Merkel's Savage Blitz through Euroland: The German Chancellor pushes the Eurozone closer and closer to the Cliff.
Angela Merkel has let a minor brush-fire on the periphery turn into a raging inferno that's sweeping across the continent. Absent
There is a fix for the EU's problems, but it will require cooperation, vision and a supra-national government institution capable of implementing fiscal policy. It's all very doable, but not in an atmosphere that is charged with acrimony and divisiveness . As the most powerful member,
None of the countries in the Euro-project joined because they wanted to be lectured by arrogant German/Austrian bureaucrats whose Stone Age grasp of economics has thrust the 16-state confederation to the brink of disaster. Besides, the markets have already voted thumbs down on Merkel's "hair shirts and thin gruel" remedy. They want stimulus, growth and liquidity; none of which are provided in "Frau Nein's" plan for economic contraction.
It's worth reviewing some of the details of the so-called "Greek bailout" to get a handle on how debilitating the EU's austerity measures really are. Here's an excerpt from an article by Polyvios Petropoulos, former economics professor in the US, which outlines some of the harshest cutbacks:
"First of all, the IMF/EU program... is no “help” or “aid” or “rescue”, or even “bailout”, as the IMF, the EU and various commentators are saying. It consists of a series of loans, in fact non-concessional loans...with unprecedented draconian conditionality and the normal interest rate which is charged by the IMF in all cases. As to the EU portion, it is given at an even higher interest rate... Paying 5-6% interest rate, when the country’s GDP growth is -4% p.a., clearly makes the country’s debt problem unsustainable, as has been shown by several economists....
Second, it was not offered to help the “Greek people”. It was offered to help the bondholders, the bankers, the euro, and to avoid contagion with its nasty consequences for the EU and the global economy...
Third, there is absolutely no “protection for the most vulnerable”, as one would have expected from the “socialist” (or “ex-socialist”?) head of the IMF, or the “socialist” Greek government for that matter, and this claim is made several times in both of the documents mentioned above. The opposite is true. A mere listing of some of the austerity measures will suffice to prove my assertion:
-A meager so-called “social solidarity allowance” for destitute people was abolished, despite assurances in the IMF Q&A session that “the targeting of social expenditures will be revised to strengthen the social safety net for the most vulnerable”.
-Despite assurances in the Q&A session that “minimum pensions and family support instruments will not be cut”,all public and private-sector pensions and allowances have been cut, all the way down to meager pensions of 450, 500, 550 euros per month etc., which are well below the poverty line (making it impossible for old pensioners to survive)...
-Reduction of the salaries of even the lowest-paid civil servants....
-Freezing of the lowest salaries and pensions for the next few years, although inflation is already galloping above 4%...
-VAT (value added tax), which was much higher in Greece than in Portugal and Spain, was raised by about 20% on all goods, including basic foodstuffs, which make up the majority of poor people’s purchases.
-Sales taxes were raised on –supposedly- luxury goods…such as gasoline (+50%), cigarettes, beer, wine etc....
To be fair... the reduction of the pitiful pensions of the private sector was not imposed by the IMF officials in
So the debts of the bankers and speculators are being hoisted onto the backs of the working poor and aged. Where have we heard that before?
"European banks have an estimated $2.8 trillion exposure to
"The EU stabilization package helps towards refinancing of sovereign debt, but does not address private sector debt," Gollapudi said." (Reuters, "
So Merkel can stop pretending that the bailout is an act of selfless charity. No one is buying it. Nor are they confused about the $1 trillion pile of euros that the EU gathered together to ward-off speculators. Short-sellers saw through that sham in less than 24 hours and sent the markets plunging again. Do the Euro leaders really think they're smart enough to pull the wool over Wall Street's eyes? Wall Street invented fraud; they're not about to be duped by prissy politicians in tweed suits.
Will someone in the EU at least show that they understand the basic problem? European integration is more than just a common currency and a Treaty. It requires politics, governance and unification. Currency is not politics and treaties are no substitute for government institutions. The charade has gone as far as it can go without more concessions from the individual states to establish a central authority to implement fiscal policy. The Merkel view is that
So, how can the EU get ahead of the markets before the euro vaporizes and the economy is pushed back into recession?
The markets are jittery because the proposed remedies are all deflationary and will lead unavoidably to recession. So the EU needs to enact alternative policies that will increase employment, stimulate demand and restore confidence. Here are a few recommendations:
1--The EU needs to show that it's taking steps to become a viable political union with supra-national fiscal policymaking authority.
2--The ECB needs to be willing to spend whatever is needed to avert another meltdown.
3--Policies should be put in place for the orderly withdrawal of countries that don't fit within the EU's economic schema.
4--Regulations on shadow banking, derivatives, and repo transactions should be drawn up to avoid another market crash.
5--The EU should develop a strategy for providing long-term fiscal stimulus throughout the eurozone until unemployment falls, aggregate demand picks up, and household balance sheets show signs of improvement.
The EU's problems can be fixed and the market's can be calmed. It's just a question of solidarity, vision and a lot of money; all of which are available with the right leadership.