This article in New York Times makes for sad reading. It is the leaders’ (or, the so-called elites’) karma that visits all those who had no part to play in it, directly. I can understand the depression, confusion and anger. Some weeks ago, Arvind Subramanian wrote in FT that Greece might be better off exiting. Perhaps, he is not so sure now. Whichever way Greece turns, it looks like a very hard grind. Medium term might look a lot better with a Drachma and policy autonomy, but how to get THERE from HERE is a big question. Or, will they get THERE from HERE?
I wrote in MINT two weeks ago that Germany would be brought, kicking and screaming, around to issuing common Eurozone bonds, agreeing to a fiscal and banking union, etc. I have to acknowledge that evidence since that piece appeared in MINT points in the opposite direction. But, I am not backing off from that stance, yet.
A former colleague sent me links to translated articles that suggested that Germany might wish to see Greeks exit and suffer and that such suffering would serve as a warning to the rest of the crisis-ridden countries to ‘behave’ themselves with austerity.
Here is the translation:
Angela Merkel, according to Italian newspaper Il Messaggero and Belgian newspaper De Standaard, is delaying the adoption of a comprehensive plan to address the Eurozone crisis until Greece leaves the Euro.
The “sacrifice” of Greece came to light when Barack Obama had a telephone conversation with Angela Merkel and Italian Prime Minister Mario Monti yesterday, asking them to do more to address the crisis.
Italian Prime Minister Mario Monti repeated his established position that “Greece must remain in the euro area.” But Berlin expects Brussels (the EU) and Frankfurt (the ECB) to compel Athens to abandon the euro immediately after the Greek elections of June 17.
It would be a lesson to the other Eurozone countries to be disciplined, and would be a catalyst to accelerate a closer fiscal union.
Apparently, it is a Google translation. Does not appear bad at all. The original source is here.
There is another translated article that my former colleague had sent in the same email:
The problem in Spain is that the banks have a bunch of worthless mortgages and so huge losses. A massive capital injection is needed. And Spanish banks have a lot of Spanish bonds that they recently bought a significant portion of fresh money from the European Central Bank. A growing number of Spanish savers are aware of the situation and are leaving Spanish banks.
A European form of collectivization of public debt could be called Eurobonds, but could also be called the less controversial name of “debt service fund”. And a system is needed from a European fund to recapitalize banks. This is the minimal a fiscal union needed for the short-term survival of the Euro.
But Merkel does not want to pay for the “mistakes” of other countries. She will only help other countries if they are far-reaching reforms in labor markets along the German model, and willing to cede economic and financial sovereignty.
Here is a scenario some see as a way out of this impasse. The Greeks again cast the “wrong” vote on 17 June. The money flow to Greece closes, it leaves the Eurozone. This causes chaos in Greece and (one hopes) manageable losses in the rest of the Eurozone. The Southern European countries are brought to heel by the Greek example, experience bank runs, and a fiscal union is created from the chaos. [Original here]
As a negotiating stance, it makes sense. Of course, it goes against what I wrote in MINT. My hypothesis was that Germany and its allies would not want any country to leave the Eurozone for (a) fear of triggering a contagion and (b) for fearing of showing a path for others to follows in a year or two, should Greece eventually recover (as per Arvind Subramanian).
Juncker’s warning to Greeks not to leave the Eurozone, carried by Reuters, is consistent with my hypothesis.
So, all sorts of hypotheses and scenarios are up for grabs. Beyond a point, we cannot map out all those. Nor should we pretend that we can.
In fact, one casualty of keeping our eyes on Greece and Europe is that it blinds us to what is happening elsewhere. This story in FT that Iran and Iraq might be forming an alliance inside OPEC has interesting implications for OPEC unity and for oil prices.
Thanks to ‘Marginal Revolution’ for the link to a thoughtful post at ‘Economist’ blogs. This one deals with an interview by Prof. Ben Friedman who wrote the book, ‘Moral Consequences of Economic Growth’. The post is long but well worth a read. It talks about voter attitude (negative) towards an incumbent in times of slow and low growth, towards immigration (negative) and in general, towards a civil attitude (declining) towards fellow civilians.
A rather curious article in the front page of FT in Asia on Thursday. Headlined, ‘Bankers bow to Europe over bonus limits’, the report mentions the following:
Critics, including bank lobbyists, say banks will circumvent the spirit of the changes by increasing fixed salaries or finding other methods of remunerating staff that avoid the specific wording of the new rules. “You don’t have to call everything a bonus,” said one lobbyist.
Tightening regulation has already driven up bankers’ base salaries, increasing the fixed costs of businesses even as they struggle with volatile markets.
I am still trying to make sense of this. I admit to failure. I can only conclude that bankers are on a ‘Mutually Assured Destruction’ mission to finish off their institutions, their shareholders and finally themselves. Otherwise, they would not be so self-centered and daft simultaneously.
This Belgian Green MP has identified the issue well – State collusion with or State capture by bankers:
Philippe Lamberts, the Belgian Green MEP who led calls for the bonus cap, told the Financial Times that EU member states were “getting away with acting as a trade union for top bankers without paying the political price”.