dearly. Allowing Greece to go its own separate way will entail an ginormous amount of debt restructuring, even if it's only such a small country; the global web is intricately intertwined.

And then there's the ever present evil genie of contagion. What will happen to Spain and Italy and Portugal once you create a way out for Greece? And what will happen if you don't?

You know what, dear Angela? I don't think it's all that hard, really. I think that you need to do for them what you will do for Greece: allow them to depart with grace. The dangers if you don't are simply too grand, you would risk too much turmoil on the continent. Instead, doing what is right for Greece can then allow you to write the manual for how to handle the way out for the rest of the weaker EU nations.

Please think about it, Angela: continuing on the present path of, basically, attempting to keep bratwurst and tzatziki together in the same food group, carries the huge risk for you, personally, of being blamed, for the rest of your life, for being directly responsible for the blood in the streets of Athens and Barcelona and the frontiers of Macedonia and the Basque regions. Just to name a few examples.

Whereas doing the right thing can lift you up in history as a leader with true courage and vision, as that rare politician who didn't just look at short term political gain. All the money spent on trying to keep Greece in the eurozone only serves to hide its financial reality. It would be far better spent on providing the country with a cushion to break its inevitable fall.

It's time for you to show how smart you really are, Angela. If you don't do the right thing you risk opening a huge continent-wide cesspit of hatred and blame, and throwing your own people into it along with the rest of Europe.

 

Home Forums Dear Angela, It’s Time To Do The Right Thing

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January 23, 2014 at 2:49 pm #10729

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Image: Ilargi, The Automatic Earth Dear Angela, You know, it's sort of funny that just as I started to write this letter, I read about a plan (you
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