Tag Archives: Merkel

Greece, Trust and the Inevitable

It’s been difficult to keep track of the back and forth on Greece’s chances to secure a bailout package in time for the country’s March deadlines. As soon as solutions are found and touted, someone finds a way to dash all hope with fresh demands or new criteria for acceptance. In the course of a single day, the bailout package can go from assuredly approved to dead in the water and back again. Its debatable which side has been guiltier of delaying or moving the finish line, but ultimately, the consequences are severe for both sides.

Most troubling about this back and forth, is what it means for the little remaining trust that exists between the Greek government, the general population and the country’s many creditors. The people are suspicious of the parliament and technocrat government, the country’s political leaders are wary of anything that resembles intervention from outside and the EU and IMF don’t appear to trust a word coming out of Athens. No one, it seems, thinks the other is acting in their interest. Today hardly helped that process as a few pivotal EU leaders presented a plan that would push any bailout package back to April, following Greece’s national elections. The move, pushing any distribution past the March bond deadlines, appears to critics as a move to either force default or influence the election outcome by hinging approval on a government that would be sure to institute what the Union leaders want most – more cuts.

Leaving aside the argument of whether austerity is really the best approach to getting Athens out of the ditch – that will come in a later post – its difficult to see what the purpose of this proposal actually is. Greece appears close to the edge for so many reasons, with Iran’s oil cuts adding to the list today, why would EU leaders add more stress to the situation if they really wanted it to succeed?

This question goes back months to when Angela Merkel appeared to offer little hope for certain countries to rebound, sewing doubt where one would think she would offer a bit more optimism. Since then, she has been a voice of reason but also one of cautious doom, keeping the process moving but without much confidence that it would lead anywhere or really even be seen through. From the Greek side of things, I can see how the pessimism, added to the actual, real-life pressures they are dealing with, is starting to grow heavy. Are the country’s creditors actually doing something to solve the problems – to find a solution – or just staving off the inevitable? Would an outside plan work, even if complete control was handed over to Germany? Is it preferable just to face the obvious sooner than later or is there really a viable path forward that does not mean giving up any sense of control or autonomy?

Image: The Financial Post

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Are Germany’s Demands Even Good for the Med?

As Spain’s new government settled in to the reality that 2012 may just be worse than they dared dream it could be – with unemployment hitting 22.8 percent today – Prime Minister Mariano Rajoy appears to have realized that straight cuts and deficit reduction may not be the only path to recovery. Indeed, Rajoy now joins a host of Mediterranean leaders who are withering under the deficit demands of the EU’s strongest and most influential figure, Germany’s Angela Merkel. They want to get things under control, they insist, but all austerity and no efforts to spur growth are leaving them stagnant and facing increasingly frustrated populations. Making matters worse, they are facing a growing chorus of critics who suggest that the very cuts so vital to Merkel’s plans for recovery and assurances of fiscal support are actually making growth harder to achieve. At this week’s World Economic Forum in Davos, both George Soros and IMF Chief Christine Lagard echoed those sentiments with what could be construed as appeals for Merkel to back off and let a more collaborative approach take over, with the IMF head noting, Resorting to across-the-board, across-the continent, budgetary cuts will only add to recessionary pressure.”

For Rajoy and heads of state like Italy’s Mario Monti, the situation has left them appealing to Merkel directly, asking her to ease up on deficit cutting demands to allow for some efforts to spur growth when their countries need it and jobs most.

The Guardian’s Giles Tremlett reported, “While Rajoy, who met German chancellor Angel Merkel in Berlin on Thursday, publicly maintains his target of reducing the deficit to 4.4% from more than 8% last year, his ministers are letting it be known that they want the EU to ease up on deficit targets which require severe adjustments. Rajoy himself has pointed out that the EU’s target for 2011 supposed not only that last year’s deficit would be 6%, but also that growth this year would reach 2.3%.”

However, despite such appeals, Merkel appears unmoved while the debate continues to build around her. Still, its worth asking how long she can hold out until she begins to feel the pinch as sustained unemployment and negative economic growth in the southern states continue to weigh down Germany’s flagship economy.

 

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Eurobonds – An Inevitable Conclusion?

Aside from the dismal showing of German bonds this morning, the story of the day appears to be the unveiling of EU President José Manuel Barroso’s proposed economic policy suggestions for how to pull the community out of the current downturn. As outlined in the Guardian this afternoon, the proposals amount to:

1. All 17 euro area countries would send their draft budget plans to the Commission by 15 October each year.
2. The Commission be able to request a new draft budget if the original showed serious divergences with commitments made by member states.
3. The Commission carry out closer monitoring of Member States under its ‘Excessive Deficit Procedure.’
4. The Commission would have the right to decide on enhanced surveillance of member states when financial stability is threatened.
5. The European Council could recommend to a Member State that it requests financial assistance.
6. All euro area Member States would be required to set up independent fiscal councils, and prepare budgets based on independent forecasts.

While Barroso’s pitch was weighed down by early resistance out of Berlin, it really seems like all of the points he made were inevitable conclusions of Euro proponents’ plans for community economic integration. Sure, they are coming earlier than expected and forcing more than one head of state’s hand in the matter, but greater transparency and reporting seems like a natural progression of integration plans for the community and really, in line with what I understood leaders like Merkel to be demanding more of out of Athens and Rome. Critics have pointed to a loss of economic sovereignty in the face of greater oversight from fellow member countries, but unless I missed something along the way, doesn’t an EU community of shared policies requires at least a level of lost independence in favor of the health of the larger community?   I understood that to always be part of the plan.

Which leads me to the other big confrontation of recent days – the viability of a Eurobond for member states. Sure, it would mean more short-term benefits for those countries in the most need of assistance and require the most from the countries that have kept things in order. But like the Barroso’s proposals listed above, the bonds seem like a natural evolution or endpoint for the community’s economic integration.

Again – yes, they are coming earlier than expected but if a tool that will eventually be a part of the economic community could help strengthen fellow member states in a time of crisis, why not adopt them earlier than later. Resistance from Merkel and Sarkozy is certainly understandable as it allows a level of acceptance of economic misdeeds, but if eventually, why not now? And if they insist on holding out until a more ideal time, how good do things have to be before they can be considered? Or how bad?

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