Global News Journal

from Jeremy Gaunt:

Greeks on the street

Greeks smashing windows and setting fire to shops and banks in a fury of opposition to yet more austerity is gripping.  But it is hardly unique. A few years ago there were similar scenes for weeks after police shot a 15-year old schoolboy.  And back when I lived there, U.S. President Bill Clinton was treated to a similar welcome -- mainly because of his military assault on Serbia (a fellow Christian Orthodox nation) during the Kosovo conflict.

There are doubtless degrees. The latest level of destruction was the worst since widespread riots in 2008 -- and austerity being imposed on Greeks is very painful. But it is worth noting that there are two underlying elements than make such uprisings more common in Greece than elsewhere.

The first is a division in Greek society that goes back to at least the end of the second world war. The civil war that followed the end of the German occupation was brutal and split the country between those wanting western free market democracy and those favouring Soviet-style communism. This carried though into the 1967-74 junta.

The second element is the role of outsiders on Greek history. The Civil War brought in western intervention and the junta got U.S. support -- to the deep-seated bitterness of those on the other side. Going back further -- and Greeks have long historic memories -- there are Persians, crusaders, Nazi Germans and the particularly hated Ottomans trying to make Greeks be something other than Greek. Here is a feature on it.

Add to that mix the Washington-based International Monetary Fund, the Frankfurt-based European Central Bank, the Brussels-based European Commission, derisive artilces in British and German tabloids and a drumbeat of tough talk from Berlin.

This is what happens when Greeks get their backs up about foreigners telling them what to do.

Europe can’t put out the blaze

If the world thought that Europe’s finance ministers were running in to put out the blaze spreading through Athens and Rome this week, it might come as a surprise to learn they still don’t agree on the size of the fire or how to deal with it.

Any training course will tell you that if a small fire isn’t tackled quickly, it could make things a lot worse. The Greek crisis is like a small electrical fire that has grown into a dangerous inferno now threatening to gut Italy.

But ministers meeting in Brussels have clearly not been on any fire extinguisher training courses lately — they don’t know their water from their foam and their dry powder. In fact, they appear to be pouring oil on the fire.

Belgium’s Finance Minister Didier Reynders says it is best to try to smother the blaze with a small cloth soaked in a chemical called a financial transaction tax, while Sweden’s Anders Borg and Austria’s Maria Fekter say they can’t spare any of their CO2 extinguishers.

“Italy can achieve a lot from its own doing,” Fekter told reporters who were watching the fire grow closer. Borg, Fekter and others are sure the Italians in the burning building down the street will be able to sort things out themselves.

Spain’s Elena Salgado is meanwhile clearly upset that the smoke from that fire is billowing into her garden, but France’s Francois Baroin says there was no need to reach for a fire hose: “Tout va bien” (Everything’s going well), he said, wiping his brow from the heat. A combustible mix of hot air and faulty wiring seem to be one assessment of the causes of the euro zone flames, which no one is really willing to consider. But as the sound of emergency sirens grows louder, it may be time to remove the safety pin from the extinguisher marked “European Central Bank” — it may be the only way to remove all the oxygen feeding the fire.

from Jeremy Gaunt:

Democracy and Chaos are both Greek

It seems as if almost everyone was surprised by Prime Minister George Papandreou's decision to hold a referendum on the euro zone's bailout package for his country. At the very least, it can probably be said that he is weary of being hammered from all sides --  his own party, the opposition, the people on the street, Germany, the tabloid press, you name it.

A lot will obviously depend on what question is asked. Do you want an end to austerity, would get a clear yes vote. Do you want to leave the euro zone -- perhaps not.

Financial markets, however, do not initially appear content to wait.  Talk of an end-of-year rally is off the table (at least for now).  It's not exactly χάος (chaos) out there, but Papandreou's  experiment  in δημοκρατία (democracy) has sent the whole euro zone project into a new, risky phase.

It was a typo, but RBS's take on the Greek referendum this morning will have had some resonance:

"We view this as a major negative for Greece and the rest of the momentary union".

Life no paradise in EU’s outer regions

Times are hard in distant corners of the European Union, even when the sun is shining and the euro zone’s debt problems are thousands of miles away.

Leaders of nine regions on the edges of the EU are asking the rest of the 27-country bloc to pay more attention to their needs and shape investment policies better to their problems, exacerbated in some cases by the global economic crisis.

“Poverty in the sunshine is no easier than poverty in the snow”, said Frantz Gumbs, leader of the small French community on the Caribbean island of Saint Martin.

“We’re not asking for more and more”, he told a conference in Brussels. “We’re asking for better.”

The voices of territories as far away as the Indian Ocean and South America are rarely heard at the heart of the EU. So leaders from these regions, the most distant of which was the island of Reunion, a French territory about 9,000 km (5,640 miles) from Brussels, took the chance offered by the first Forum for Outermost Europe.

The leaders said EU support should be better tailored to their specific needs and their efforts to strengthen their traditional economic sectors, boost competitiveness and develop entrepreneurship.

The French community of Saint Martin makes up just under half of the about 75,000 population of the island, half of which is French and half of which is part of the Netherlands’ Antilles.

Angela Merkel’s “read my lips” moment

    Angela Merkel has already abandoned plans to pursue billions of euros in tax cuts next year — the central policy pledge of her 2009 election campaign and main plank of her 7-month-old coalition agreement with the Free Democrats.

    But now her uneasy government looks ready to go one step further and raise value-added tax on certain products which benefit from a reduced rate to help it consolidate the budget.

    This is what Merkel had to say about such a move in an interview with N24 television in June 2009, in the midst of the election campaign: “There is absolutely no need to worry about that, it won’t happen. In the midst of an economic crisis it is absurd to even discuss these questions.”

    She told top-selling daily Bild that same week: “With me, there will be no increase in the next legislative period, neither of the full, nor of the reduced rate of value-added tax.”

    If her government does decide to raise VAT rates — it will meet this weekend to try to forge a consensus on fiscal plans — Merkel can and will claim that underlying economic conditions have changed since she uttered those seemingly definitive words nearly a year ago.

    The Greek crisis has spooked leaders across the euro zone, and many are scrambling to consolidate their budgets to avoid suffering the same fate as Athens, which was forced to go cap in hand to the EU and IMF.

    But Merkel’s about-face is different and more serious, especially for a leader who came into office in 2005 vowing to put an end to the “false promises” of previous German governments.

EU squabbles feed market frenzy

  The European Union can rarely have been more in need of a show of unity than now, as it tries to convince financial markets it can handle the euro zone’s debt crisis.

    Hardly a day goes by without a European leader underlining the need to act together, but hardly a day passes without signs of differences among them that undermine the impression of unity.

    This week is no exception. European Commission President Jose Manuel Barroso said in a speech in Brussels on Tuesday: “We can turn today’s challenges into opportunities only if we stand together, give a collective response.”

    But comments he made in an interview published hours earlier showed the EU’s leaders are anything but united in their vision of how to tackle the crisis.

    In the interview with Frankfurter Allgemeine Zeitung, Barroso dismissed as “naive” Germany’s call for the EU treaty to be modified to prevent a repeat of Greece’s debt crisis — and Germany hit back quickly.

    Economy Minister Rainer Bruederle said he was surprised at the remarks and went on to criticise a joint euro bond proposed by European Union President Herman Van Rompuy, saying it would create the wrong incentives and reward member states that do not pursue sensible budget policies.

    “What we need are clear signals for solid state finances in order to secure trust in the euro over the long term, and to prevent future crises,” Bruederle said.

Germany’s euro-zone bind

Whichever way you look at it, Germany is in a bit of a quandry.

For the past 11 years, since the launch of the euro single currency, Europe’s biggest economy has enjoyed steady current account surpluses as it has exported its manufactured goods around the world, while keeping labour costs down and productivity steady at home.

Its economic growth may not have been stunning in recent years, but it has experienced none of the huge budget-deficit and debt problems of its euro zone partners, particularly those in southern Europe such as Spain, Greece, Portugal and Italy. And it has none of the nagging competitiveness issues that all those countries also face.

Essentially it has a modern, open economy and has pursued steady, prudent economic management.

So when Greece’s debt crisis exploded — leaving the euro zone with effectively three choices: have Greece leave the euro, let Greece default, or bail Greece out — Germany was none too thrilled about any of them. Least of all, though, did it want to bail Greece out, believing that it wasn’t up to hard-working German taxpayers to pay off Greece’s debts when the country had spent the best part of a decade spending at will and doing nothing to overhaul its economy.

Alas Berlin, the heartbeat of the euro zone, naturally ended up having to be a central part of Athens’ bailout. And what’s more, the biggest contributor to the $1 trillion rescue package the IMF and European Union put together to prevent Greece’s problems spreading throughout the euro zone.

In reply, what Germany won from its euro zone partners — particular the profligate, uncompetitive, southern European ones — was a commitment to overhaul their economies. Greece, Spain and Portugal have basically promised to make changes to their public sector models, raising retirement ages, cutting state payrolls , raising some taxes, slashing spending and improving competitiveness. It’s going to take time and serious commitment, but Germany is hoping the southern European economies will ultimately look a bit more like Germany does.

Who do you call to speak to Europe?

Who do you call when you want to speak to Europe? The question, long attributed to Henry Kissinger, has yet to be answered convincingly by the 27-country European Union.

Six months ago, European Commission President Jose Manuel Barroso told a news conference the person to call on foreign policy issues was Catherine Ashton, who had just been chosen as the European Union’s foreign affairs chief.  The “so-called Kissinger issue is now solved”, he said.

Ashton reinforced that view on Monday by suggesting she was the person to call if Iran wanted to discuss the latest diplomatic moves on its nuclear programme. “They have my phone number,” she said.

But Barroso was more vague at the news conference last November when asked whom U.S. President Barack Obama should call if he wanted to speak to the EU. He pointed out that the EU was not one country, like the United States, China or Russia — implying they each had one clear leader. He seemed to be saying that the person you have to call depends on circumstances or the nature of the problem a foreign leader wishes to discuss.

So who did Obama call when he wanted to discuss the debt crisis threatening the group of 16 EU states that use the euro?

It wasn’t Ashton — as a Briton, she is not from a euro zone country and anyway this was a call about economics, which is not in her brief.

It wasn’t Herman Van Rompuy either, even though he too could stake a claim to be the face of Europe as the bloc’s first full-time president.

Playing with inflated numbers

Most people would agree that the European Union and the euro single currency are part of a grand political and economic vision. But at times they are also a bit of a numbers game.

As Greece has shown with its less-than-reliable economic statistics, numbers can be fiddled to get budget deficits and debts down and meet the criteria to join the euro.

But the European Commission, the EU’s executive, is not above a bit of numerical jiggery-pokery itself, even if no one is suggesting that the Commission has made any numbers up. Its figures just don’t make much economic sense. 

Take the case of Estonia and inflation.

The Commission announced on Wednedsay that Estonia would be allowed to adopt the euro next year.  One of the criteria the Commission said it had met was the EU treaty’s inflation target. The treaty says a euro candidate country’s average inflation over 12 months must be no higher than 1.5 percentage points above the average of the three “best performers” in the EU.

By “best performers” the treaty means those countries with the lowest inflation rates.

In this case that was Portugal, Estonia and Belgium, which had inflation in the 12 months to March of -0.8 percent, -0.7 percent and -0.5 percent respectively. With 1.5 percentage points added on, the inflation target became 1.0 percent.

Deja vu? EU ministers meet on Greece

How many meetings does it take for the European Union to solve a problem? Quite a few — at least in the case of Greece’s debt crisis and preventing it from spreading to other euro zone countries.

There was a definite sense of “deja vu” when the bloc’s 27 finance ministers met on Sunday to approve measures aimed at ring-fencing Greece’s debt problems.

They were pretty much tackling the same problems as the leaders of the 16-country euro zone had dealt with at talks on Friday. The leaders had met to approve what Eurogroup finance ministers agreed five days before at talks that were called to build on agreements at a series of EU and euro zone meetings this year.

Securing agreement among all 16 euro zone countries or all 27 EU member states has never been easy but it is particularly hard for governments to make deals during an economic downturn or when they face domestic opposition to a bailout – as is true in Germany’s  case.

What has the effect of all these meetings been on financial markets? By Sunday evening, not too much, although  IMF and EU formal approval for a 110 euro ($148 billion)  loan package  for Greece over three years did at least help push up the  euro.

Previous EU action this year has failed to calm financial markets and ended up undermining the EU’s credibility.