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Greek crisis to crash Eurozone utopia?
Published: 16 April, 2010, 23:19
Edited: 19 April, 2010, 02:13
AFP Photo / Louisa Gouliamaki
TAGS: EU, Crisis, Crisis Chronicle, Currencies, Economy
The eurozone’s secret is that its pockets are a little dusty. It could print or borrow the cash to bail out Greece and but it knows that would not be the end of it.
Far cleaner for Germany to turn its back on the project, as one investment bank has suggested.
This became apparent when the EU searched its undergarments for a financial girdle big enough to support the bloated, indebted Greek government. But the Greek crisis is bursting out all over. No sooner had the Athens government promised to control its spending than savers fled Greek banks.
The promise of €45 billion in vague loan guarantees was supposed to stop this. Eurozone officials insisted Greece would not need the money. They were just offering a loan of staggering proportions to calm the markets by showing support for Athens.
Bring the suitcase to Athens
The Greeks asked for the money by the end of the same week. On Friday, April 16, 2010, the Greek government called for “discussions” with the European Central Bank on how to draw down the loan. Strictly they haven’t asked for the credit to be activated but would just like to know if, err, the money is, you know, ready.
Problem is, the ECB may not have decided. On Sunday, April 11, European finance ministers, in Eurospeak, gave the ECB a mandate to offer Greece a loan. The ECB’s job was to work out the price, time span and conditions (sorry, conditionality in Eurospeak).
Now it emerges that the EU may not have the money anyway. Toby Nangle, director of asset-allocation research at Baring Investment Securities in London, told Bloomberg that market players were betting their own money on the latest EU package not going through.
The EU has form. In 2009 it waded into the gas dispute between Russia and Ukraine, making an offer to upgrade Ukraine’s pipeline network without consulting Russia, whose gas flows through those pipes.
If it was an attempt by the EU to snub Russia, it backfired. The EU’s promise to help finance a new gas transit network for Ukraine turned out to be a list of banks that Ukraine might like to call. Money there was none.
How much does Greece want? Eurozone officials suggest €30bn in the first year. The IMF could offer €10bn in the first year and up to €40bn over three.
Second phase of the global crisis
Now Morgan Stanley’s head of research Joachim Fels has criticized the European Central Bank’s decision to accept lower-grade collateral from Greek banks in return for ECB loans to help them through the crisis.
This, says Fels in a note to clients, could lead to the eurozone into a spiral of high spending and high inflation. Greece could not afford to exit the euro because that would mean even higher borrowing costs. Germany, on the other hand, would only benefit by exiting the euro as its credit rating would ensure much lower interest rates.
The ECB executive board are not fools. They know the risks. Board member Juergen Stark this week said the sovereign debt impasse that has Greece is suffering may be the second phase of the global financial crisis.
Of the 16 eurozone countries, 13 are in breach of EU rules to limit the gap between government income and spending.
German could afford to bail out Greece, which represents only three per cent of eurozone GDP. But then Portugal, Italy or several Baltic countries could be next. And it would draw protests from Ireland, which has shown the political will to tackle its funding crisis alone.
When I, along with dozens of reporters, covered the launch of the single currency back in 2000, there never was a plan B. Like communism, the launch of the euro was intended to be a once-and-for-all transition to a new world.
We have discovered, in the past century, what the Gods have in store for man-made Utopias.
Mark Gay, RT
16.04.2010, 17:09
Sberbank to lower personal loan ratesRussia’s largest bank, Sberbank, will reduce loan rates by 0.5-1% starting from April 19, as well as getting rid of all commissions. |
19.04.2010, 10:13
Rouble strength ringing alarm bellsThe Rouble hit fresh 16-month highs against the euro dollar currency basket on Friday, supported by oil and the carry-trade. But analysts say they are reminded of the eve of the crisis two years ago. |
Whoever makes constitutions makes a horrendous mistake when they don't put strict limits on debt and deficit spending. Elected governments of even the countries with the best educated populaces just don't seem to be able to resist the urge to kick the can down the road. The way things should work is you save up money in a rainy day fund during good times, and then you spend it to shore things up during down turns. The idea that a country should be allowed to consistently rack up huge deficits and debts irregardless of economic conditions is extremely dangerous and its negative consequences are busting out moves all across the globe.
Germany couldn´t have "much lower" interest rates out of the Euro as ECB´s interest rates are already next to 0. So that doesn´t makes sense. Really, what is happening in Greece means a managed devaluation of the Euro as it was too much strong fro Eurozone (and specially German) exports. The Eurozone means Market for German exports that in no way they are going to leave. They have the guarantee that Eurozone member state will not devalue their currencies so German exports will continue to be competitive intra-Eurozone. The problem comes extra-Eurozone as China´s yuan is pegged to the USD, so once inflation in the Eurozone is just 1%, half the U.S.´s, there is room for a managed devaluation of the Euro. And, this way, Greece is doing a great job to easy exporta to the Dollarzone (which includes China) Europe doesn´t have to bear all the burden of the World economic recovery.