While there is a recognition that it is important for Greek politicians to be seen by voters to be putting up a fight, there is a growing fear that all the political grandstanding could backfire, and plunge the country into bankruptcy.
Karen Maley, Business Spectator
The job of Greece’s prime minister, Lucas Papademos, is not a fun one. As a technocratic appointment, he has no political backing. Hence, passage of legislation requires the parties represented in the Greek parliament to agree with his proposals. Of course, if they were political winners, they’d probably fly through. But there is nothing palatable about the measures being imposed on Greece is exchange for ongoing financial assistance.
The current sticking point is enforcing cuts to wages — a strategy of internal devaluation to boost Greece’s competitiveness. Antonis Samaras, leader of the centre-right New Democracy party, has complained that the country’s creditors are ‘asking for more recession than the country can take’. If the leaders fail to agree, then there is a real prospect that further bailouts will be halted. That would almost certainly prompt a total Greek default by March.
The problem, as Business Spectator’s Karen Maley reports, is that Greece has consistently over-promised and under-delivered since it was first sucked into the current debt crisis. Greece has frequently failed to meet agreed deadlines, and targets for a variety of measures have slipped away. Even if the latest impasse is resolved, there will surely be another one soon enough. How long before the inevitable strikes, and Greece is rendered broke by its squabbling politicians?
Is Europe beyond saving?
If you’re an investor, you might want to keep your eyes shut, the sound down and the curtains closed for the next week. On Friday evening (European time), Standard & Poor’s announced it was downgrading France — its bonds were bumped down a notch from the top AAA rating to a mere AA+. France was not alone, Austria too lost its AAA — though Germany and the Netherlands kept theirs — while Spain and Italy (already lower rated) were further downgraded. As Wolfgang Münchau writes in the Financial Times, this is effectively S&P drawing the line for where it expects the Eurozone to break up. Stronger northern European countries will go it alone, while those south of the debt line will be left to fend for themselves.
The only solution now, according to Münchau, is a federal Europe — the ability to tax across borders, transferring wealth from the prosperous to bail out the feckless and over-indulgent. Unsurprisingly, there is not much enthusiasm for this approach in Germany, which is effectively the driving force for reform in Europe today. And so, the end game approaches — an official Greek default now looks imminent, probably forcing it out of the Eurozone. And that will start a vicious cycle of further downgrades, and potentially other battered economies falling over — or stronger ones simply cutting them adrift. The bottom line: in Münchau’s estimation, there are no more credible options left for policymakers to save Europe. The game is up.
Europe, and the world at large, has every reason to hope that Messrs Monti and Papademos can work miracles. For if the technocrats fail to do so, the extremists are waiting in the wings.
Gideon Rachman, Financial Times
The new leaders of Greece and Italy — respectively, Lucas Papademos and Mario Monti — face an uphill battle, least of which is their ‘unelected’ status. Both come to their new roles with extensive technical expertise, and are particularly well versed in the institutions of the Eurozone. (Papademos was a vice-president of the European Central Bank, while Monti was an EU Commissioner.) These strong economic credentials mightn’t be enough though to fix the mess both countries are in.
So, what happens if Papademos and Monti fail? Well, economic ruin for a start. But the domestic politics of their two countries may also become considerably more radicalised. As Gideon Rachman observes, populists are on the rise: in Greece, a third of the electorate seemingly supports either far-left or far-right parties; in Italy, the Northern League (which helped prop up the previous government led by Silvio Belusconi) may revert to its extremist past, pledging all-out campaigns against the EU and immigrants. And the risks aren’t concentrated to those two countries either. Nationalist sentiment is on the rise throughout much of Europe. Some have even drawn enough votes to be considered possible contenders to govern (at least in coalition). Should their clout continue to grow, they could push their countries to withdraw from the EU — and dump the Euro. This is more than a crisis of confidence. It represents a fundamental threat to European integration. And worst of all, given how bad the damage is already, there may be little that can be done to stop it.
The question nobody wants to see asked
European leaders have been stunned by it. Investors are unhappy with it. And Greek politicians are decidedly unsure about whether to proceed with it. Barely a week after the European Union agreed on a ‘comprehensive’ deal to bolster the region’s finances, Greece’s Prime Minister George Papandreou has thrown a massive spanner in the works by calling a referendum on the measures required to bail out his bankrupt country. Markets were thrown by the declaration, with regional bourses tumbling by around 5 per cent in yesterday’s trade. And Papandreou is now en route to meet with his fellow national leaders to explain his baffling move.
Papandreou insists that the referendum will confirm Greece’s ongoing support for the Euro. But that’s hardly a guarantee. Protests in Greece are strong, and Papandreou’s hold on power is wafer-thin. Member of his socialist party have defected, and the opposition is baying for blood. If his government is toppled — a real possibility, especially if parliament fails to approve the referendum — all bets are off. Meanwhile, there is also speculation that within Papandreou’s own party, a leadership challenge is imminent. Even if Papandreou holds on, and a referendum is called, there may still be immediate pain for Greece — the uncertainty could cause the next instalment of bailout funds to be withheld. It is a frightful mess. Just what Europe needs.
Greece is finnished
In Europe’s political wrangling over how to resolve the debt crisis that has enveloped the region, Germany is often cast as the villain — blocking attempts at greater fiscal integration, and demanding ever more stringent conditions be imposed on fellow member states calling out for aid. Of course, when you’re one of the biggest donors to the bailouts, it’s inevitable you’ll carry a bit of clout. But it seems the Germans aren’t the only ones.
As the analysts at STRATFOR write (in an analysis republished by Business Spectator, to which the title above is linked), Finland is causing trouble of a different kind. The Finns have been even more resolutely opposed to bailouts than the Germans. And in exchange for contributing to Greece’s aid, it has negotiated a collateral loan arrangement — whereby Greece will have to deposit a big wad of cash with the Finns, which they will forfeit if they fail to repay their loans. So, Finland is loaning Greece money, in exchange for which it will receive money from Greece. Does this not seem odd? As STRATFOR wryly observes, if the Greeks had money, they wouldn’t need the loan in the first place. While it is unlikely to be a full-collateral (dollar-for-dollar) arrangement — that would plainly be absurd — it nevertheless imposes a greater burden on other member states to cough up money so that Greece can afford to pay its bills (including to the Finns). Understandably, other members of the Eurozone are wondering why they’re not getting the same deal — Austria, Slovenia, Slovakia and the Netherlands are now seeking similar conditions for their loans to Athens. None of this will help bring an end to the economic crisis, of course. But it does leave the biggest contributor, Germany, with some very awkward questions of its own — as the region’s minnows try to cover their own contributions, how much of the bill is it willing to foot?
