Posts Tagged ‘Greece’

The ECB won’t save the day, but Germany might

November 14, 2011 1 comment

As things stand in the Eurozone the European Central Bank (ECB) is incapable of providing the much needed status of Lender of Last Resort. It is prohibited from printing money by the Maastricht Treaty, but it is able to buy government bonds as part of its function to maintain price stability. As had been experienced last week when there was a run on Italian and Spanish bonds, the ECB bought bonds to force the price down, and thus stable (for a short period of time).

As has been pointed out by Paul Krugman, the crisis that is currently striking the Eurozone is a result of an imbalance of payments. Germany, thus, needs to spend. It’s very rarely that I praise George Osborne, but he has said:

“If you think of currency unions, here in the United Kingdom or in the United States, we do transfer money around the country in order to try and get greater equality in the economy. I’m afraid that needs to happen in the euro, because we are not there yet and the instability is having a huge effect.”

This is crucial for the survival of the Euro. A monetary union requires a fluid movement of capital across the union. So far, the Euro has been a disappoint. A monetary union without the necessary sacrifices to make it work. I believe it has only worked through a series of fortunate circumstances, such as a prolonged period of growth. 2008/9 was the the first time the Eurozone had experienced a recession in its 10 plus year history. Now that a sovereign debt crisis has struck the southern economies of Greece, Italy and company – which was created by the cheap and easy credit of the noughties – it is the first time where the Euro has been tested to its limits. Its limits have proven to be woefully weak.

But progress is being made, on the political stage. On Monday, at a Christian Democrat Union (CDU) Conference, Merkel was reported to have pressed for an economic and political union in the Eurozone. @EPPTweet tweeted earlier: RT @SMuresan#Merkel at #CDUpt11: “We have to complete monetary and economic union and pave the way for political union in #Europe” #epp

This is a step in the right direction, but there also remains a stumbling block – the German constitution. We shall see what happens, but progress is being made and the faults of the Euro are, apparently, in the process of being corrected.



Europe, China and the odd one out

October 27, 2011 Leave a comment

On Wednesday night the Eurozone summit convened and passed a motion agreeing to a €1 trillion European Financial Stability Facility (EFSF) top-up. It has already become obvious that this €1 trillion fund is not enough and negotiations will now start between the Eurozone, led by Nicolas Sarkozy, and China ahead of next weeks G20 meeting. It is expected that China will supply a further €1 trillion bringing the total fund to €2 trillion.

The summit also imposed certain conditions.  Banks will be limited in paying dividends and bonuses until they meet capital thresholds of 9%, or €106bn. This is the equivalent of another HSBC. No mean feat. Britain’s banks, having been forced by the Bank of England and the FSA to raise this amount will be spared the task.

Greece’s debt will be partially written off, reducing the debt burden from 180% GDP to 120% GDP. The next woe for the Eurozone is more than likely to come from Italy. Before the summit Berlusconi, the Italian Prime Minister, declared he would resign by the new year. A welcome announcement for pretty much everyone.  For months the Italian economy has been without leadership and this was openly declared by Steinmeier in the Bundestag on Wednesday.

The situation in the Eurozone, as is evident, is not contained to the Eurozone. Britain’s largest trading partner is the Eurozone. China holds €2.4 trillion in currency reserves. If the Euro collapsed China would be stuffed. As it is, China has had to resort to boosting domestic demand in anticipation that demand in EU27 will drop off, despite an increase of China to EU27 exports of 20% in 2010. China’s help, however, will not come from China’s desire not to lose any money. It is expected, and one would be surprised if they didn’t, that China will demand that Europe acknowledge China as a market economy and thus drop some of the trade barriers on Chinese products.

Britain, in the whole situation, is the odd one out. On Sunday, Sarkozy told Cameron “You are missing a good opportunity to shut up. If you wanted a say you should have joined the euro.” On Monday, Britain was the only Parliament to debate holding an in/out/renegotiate referendum on EU Membership. The Eurosceptics of Cameron’s Conservative Party threatened to tear his party apart. In the end, only 81 Conservative MPs (including the two tellers) rebelled against Cameron’s three line whip to vote in favour of the motion calling for the referendum.

Cameron has done well to isolate Britain from the European Community, and Germany in particular. The withdrawal of the Conservative Party from the European People’s Party in 2009 in favour of setting up a right-wing bloc in the European Parliament consisting of European fringe parties from the former Soviet bloc. Since becoming Prime Minister, Cameron has moved closer to France without German involvement. France and Germany are inseparable in Europe and to snub Dr. Merkel is an unwise decision.

In the Bundestag, on Wednesday, Kauder (CDU) said : we’re prepared to reach in our pockets, but expect solidarity from Britain & agreement on financial transaction tax. Was that solidarity given? No. Osborne stated that Britain would not give any money to the EFSF but did not rule out giving indirectly via the IMF. The same result will occur – Britain will give money to the Eurozone. The route that Britain has taken, however, will only serve to further isolate the island nation.

On Thursday morning, the Daily Express jumped on comments made by Merkel in the Bundestag on Wednesday:  “If the Euro falls, so does Europe.. No one should assume that another 50 years of peace in Europe are a given.” The Express took this for an implied declaration of war, thus cooling the frosty nature that Britain currently has with Germany. Britain is fast becoming the ‘odd ball’ of Europe.

Britain’s isolationism beside, will the current round of funding to the EFSF work? In the short-term it will. In the long-term it is unlikely. As a European Federalist, tinkering with the Euro will not save it. Fiscal and further political union will save it.

The Future of the Euro and Europe

June 10, 2010 2 comments

Germany has recently won the Eurovision Song Contest. It was an OK song and a cynical person would suggest that Germany only won because of its bail out of the Eurozone.

But talent contests aside, there is something much greater at stake than the future of Eurovision. This greater something is the Euro and the European Union. Whilst we commend Germany’s action by bailing out the Eurozone, its action also hides and ignores the greater issue that needs to be addressed – further union.

It can be argued that the PIGS (Portugal, Ireland, Greece and Spain) should be removed from the Eurozone and perhaps the European Union. One would be correct in implementing it as a short-term solution. However the problem is long-term as opposed to short-term.

Greece found itself in its awful predicament through a combination of its own economic incompetence and not being able to devalue its currency. Devaluing the currency would have allowed Greece to negotiate with its creditors and alleviate the pressure and given Greece time to sort out its mess without a bail out. However, because the Euro’s monetary policy is set by the European Central Bank (ECB), the ECB was unwilling to devalue  the Euro as it would have damaged, in the short-term, Germany’s economy – as Europe’s largest exporter. The Greece situation also brings into question the effectiveness of the ECB.

To make the ECB and the Eurozone effective, so that a situation like Greece does not occur again, is a fiscal and tax union alongside the existing monetary union. If tax and general economic aims are set centrally in a single currency zone – the entirety of the economic functions available can be put in force so that the entire Eurozone area is protected from future crises. The further union of the Eurozone will be, of course, a huge step towards Federalism.

The problem is economic the solution is political, and there will be opposition. The main source of opposition, we imagine, will be from Germany. Germany, as Europe’s largest economy and exporter, is likely to lose out in the short to mid-term whilst this union settles down.

Politically, many countries, for many xenophobic reasons, will not want to hand over more sovereignty. But it needs not be like that if the federal model that Europe adopts is based on the German model. The German States remain fiercely independent and autonomous yet they have a central government to give them a unified direction.

In conjunction to this move towards federalism we also propose a halt to the expansion of the EU as further expansion eastwards will only serve to weaken Europe. We also flatly reject Turkish application to the EU, this is because Turkey is not part of Europe – it does not share a culture, its economy is essentially third world and its record on human rights etc., is atrocious.

Now to confront Britain’s future with Europe. Britain’s future is with Europe and at the heart of it. Britain’s future is not with America, we share a language but not a culture. America embraces its own form of Anarchism where everyone is out for themselves. Europe, on the other hand, embraces, broadly speaking, variants of Liberalism such as Liberal Socialism or Liberal Conservatism. But whatever variant of Liberalism is embraced the collective ideas of community and society is embraced, largely, by all. Britain’s political and cultural traditions are largely similar with the rest of Europe. A strong Britain in Europe makes Europe strong. A Britain outside Europe is weak.

The problem with Europe at the moment is that it is not the federal super-state that is should be nor is it the trading bloc that it used to be. Because of the current transient nature of the EU, it is scorned by outsiders and by those that should be on the inside.

Once the move to federalism has been established the pooling of resources will be easier and more efficient. No longer will there be cross expenditure on products, services etc.

There is also the matter of a common language in order to execute the provision of services. We advocate Spanish as it is one of the easiest languages to learn. However we do not advocate the eradication of native languages but merely a move towards multilingualism, bilingualism at the least, of all European citizens.

One should take note that what has been discussed above are broad ideas. We understand and appreciate that our end goal, of a federal Europe, will not materialise over night nor is it likely that it will happen within our lifetimes. We would, however, love to see it in our lifetimes and strive at every possible opportunity to make our dream a reality and unleash the true potential of a United and Federal Europe.