Euro muscles from Brussels
Europe reached agreement to show some Euro Muscles from Brussels
With a rescue package close to $1 trillion, the European Union confirms its commitment and strenght to hold the Euro fort. It has been under attack for several months now and it was high time to put on a show of force. 'E.U. details $957 Billion Rescue Package', the NY Times headlines. The speculation armies were attacking the gates of Fort Europe and reinforcements seem to have arrived just in time. The finance ministers from the European Union were under high pressure to come up with a strong answer, before the opening of the financial markets in Asia. And they showed that muscles from Brussels are firm in defense of the Euro currency.
High Noon
It was high time to show the financial world the Euro was not the best bet for speculators to mingle with. Hesitation and half action, soothing words without direct and firm steps had weakened the credibility of the Euro. The Greek drama, packed with emotion, mistrust, deceit, rioting and now even death, and the spreading crisis virus to other European markets had to be addressed. When the time frame is defined, suddenly things can come to a conclusion. It is a rule that debate and negotiations expand with the time allotted for reaching a decision. When you know time is running out, things often fall into place. In the early morning hours, a decision was reached. And the markets like it.
Euro response… muscles enough in the long term?
The deal provides $560 billion in new loans and $76 billion under an existing lending program, with the IMF adding $321 billion.
Olli Rehn, the European commissioner for monetary policy, was firm “We shall defend the euro whatever it takes”.
David Marsh, the author of “The Euro,” a book on the history of monetary union“ still shows some doubts on the rocky road to recovery:
"The fact that they are worried is clear. But I don’t think that there is enough commitment or economic firepower in Germany to provide the massive loan guarantees to satisfy the markets.”
At least the first signs in the market are positive, the trend is up. The psychological boost for the markets seems to work on the short term. Now the economies and the recovery plans themselves have to drive down the point. Let us hope the fort holds!
EU so much more than Euro and Finance
The Euro dominates the news and keeps setting the agenda op the European Commission
The Euro and the fire in the financial markets dominate the news. IMF fears debt crisis 'contagion', heads Al Jazeera. Greece's financial woes spreading through Europe, the Global and mail runs. Athens domino effect hits Lisbon, headlines presseurop. Et cetera et cetera. The attention is logical and justified. When a house is on fire, the citizens come together to fight the flames. Even when the fire might be the fault of people living in that house, the others rush in to save what can be saved. As happens there, Europe tries to form a chain and stop the smoke,the heat and the devastation. And yes, valuable time was lost, the wind is rising, the barn where the "Pigs" live (an inexcusable term, I must say) is now in danger too.
EU is so much more than Euro and Finance
So "Of course it's the economy, stupid", as cowboy Bill would say. But Europe is so much more than the Euro and Finance. And regretfully the media often seem to miss out on those wonderful stories.
Breughel was right: the work continues
As in Breughel's fall of Icarus, the farmer keeps on plowing, the work needs to be done. Amazing how people seem to forget that. There are so many excellent initiatives the European Commission undertakes, so much good work done is done. But in in the shadows of the flames. The story is where the crisis is. Will Icarus fall or will he land safely? Yet Breughel was right. In the field, the workers labour on. The farmer is in the center of the picture, not Icarus. A visit to the European press room can be refreshing and positive to see the up side of Europe at work. Amazing to see how much Europe is doing. These are the messages from one day: "Cooperation to help refugees", "Support to European inventors", "Clean energy efficient vehicles", "Healthy workplaces", "Innovation awards", "Collaboration with Japan", "Relations with the Caucasus", "More efficient institutions and administration", … .
The list of actions is impressive, so let's not throw out the baby with the bathwater, even to put out a fire.
Euro, fairy tale with a happy end?
Will Europe truly come to the rescue of Greece? Germany and France have different views on the role Europe should play, making a clear reply difficult. This difference will continue to dominate every discussion in European financial policy a Charlemagne article in The Economist explains.
The euro was not blessed by political and monetary unity at birth (as was the case with the US dollar). This curse of the bad fairy has come to haunt the blessed princess. The euro pricked her finger on a spindle called Greece, but how the sleeping beauty will come back to life and happiness remains uncertain.
Optimists say France and Germany will play their part as 'good fairies'; pessimists think the euro-curse will hold and the currency will break up. The article says both camps have a "too tidy" narrative. The key to the problem is in the concept of monetary unity. Germany wanted a "European Bundesbank", an independent watchdog to fight inflation, while France wanted a central euro-bank that would be “counterbalanced” by elected politicians, who could tell them when to put growth and jobs ahead of price stability or fussing about deficits. One goal was common to all: end exchange-rate risks within the internal market, including competitive devaluations.
France and Germany still disagree on the next step in rescuing Greece. Fiscal rigour is what German politicians advocate, while their French colleagues hope for more intervention. Jean-Pisani Ferry, director of the Bruegel think-tank says It is a fantasy a fiscal union will slosh out money in the euro-zone to iron out the varying economic development.
A story to be continued… and no doubt followed by a series of other similar tales of the unexpected, in the rescue of Spain, Portugal etc. Not to mention thrillers like the rescue of the automotive industry (or not) and other economical pillars of the European industry.
EU PIIGS financial challenge
Will a stampede of the "PIIGS" destroy the finance vegetable garden of European?
Will the hurt monetary beasts attack the worldwide economy?
Stephanie Flanders, BBC's economics editor, says in her Stephanomics blog that "however bad things might be here (in the UK), we really are a long way from being Greece". There is no "Greek Britain", when you compare the data country per country. Stephanie Flanders says she tries to avoid the word "Piigs". That is the new and catchy acronym that bundles the "faltering students" in the European currency community. The PIGS are Portugal, Ireland, Greece and Spain. They have fallen out of favor with investor and face immense financial problems. The missing "I" is for Italy, who join the group, due to their massive government debt.
But what bitter pill will need to be swallowed? In Time Magazine, Justin Fox, says Greece has four options:
1. Scrimp and save to convince creditors that it can keep paying them off
This is domestic political suicide, and it might not be smart economics either; slashing government spending and raising taxes during a downturn could worsen that downturn.
2. Convince its fellow euro-zone countries–or maybe the International Monetary Fund–to bail it out.
This seems the best of the lot but has high international political hurdles to surmount.
3. Default on its debts
Would be a disaster for Greece and for the global financial system.
4. Pull out of the euro
Given that there are no procedures for leaving the euro, it might risk unraveling the entire project.
This is a bleak list. In truth only option one and two seem to stand a chance, and preferably in a well oiled combination. Justin Fox in any case clearly indicates options 3 and 4 are 'no option options'.
George Papamarkadis in the Wall Street Journal says Greece's fundamental problems are structural. To regain lost competitiveness, Greece needs to implement supply-side and institutional reforms, such as reducing the number of state-owned companies. This would make the economy more competitive, and reduce sources of corruption and nepotism.
Greece starts marathon of change
If the Greeks do not regain the markets’ confidence, they may fail to refinance the €20 billion ($28 billion) debt due in April and May. And more billions to come in the months after. But besides this immediate crisis, Greece is running a marathon to restore their financial balance and credibility, The Economist indicates. To make things worse, they carry with them the weight of two centuries of default and fiscal trouble. Although all eyes are on Greece today, several other EU countries face these challenges, with Spain and Portugal leading the list.
One Greek commenter on this sharp article in The Economist, who calls himself 'Scepsis', wrote that this is truly an embarrassing time to be Greek and that it is difficult to argue that Greece is worthy of being called European. In his view Greece needs severe structural changes in labour laws, education, health, transparency, reduction in the rampant corruption (a major disincentive to foreign investment), tax evasion etc etc as well as a general change in attitude… Either they wake up, or the future looks really bleak…
The sorry state of Greece is a test not only for the country's policy makers but also for Europe.In 1985, Brussels already bailed out Papandreou 'senior', but the country did not change its attitude and policies at the root. Now the son and political heir George Papandreou indicates he will act firmly, Europe must and no doubt will be more vigilant this time around. The stakes are high indeed, as Papandreou said in a television address. The government has no choice other than to act with force to prevent the country of “falling over a cliff”. George Papandreou, who was born in St. Paul, Minnesota and went to high school in the US and in Sweden and studied at Amhurst, Stockholm University, LSE and Harvard seems the man who could lead his country out of the slum, but he will need the support of all, his adversaries included, to succeed.
The European Commission accepted Greece’s “stability and development” plan; later this month the European finance ministers are likely to approve it as well. Still, reducing the deficit from 12.7% of GDP to below 3% in 2012 seems an impossible journey. Besides severe austerity measures and drastic changes in the economy, the country truly will have to reinvent itself and run a marathon of change. Greek farmers today scaled back their protest, but at the same time Greece’s largest union announced plans to hold a general strike later this month. There is a lot of work to be done in facing the facts and getting all in on positive action, even when painful. Communication and permanent updating of the credibility effort will be key to a recovery. Europe should also step in and speak up. With a clear and loud voice. The credibility crisis is international, as stock markets today indicate loss in confidence yet again. The fear exists that this Greek financial virus can touch markets everywhere, in Europe and far beyond, reaching Australia.
2020 Strategy holds key to EU future
European Union leaders will place the creation of a 10-year programme aimed at boosting Europe’s competitiveness and economic growth at the heart of their discussion in Brussels next month. Herman Van Rompuy, the EU’s first full-time president, will chair the meeting. On Monday Van Rompuy announced during his first day on the job that he was summoning national heads of government to Brussels for the February 11 event. Tony Barber in the Financial Times adds the balance exercise will be difficult and lists the missed targets of the Lisbon treaty, to put salt in the wound.
The 2020 strategy must be the successor of the ambitious Lisbon agenda, that had sounded promising at the time but left many hungry for results. Former Dutch prime minister Wim Kok said in 2004 “Lisbon is about everything and thus about nothing. Everybody is responsible and thus no one.” The business world and governments need 'a fix', especially since the crisis further destroyed the chances of reaching most objectives. With many Eu countries in deep crisis or even near bankruptcy, with Greece as sad head of the pauper pack, the debate will be complex and with far reaching consequences for all Europeans, especially for the next generation.