Saturday, June 16, 2012

Has the Euro Titanic Hit the Iceberg?

Nikos Konstandaras, managing editor and a columnist at the Greek daily newspaper Kathimerini, wrote an Op-Ed for the NYT, How Greece Squandered its Freedom:
My country is hurtling toward an election that will decide its fate — whether Greeks will fight on to remain part of Europe’s core or succumb to their own weaknesses and turn inward, choosing isolation, anger and uncertainty greater than that from which they wish to flee.

The vote on Sunday will change our lives — determining not only whether we remain in the euro zone but also the nature of our society and the fate of the democracy that was re-established just 38 years ago after a dictatorship. We are bitterly divided between those who want to carry on with the reform process and those who want to turn back the clock. Our partners in the European Union are frightened of the consequences of our vote, but seem otherwise indifferent to our fate.

At a moment when the choices should be as clear as possible — between reform and stagnation, between Europe and isolation, between painful progress and the deceptive comfort of surrender — the issues are hopelessly confused by false expectations, by false choices and by the total failure of a political class that can’t propose solutions to the country’s problems and can’t forge a minimal national consensus on what is at stake and what needs to be done.

We face a choice between two deeply flawed alternatives. On one hand, there is New Democracy, a center-right party that has done much to undermine Greece’s economic reform and revival over the past two years. It refused to support the bailout agreement signed by the Greek government, the European Union and the International Monetary Fund on the grounds that it would stifle growth and so it undermined initiatives like tax reform that would have helped combat tax evasion by self-employed professionals and businesses. Yet it is now presenting itself as the responsible force that will stick to austerity and keep Greece in the euro zone.

On the other hand there is Syriza, a fractious coalition of 12 radical groups that has anointed itself the herald of leftist change throughout Europe and declares that it will immediately annul the bailout agreement while demanding that our partners continue to lend us money. The latter course could lead to the country’s swift exit from the euro and a chaotic and unpredictable future.

Since last October, after the first suggestion that Greece might be forced out of the euro zone, we have lived with desperate uncertainty. Suicides, once few, are on the rise as the pressure becomes too much for some. Meanwhile, families and the disorganized and underfunded social security system can no longer cope. In a country of fewer than 11 million people, more than a million are jobless. Everyone else lives in fear that he or she may be next as companies close or lay off workers. Migrants are leaving and Greeks are emigrating. A recent study conducted on behalf of Panteion University in Athens suggests that 7 out of 10 Greeks between the ages of 18 and 24 hope to seek their fortune elsewhere.

This uncertainty has inspired radical choices. A cousin of mine, and his wife, left with their young child a few weeks after she was offered a job in Dubai, in the United Arab Emirates. They reasoned that one job in Dubai was more secure than two in Greece. In villages around the country, the unemployed and pensioners from cities and towns are returning to the land to clear fields and grow crops that they feel they and their extended families will need if the economy gets even worse. A friend, a successful lawyer, is thinking of going into farming as he sees his clients falling by the wayside. My elderly parents follow the news carefully, anxious about possible shortages of medicines. Having lived through many ups and downs, they are more sanguine than most: “Whatever happens to the many will happen to us as well,” my mother says.

The insecurity shakes us to our core. When I go to the A.T.M., I hold my breath until I hear the reassuring whirring sound that says the machine will give me what I’ve asked for. I wonder whether I will be so lucky next time. My wife and I have been working for more than 25 years, saving for our children’s education, because even though about half our salaries go to taxes and social security, we know that we must pay for private schools, that we cannot count on state hospitals, and that our pensions are not guaranteed. (All this because others do not pay taxes, and because successive governments did not do their work.)

Every day we wonder whether we have done the right thing, jeopardizing our savings in a stubborn statement of confidence in a country that, since its founding, has declared bankruptcy several times. How will we tell the children that their lives would have been better if we had been less inert, less idealistic, more adaptable to circumstances? In a few years’ time, will they be able to travel and study abroad as easily as we once did? We don’t know.

The choice Greeks face on Sunday might appear simple — between tightening our belts and remaining in the euro or leaving it and facing an economic meltdown. But politics is never simple here.

The discredited New Democracy party, which governed Greece from 2004 to 2009, represents the failed political system that allowed Greece to fall so deeply into debt in the first place and then signed on to harsh austerity measures.

And a coalition led by the left-wing coalition Syriza wouldn’t be the breath of fresh air that its 37-year-old leader, Alexis Tsipras, would like us to believe. Its platform is populist to the point of nihilism as it tries to suck up the support of those who’ve abandoned the mainstream parties and their failed policies: it promises to annul the reforms and austerity measures of the past two years, nationalize banks, block privatization plans and even take back some of the state companies that were recently sold off.

Meanwhile Pasok, the socialist party that until May had been Greece’s other major political faction, alongside New Democracy, has withered to near irrelevance because it is blamed both for policies that stacked the public sector with political clients and bloated state spending, and for implementing the austerity and reforms demanded by our creditors.

None of these parties have advanced a serious agenda to avoid disaster. Those who are deeply in debt — or who aspire to gain at the expense of others — hope that the economy’s slate will simply be wiped clean. Those who have stashed their money abroad will be able to buy assets on the cheap if Greece leaves the euro zone. But the people who work hard and pay taxes, who have a stake in reform and progress, who carry the burden of every mistake, have no credible representative to vote for. Those who want a better Greece have to look for the least bad option.

The widespread feeling of loss is worsened by the understanding that we wasted most of the past four decades — the longest period of peace and prosperity that the country has known. Greece made great strides toward achieving the standards of its European partners, with major infrastructure projects, hospitals and schools, and with European Union subsidies and markets helping to create a booming economy and a new middle class. But we allowed development to become a bubble. We lost the self-discipline, moderation and inventiveness that once helped the Greeks achieve great things, and we succumbed to political expediency, delusions of grandeur and a fatal sense of entitlement.

Ever since the Greeks began their war of independence against the Turks in 1821, these different aspects of the national character have been in perpetual conflict, resulting in breathtaking swings between glorious heights and desperate depths. The heroic resistance to the German occupation in World War II was followed by a terrible civil war between left and right that still cripples our politics; the inspiration of the Athens Summer Olympics in 2004 was followed by the economic, social and political ineptitude that brought us to today’s collapse of the main political parties, and what is turning out to be the destruction of the country’s backbone: small businesses and the middle class.

We hear that about 80 billion euros has been pulled from bank accounts and that 500 million to 800 million euros is being withdrawn each day. Some of this goes toward paying bills, while the rest is being hidden or moved abroad. And yet, last month there was still about 170 billion euros in Greek banks, despite the growing chorus of economists declaring that Greece will leave the euro. Why? Maybe when the volcano rumbles, when the thugs come for our neighbor, when a society gives up the fight for progress, the familiarity of our routines numbs us to the dust and roar of the coming stampede. Maybe we do not think bad things will happen to us.

Maybe that’s what the people of Constantinople felt before it fell to the Ottomans in 1453, or the Greeks who were swept out of Asia Minor in 1922, or the innocents sucked into the civil war of 1946-49.

What I want to remember from Greece in 2012 is how laziness and years of intellectual sloppiness can waste the gift of freedom and leave open the gates of the city — how we allowed our leaders to pander to us until we had no one capable of leading us, no one next to us at the barricades.

Nice article but Mr. Konstandaras neglects to mention many things that brought Greece to this precipice.

As I pointed out in a previous comment of mine, Greece 10 Years Ahead, the biggest problem in Greece is poor governance. Greece is a beautiful country but years of bitter partisan politics have robbed it of its true potential. There are still valiant Greek entrepreneurs, who even in the midst of a crisis are fighting the system hard to succeed, but they are few and far between.

And let me repeat what I've often written here. While everyone in Greece hates mindless austerity with no growth agenda, the truth is austerity measures have disproportionately hit Greece's private sector. The severely bloated public sector has not experienced anywhere near the savage cuts that the private sector has experienced mainly because of stupid laws that constitutionally protect waste and inefficiency.

But as bad as the situation is in Greece, it's only a sideshow of worst to come if eurozone's leaders don't get their act together. Danilo Masoni and Steve Scherer of Reuters report, Italy's Monti raises specter of crisis amid protests:

Italy is again flirting with economic disaster, Prime Minister Mario Monti said, as huge crowds massed in Rome in protest at his austerity measures a day ahead of an election in Greece that threatens to destabilize the whole euro zone.

"We stepped away from the precipice before, but the hole is growing bigger and it may swallow us up. We are again in a crisis," Monti said on Saturday at a ribbon-cutting ceremony near Milan.

Monti took over in November from discredited former prime minister Silvio Berlusconi and passed a tough austerity package to try to restore investor confidence as the recession-mired country teetered on the edge of a Greek-style default.

The measures, including 24 billion euros in new taxes for this year alone, pushed down Rome's borrowing costs for a time. But a banking bailout in Spain and prospects of Greece ditching the euro have seen the benchmark 10-year Italian bond yield peak above 6 percent again in recent days.

Yields pushing through 7 percent triggered international bailouts for Greece, Portugal and Ireland.

In the meantime, the austerity coupled with a labor market reform seen as threat to full-time workers have driven down Monti's approval rating to 33 percent from 71 percent when he took office, pollsters SWG said on Friday.

Monti's policies have been the focus of repeated criticism by the country's three biggest labor unions, which on Saturday staged a march and harangued the government during speeches in Rome's People's Square.

JOBS, NOT CUTS

Organizers said that 200,000 turned out for the march through central Rome. They chanted, waved red and green-and-white striped flags, and blew whistles on a bright, hot morning in the capital.

"We are here because the government's programme ... is causing the recession to deepen in our country," Susanna Camusso, leader of Italy's biggest labor union, told Reuters television.

She and other labor leaders urged the government not to cut the welfare system to reduce the deficit, and to focus instead on creating new jobs as unemployment climbs above 10 percent.

"The elections in Greece are obviously a major concern, but we need to remember that if Greece is in trouble it is because Europe from the start did not choose social policies as a way out of the crisis," she said.

The Rome march passed off without incident, but a more vocal group is scheduled to march in Bologna on Saturday afternoon despite a police veto. Monti is scheduled to speak at a conference in the northern Italian city at 1400 GMT.

Countering an increase in political as well as popular disenchantment with his government, Monti on Friday passed what he dubbed a "growth decree".

The measures are meant to put more emphasis on jump-starting the economy, which has been shrinking since the middle of last year. Italy's economy, the euro zone's third biggest, grew on average less than any other European Union country over the past decade.

Monti said the impact of the decree would take time to filter through.

Taking measures to stimulate growth was "is a long and difficult path. We will see some effects soon, but they cannot be measured in the next month or quarter."

I've already written on how the winds of anti-austerity are blowing across eurozone. Unions are rightly demanding more action needs to be taken on creating jobs but they refuse to compromise on important cutbacks.

The internal strife in Europe's peripheral economies have been festering for a long time. You don't need to have a PhD in economics or political science to see how mindless austerity threatens eurozone and the global economy. Europe very well might be in throes of a decade long deleveraging that Paul Desmarais Jr. recently warned about, but policy mistakes will make it a lot worse.

Fearing the worst, the head of the IMF, Christine Lagarde, came out to publicly on Saturday to state that eurozone needs common finance minister:

The euro zone needs a common finance minister and should consider issuing region-wide bonds to help pull it out of its economic crisis, said International Monetary Fund head Christine Lagarde.

"What is needed is a collective determination to advance towards a key stage in the development of the euro zone," Lagarde told daily Liberation in an interview published on Saturday.

"We have to go beyond monetary union to bring together budgetary policies, also with supervisory instruments for the financial sector in the wider sense and with mechanisms for resolving banking crises. All this would be under a euro zone authority and not national central banks."

Mindful of the deepening crisis, EU leaders are meeting at a June 28-29 summit where they are expected to draw up a roadmap to fiscal union, but Lagarde's suggestions could raise eyebrows in Berlin.

Germany, which as Europe's paymaster has shouldered the lion's share of the bloc's bailouts, insists fiscal union must be implemented before it would even consider more radical changes such as common bonds that would expose it to further fallout from the crisis.

"My view is that within a short period, perhaps less than three months, it is necessary for the Europeans, particularly within the euro zone, to give strong indications on their collective willingness to reinforce their monetary union," said Lagarde.

Speaking as Greeks prepared to vote in an election that will shape the euro zone's future, Lagarde said it was important to raise the idea of a European treasury able to issue debt for the whole of the euro zone.

"This can't be done overnight but it is important to assert this collective principle," she said.

Differences between the euro zone's biggest economies Germany and France - notably over joint euro zone bond issuance - have fuelled tensions ahead of the Greek ballot.

Central banks have indicated they are prepared to intervene if there is turmoil on markets following the vote, and the euro zone crisis will dominate talks between the world's top economies in Mexico next week.

Ms. Lagarde joins a chorus of financial elites that include George Soros and Joe Stiglitz, all calling for more fiscal integration in Europe. The biggest hurdle to this is German people who in public polls express a stubborn refusal to integrate with their 'profligate' southern neighbors.

But I think it's high time we end Germany's illusions and remind Germans that they benefited the most from this common union. They now have a difficult choice to make, either be part of a real union which requires shared burden on the fiscal front, or watch eurozone unravel, implode, and threaten the entire global economy.

I'm convinced that the global power elite aren't going to let the world implode. There is simply too much at stake if they do. But I also know that the power elite are grossly incompetent and their mindless austerity has brought us once again on the verge of global collapse. It's time elites wake up and realize that the unemployment crisis, not the debt problem, is what ultimately threatens global prosperity and peace.

And don't kid yourselves. If Grexit happens, which I still doubt, eurozone is finished and Europe's political elites will be exposed in the annals of history as the greatest fools ever to lead Europe, giving euro skeptics like Nigel Farage more ammunition to keep attacking the union. Below, Mr. Farage exposes the myth of Spanish fly and warns of "looming impending disaster." Let's all hope he's dead wrong.

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