Anti-Austerity Winds Blowing Across Eurozone?
Support in the Netherlands for the five parties that back budget cuts to meet EU targets has fallen sharply over the past month and below the level needed to form a government after elections in September, a poll showed on Sunday.
The euro zone's fifth-largest economy has been one of Germany's most committed allies in pushing for euro zone fiscal discipline, but that was thrown into doubt by the collapse of Prime Minister Mark Rutte's centre-right government last month.
Although the Dutch coalition fell apart when it failed to reach an agreement on budget cuts, Rutte was still able to push those through with the backing of the two parties in his caretaker government and three small opposition parties.
Those five parties would win 66 seats in the 150-member lower house of parliament, down from 76 last month, a new Maurice de Hond poll showed. The election is set for September 12.
The voter shift against austerity echoes a recent trend in elections in other euro zone countries, including France and Greece.
Rutte's Liberal Party appeared to have lost support to Wilders' populist Freedom Party. The previous coalition fell apart when Wilders' anti-euro, anti-Islam party pulled out of budget talks.
The left-wing Socialist Party, which also opposes austerity, would be the biggest party, with 30 seats, the poll showed.
The Freedom Party would have 25 seats, the Liberals would have 24 seats, while Labour, which also opposed the budget deal, was down two seats to 21.
The poll suggested any government formed after the elections is likely to be fragmented and able to command only a slim parliamentary majority, further lowering the chances of pushing through spending cuts.
We know that austerity isn't popular in Europe's peripheral economies but now we're starting to see a backlash in Northern Europe. Even in Germany, Reuters reports that Merkel party urges opposition to back fiscal pact:
A top ally of Chancellor Angela Merkel's conservatives appealed to the opposition Social Democrats and Greens on Sunday to refrain from "playing political games" and back the government to endorse Europe's new fiscal pact and permanent bailout fund.
The SPD and their allies the Greens - making common cause with France's new Socialist President Francois Hollande and some other EU leaders - say the pact must be accompanied by new measures to promote growth and investment in Europe.
Hermann Groehe, Merkel's top deputy in the Christian Democrats party (CDU), said in a radio interview on Sunday it was important for Germany to send a signal across Europe that it is fully committed to the European Stability Mechanism (ESM).
Merkel needs SPD support in the two houses of parliament to secure ratification of the fiscal pact agreed among EU leaders that will impose tougher budgetary rules.
A two-thirds majority is needed because the fiscal pact, seen as the centerpiece of Europe's drive to overcome its debt crisis and recover market confidence, affects the constitution and national sovereignty.
"There is no room in this question for playing political games," Groehe told Deutschlandfunk radio. "It would be good if we in Germany, as the anchor of stability in Europe, send out a signal that stability and solidarity belong together."
The government and opposition parties have been edging nearer a compromise to pave the way for parliamentary approval of the new fiscal pact and permanent bailout fund.
SPD chairman Sigmar Gabriel has said securing parliamentary approval before the summer recess - as Merkel wants - is possible but hinged on the growth proposals to be put forward by the government. Further talks are planned for June 13.
"We have clear-cut conditions in the interest of a stable euro zone and the coalition has to accept them - otherwise there won't be backing from the SPD," SPD deputy party leader Andrea Nahles said on Saturday.
Greens parliamentary floor leader Renate Kuenast added: "The Greens aren't going to be fooled by a growth package unworthy of that name."
The ESM is scheduled to start work on July 1 but Merkel's government insists that the bailout fund must be approved at the same time as the fiscal pact.
Despite the SPD's demands, the party - which has until now backed Merkel on euro zone policies - has made clear it will not torpedo the fiscal pact, seen as the centrepiece of Europe's drive to overcome its debt crisis and recover market confidence.
Meanwhile, in Greece, former Greek prime minister Lucas Papademos warned Greece may run out of money by the end of June if international bailout funds are cut off following next month's election:
"From late June onwards, the ability of the government to fund its obligations fully depends on the approval of the subsequent installments of loans from the EFSF and the IMF," To Vima newspaper quoted Papademos as saying in a leaked memo.
"The available funds in the Greek government will be reduced gradually from about 3.8 billion euros on May 11 to about 700 million euros on June 18 and from June 20 will enter negative territory at the level of around one billion euros."
Centre-left To Vima said Papademos made the warning in a memo to President Carolos Papoulias dated May 11 that was then circulated to party leaders as they tried to form a coalition after an inconclusive May 6 vote.
Greece in 2010 committed itself to a reform programme in return for hundreds of billions of euros (dollars) in bailout funds from the the European Union bailout fund EFSF and the International Monetary Fund.
On May 6 voters weary with salary cuts and other austerity measures handed second place to radical left-wing party Syriza, which has threatened to renege on the bailout accords.
If Greece broke the terms of the deal and forfeited its bailout funds, it would likely default on its debts and may leave the eurozone.
Ahead of a new election on June 17, Syriza has led at times in the opinion polls, but a series of polls published Sunday indicated conservative party New Democracy was favourite to win.
The new surveys by five separate polling groups predict a New Democracy victory ranging between 23.3 per cent and 25.8 per cent, a result that would still require the party to seek additional allies to form a viable government.
Syriza polled in second place ahead of the socialist former ruling party Pasok, which like New Democracy defends the bailout agreement.
New Democracy, part of the previous ruling coalition that signed on to the bailout deal, has said it will seek to renegotiate parts of the package but not scrap it completely.
As for 'Grexit', ekathimerini published a Bloomberg article citing the IIF's Charles Dallara who warned the cost of Greek euro exit may exceed 1 trillion:
Dallara is absolutely right, it's up to Germany to drop its opposition to a common eurobond market and start massive investment projects to kick start eurozone's weaker economies.
The cost of Greece exiting the euro would be unmanageable and probably exceed the 1 trillion euros ($1.25 trillion) previously estimated by the Institute of International Finance, the group’s managing director said.
The Washington-based IIF’s projection from earlier this year is “a bit dated now” and “probably on the low side,” Charles Dallara said in an interview in Rome on Saturday. “Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again.”
The European Central Bank’s exposure to Greek liabilities is more than twice as big as the ECB’s capital, said Dallara, who represented banks in their negotiations with the Greek government on its debt restructuring. As a result, he predicted the bank would be unable to provide liquidity and stabilize the euro-area financial sector.
“The ECB will be insolvent” if Greece were to exit the euro, Dallara said. “Europe would have to first and foremost recapitalize its central bank.”
Concern about Europe’s crisis has erased about $4 trillion from global equity values, as policy makers continue to argue over how to stabilize the 17-nation euro area and limit regional contagion. European Union President Herman Van Rompuy said yesterday that contingency planning for Greece leaving the euro “isn’t a priority,” while Morgan Stanley economist Elga Bartsch has said Greece has a 1-in-3 chance of a euro exit.
In February, the IIF estimated that Greece’s liabilities, in the event of a euro exit, could be crippling. “It is hard to see how they would not exceed 1 trillion euros,” the group said in an internal Feb. 18 report that hasn’t been made public.
Spain, Italy and the already-bailed out Ireland and Portugal “remain quite vulnerable to changes in market sentiment” as Europe’s sovereign debt crisis continues, Dallara said. He urged policy makers to remember the shockwave caused by the failure of Lehman Brothers Holding Inc., and that what appears to be a “containable event” may in fact bring on financial meltdown.
For Greece, in its fifth year of recession, it may be more effective to offer extra money to help its battered economy recover, Dallara said. Because Greece’s economy has shrunk so much faster than expected, it may need more time to meet its budget targets and repay its international loans, he said.
Greece’s shrinking economy could be aided “at a cost” of an additional 10 billion euros. “We’re talking about very modest sums compared to what’s already on the table,” he said.
“A small olive branch here carefully defined, nuanced in its presentation, not as an alternative to fundamental reform but a recognition that some elements of this program were not that well designed, would be a wise thing and I would do it sooner rather than later,” Dallara said.
It’s not clear whether Spain will need a bailout as it seeks to help its banks weather the euro crisis, he said. A planned audit of bank loan books is likely to show that the Spanish banking sector’s woes are “manageable” overall, Dallara predicted.
Spain is grappling with how to handle Bankia SA, which was nationalized earlier this month, and other problems in the savings-bank sector. Dallara said the systemic risk posed by Bankia “has been somewhat exaggerated” and that independent inquiries will provide an outside assessment of Spain’s financial condition.
“If it is of manageable proportions, then I think it is the decision of the Spanish government to decide” whether to pursue outside aid, Dallara said.
“The magnitude remains to be determined and I think we should exercise a bit of patience and allow this process to run its course and realize that as it is, Spain is making substantial headway in budget reduction,” Dallara said.
In the long run, the euro area will need to address the “fundamental structural flaw” of sharing a currency while allowing national governments to control fiscal policy, he said. He urged Germany to drop its opposition to shared debt and instead seek a system where joint euro bonds could be an “incentive” to fiscal restraint and structural reform.“The only way to help markets see past that obscurity is to remove the cloud of uncertainties of national fiscal position and move toward unification,” Dallara said.
Bloomberg also reports the IMF's Managing Director Christine Lagarde said she was sensitive to the plight facing Greece, while reiterating that the wealthy must pay their fair share of taxes.
The comments, posted on Facebook, came a day after Lagarde said in an interview with the Guardian newspaper that children in Africa needed more help than the Greeks and that many in the country were “trying to escape tax all the time.” The posting generated more than 8,300 comments, including hundreds written in the Greek language.
The prospect of Greece leaving the 17-nation euro region increased after parties opposed to the terms of the nation’s second bailout by the European Union and the IMF won most of the votes in May 6 elections. A fresh round of voting will be held June 17. The once-taboo issue of a Greek withdrawal from the 17- nation currency union entered into public debate this month, even as EU forecasts showed the country’s economy will contract by a further 4.7 percent in 2013.
Lagarde, who was finance minister under the ousted conservative President Nicolas Sarkozy, also came under attack from the spokeswoman of the country’s new Socialist government, Najat Vallaud-Belkacem.
“I think the comments were simplistic and stereotypical,” Vallaud-Belkacem said in an interview on Canal-Plus television today. “It’s not a time to be giving lessons. It’s not like this we will solve the crisis.”
The response to Lagarde’s Facebook page came from across Europe, and expressed a variety of views. Some were unprintable attacks on Lagarde, while others reproduced Greek poems about the country’s revival from past sufferings. A few accused Germany of benefiting from Greece’s predicament. One Greek man said the country will honor its debts and asked fellow European to ignore the “mob” posting comments on Lagarde’s page.
“The last thing we in Greece seek is her compassion,” Alexis Tsipras, head of the Syriza movement that wants to renegotiate the terms of Greek aid, said in an e-mailed statement today. “Greek workers pay their heavy taxes. When it comes to tax evasion she should speak” to Pasok and New Democracy, which led previous administrations, he said.
In the interview with the U.K.’s Guardian, Lagarde said Greek parents have to take responsibility if their children are being affected by spending cuts and “pay their tax.”
“I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I think they need even more help” than people in Greece, she said.
Note to Ms. Lagarde, please keep your mouth shut during Greek election period. Same goes for Schaeuble and anyone else. All we need now is to give the delusional Mr. Tsipras more ammunition to go around saying it's war between people and capitalism. All Greek parties slammed her comments.
Of course, Ms. Lagarde isn't way off to scold Greeks on tax evasion. Her timing is terrible but she's absolutely right that Greece needs to reform its tax system and make sure they root out corruption and fraud once and for all.
As I stated in my last comment looking at Greece's prospects over the next decade, only Greek shipowners have a constitutional right not to pay taxes. The problem is that tax evasion is a national sport in Greece, which is why the government started imposing taxes via utility bills (the now hated "haratzi").
In Greece, the most corrupt people are tax collectors and powerful politicians like former Defense Minister Akis Tsochatzopoulos, currently in custody on suspicion of embezzlement and money laundering. Ekathimerini reports he had deposited more than 20 million dollars in a Swiss bank account before he assumed his position in the cabinet and allegedly accepted under-the-table payments, according to documents retrieved from his office.There are countless other well known politicians from the past who have built villas on Greek islands and sent millions to offshore banking havens. The IMF should place pressure on Switzerland and others to open up bank accounts of Greeks who parked millions in their banks.
For example, ekathimerini reports that Greek demand for London properties shoots back up, pre-polls:
Data issued by foreign realty companies operating in Greece show that local demand for properties in London rose 39 percent in April -- before the May 6 election -- compared to the average for the previous six months.
Most prospecting investors appear to have expressed interest for properties worth more than 1.5 million pounds sterling.
It is estimated that Greeks spent about 126 million euros for residential purchases in London in 2011.
“Now, apart from shipowners and other business magnates, young Greeks have also begun flocking to London due to the high unemployment at home, and are boosting the rentals market,” realtors say.
It is not just Greeks that are seeking more properties in London. In April, demand by Spaniards was up 14 percent, by Portuguese 153 percent and by Italians 46 percent. Demand has shot up again since the proclamation of new Greek elections for June 17, despite the slide of the euro against the pound.
You might be asking yourselves the same question that I'm asking myself: where are all these Greeks, Italians, Spaniards and Portuguese getting the money to buy this property? Some of it is legitimate but I suspect a lot of it is tax evasion, pure and simple. Just goes to show you there will be no fairy tale ending for London real estate.
Below, euronews reports the economic and financial crisis has overthrown governments all-over Europe. In the Netherlands, the political parties have clashed over austerity measures. And while the outgoing government increases the retirement age and VAT, the Dutch are becoming ever more disillusioned.
And Deutsche Welle reports Chancellor Angela Merkel has been taking a bruising over her plans to rescue the euro by enforcing strict austerity measures. The defeat of French President Nicolas Sarkozy and the resignation of the Dutch Prime Minister Mark Rutte have left her further isolated. As anti-austerity winds blow across Eurozone, will Merkel ultimately cave on eurobonds? I think so and believe markets are sensing this too. Perma bears and euro shorts beware!