Between Germany and Greece, a Chorus of Sturm, Drang and Pathos - March, 2010

I thought the European Union was supposed to be one big happy family... Who knew?



Between Germany and Greece, a Chorus of Sturm, Drang and Pathos

Webster Tarpley: Bankers in slump plot against euro to save dollar:

March, 2010

In recent days, novel solutions to the Greek debt crisis have surfaced, though perhaps not the constructive ones European leaders desperate to hold their struggling union together were hoping to hear. A pair of German politicians, incensed at the thought of paying for a bailout of the profligates to the south, suggested Thursday that the Greeks consider plugging the large hole in their budget by selling off some of their lovely islands. Several Greek politicians and commentators have argued that the Germans should pony up reparations for the death and destruction wrought by the Nazis during World War II.

These would not be the coolest heads prevailing. In times of economic growth and rising prosperity, the continent’s shared and all-too-often unhappy history was a lot easier to paper over. Now that there’s room for blame and recrimination, the history suddenly matters. Germans, still smarting from the replacement of their beloved Deutsche mark with the euro, harbor deep suspicions that European unity boils down to them perpetually handing out their hard-earned money, an inerasable debt for the horrors of Nazism. The German news magazine Focus recently summed up the feeling with a cover featuring the Venus de Milo statue, one arm restored to hold up a middle finger at the reader, with the headline “Swindlers in the Euro Family.” Greeks were less than pleased to see an image of the ancient goddess Aphrodite profaned, and the Nazi slurs began in earnest. Old stereotypes have come to the fore — the crooked Greeks and the stingy Germans — with the addition of the sweeping acronym P.I.I.G.S. forcing together Portugal, Italy, Ireland, Greece and Spain. The tension marks a crisis for the European Union and not just the euro, because it has exposed how deep the fault lines between nations still run, despite decades of integration.

“Sometimes you rub your eyes in disbelief at what’s happening between the two countries, but particularly from Germany toward Greece,” said Jens Bastian, a German economist who has lived in Greece for 13 years, and whose wife is Greek. “I have some explaining to do at home about this.” He said he doubted his countrymen understood how all the lecturing and bullying about reining in spending and raising taxes, though admittedly a fiscal necessity, came across in Greece. Whether under Nazi rule during the war, or the more than 300 years as part of the Ottoman Empire, Greece is a country that viscerally understands foreign dominance. Few recall today, but the Greek War of Independence (from the Ottomans) was followed by 30 years under the rule of a king from what today is Germany. In 1832, a 17-year-old Bavarian prince became King Otto I of Greece, chosen by Britain, France and Russia, ushering in an era of unpopular foreign rule labeled “Bavarokratia.”

“Foreign interference goes right back to the beginning of the Greek state and it’s something that Greeks are very much aware of,” said Mark Mazower, a professor specializing in Greek history at Columbia University. A coup sent Otto into exile in Bavaria in 1862, but that was hardly the end of German influence in Greece. The year after Greece lost another war against the Ottomans, Germany joined five other European powers in imposing the International Financial Commission on Greece in 1898. The commission controlled customs duties at ports including Piraeus and Corfu; state monopolies for products such as kerosene, matches and playing cards; and duties on stamps and tobacco consumption, all to ensure that Greece continued repaying its loans. It’s somewhat understandable that the Greeks today would bristle at the proposition that to service their debt they auction off the Aegean islands, as suggested by Josef Schlarmann, a senior member of Chancellor Angela Merkel’s Christian Democrats, and Frank Schäffler of their coalition partners, the Free Democrats.

“When you’re bankrupt you have to sell everything to pay off your creditors,” Mr. Schäffler told the populist German newspaper Bild on Thursday. “Greece owns buildings, companies and uninhabited islands, which could all be used for discharging debt.” Bild also published a headline last week that read “Can we take the euro from Greece?” and it suggested the Greeks could get about $140 billion for the Acropolis. The euro was devised not only to lower transaction costs and reap the benefits of a major reserve currency. It was also meant to serve as a symbol of a European identity, an identity intended to move the continent beyond centuries of warfare and toward unprecedented harmony.The crisis over the euro could be its undoing, as the most pessimistic observers say, or it could be a necessary setback, one that forces Europeans to rededicate themselves to their ideals and put together better fiscal mechanisms for managing their common currency.

While the “war of clichés” hurts, polls showed that a majority of Greeks understood that their government had gotten them into the current fiscal bind, and it was their job to get out, said Kostas Kalfopoulos, who writes about cultural issues for the Greek daily Kathimerini. “If you are in the European family you have to accept the rules of this family.” And after enacting a series of tough measures to raise revenues and cut spending, the Greek government found unexpected success in selling nearly $7 billion worth of bonds late in the week, a hopeful sign that they might find a way to dig themselves out after all. It remains to be seen how quickly good will can be restored after so much nastiness.


The Fall of Greece - Yes, It Really is a Capitalist Plot

For Europe’s poorest countries, European Union membership has long held out the promise of tranquil prosperity. The current Greek financial crisis ought to dispel some of their illusions. There are two strikingly significant levels to the current crisis. While primarily economic, the European Economic Community also claims to be a community, based on solidarity -- the sisterhood of nations and brotherhood of peoples. However, the economic deficit is nothing compared to the human deficit it exposes.

To put it simply, the Greek crisis shows what happens when a weak member of this Union is in trouble. It is the same as what happens on the world scale, where there is no such morally pretentious union perpetually congratulating itself on its devotion to human rights. The economically strong protect their own interests at the expense of the economically weak. The crisis broke last autumn after George Papandreou’s PASOK party won elections, took office and discovered that the cupboard was bare. The Greek government had cheated to get into the EU’s euro zone in 2001 by cooking the books to cover deficits that would have disqualified it from membership in the common currency. The European Treaties capped the acceptable budget deficit at 3 per cent and public debt at 60 per cent of GDP respectively. In fact, this limit is being widely transgressed, quite openly by France. But major scandal arrived with revelations that Greece’s budget deficit reached 12.7 per cent in 2009, with a gross debt forecast for 2010 amounting to 125 per cent of GDP.

Of course, European leaders got together to declare solidarity. But their speeches were designed not so much to reassure the increasingly angry and desperate Greek people as to soothe “the markets” – the real hidden almighty gods of the European Union. The markets, like the ancient gods, have a great old time tormenting mere mortals in trouble, so their response to the Greek problem was naturally to rush to profit from it. For instance, when Greece is obliged to issue new bonds this year, the markets can blithely demand that Greece double its interest rates, on grounds of increased “risk” that Greece won’t pay, thus making it that much harder for Greece to pay. Such is the logic of the free market.

What the EU leaders meant by “solidarity” in their appeal to the gods was not that they were going to pour public money into Greece, as they poured it into their troubled banks, but that they intended to squeeze the money owed the banks out of the Greek people. The squeezing is to take the forms made familiar over the past disastrous decades by the International Monetary Fund: the Greek state is enjoined to cut public expenses, which means firing public employees, cutting their overall earnings, delaying retirement, economizing on health care, raising taxes, and incidentally probably raising the jobless rate from 9.6 per cent to around 16 per cent, all with the glorious aim of bringing the deficit down to 8.7 per cent this year and thus appeasing the invisible gods of the market.

This just might propitiate both the gods and German leaders, who above all want to maintain the value of the euro. The financial markets will no doubt grab their pound of flesh in the form of increased interest rates, while the Greeks are bled by IMF-style “shock treatment”. And what about that great theater of human rights and universal brotherhood, the European Parliament? In that forum everyone gets to speak for a carefully clocked 1, 2, or 3 minutes, but when it comes to the most serious matter, the budget, the authoritative voices are all German.

Thus the chairman of the EP’s special committee on the economic and financial crisis, Wolf Klinz, has called for sending a “high representative” of the EU to Greece, an “economies commissar” to make sure the Greeks carry out the austerity measures properly. The Greek crisis can allow the EU to put into practice for the first time its “Treaty instruments” concerning “supervision of budgetary and economic policy”. Interest rates may go up because of “risk”, but there is to be no risk. The pound of flesh will be delivered.

There was no such supervision of the financial fiddling which caused this mess. The EU statistics agency Eurostat recently discovered and revealed that in 2001, Goldman Sachs secretly (“but legally”, protest its executive officers) helped the right-wing Greek government meet EU membership criteria by using a complicated “currency swap” that masked the extent of public deficit and national debt. [See Andrew Cockburn and Marshall Auerback, on this site.] Who understands how that worked? I think it is fair to guess that not even Angela Merkel, who is trained as a scientist, understands clearly what went on, much less the incompetent Greek politicians who accepted the Goldman Sachs trickery. It allowed them to create an illusion of success – for a while. Success meant being a “member of the club” of the rich, and it can be argued that this notion of success has actually favored bad government at the national level. Belonging to the EU gave a false sense of security that contributed to the irresponsibility of incompetent political leaders.

Having euros to buy imported goods (notably from Germany) pleased rich consumers, while the euro priced Greek goods out of their previous markets. Now the debt trap is closing. The traditional way out for Greece would be to leave the euro and return to a devaluated drachma, in order to cut imports and favor exports. This way, the burden of necessary sacrifices would not be borne solely by the working class. But the embrace of EU “solidarity” is there to prevent this from happening. German authorities are preparing to lay down the law to the Greeks, after reducing the income of their own working class in order to benefit Germany’s export-oriented economy.

Austerity measures are the opposite of what is needed in a time of looming depression. Rather, what is needed are Keynesian measures to stimulate employment and strengthen the domestic market. But Germany is firmly attached to the export model, for itself and everyone else (“globalization”). For a country like Greece, which cannot compete successfully within the EU, exports outside the EU are crippled by its use of a strong currency, the euro. Bound to the euro, Greece can neither stimulate its domestic market nor export successfully. But it is not going to be allowed to extricate itself from the debt trap and return to its traditional currency, the drachma. Poverty appears to be the only solution.

There is discontent within the German working class at their country’s policies aimed at shrinking wages and social benefits for the sake of selling abroad. In an ideal “social Europe”, workers in Germany would come to the aid of workers in Greece by demanding a radical revision of economic policy, away from catering to the international financial markets toward building a solid social democracy. The reality is quite different. The Greek financial crisis exposes the absence of any real community spirit in the EU. The “solidarity” declared by the country’s EU partners is a solidarity with their own investments. There is no popular solidarity between peoples. The EU has established a surrogate ideology of internationalism: rejection of the nation-state as source of all evil, a pompous pride in “Europe” as the center of human rights, giver of moral lessons to the world, which happens to fit in perfectly with its subservience to United States imperial foreign policy in the Middle East and beyond. The paradox is that European unification has coincided with decreasing curiosity in the larger EU states about what

happens to their neighbors.

Despite a certain amount of specialized training needed to create a Eurocrat class, the general population of each EU member is only superficially acquainted with the others. They see them as teams in soccer matches. They go on holiday around the Mediterranean, but this mostly involves meeting fellow tourists, and study of foreign languages has declined, except for English (omnipresent, if mangled). Mass media news reports are turned inward, featuring missing children and pedophiles ahead of even major political events in other EU member states. Northern European media portray Greece practically as a Third World country, peripheral and picturesque, where people speak an impossible language, dance in circles on islands, and live beyond their means in their carefree way. The crickets in the Aesop fable, scorned by the assiduous ants.

Media in Germany and the Netherlands imply that IMF-style shock treatment is almost too good for them. The widening polarization between rich and poor, between and within EU member states, is taken for granted. The smaller indebted countries within the EU are amiably designated by the English-speaking financial priesthood as the PIGS – Portugal, Italy (perhaps Ireland), Greece, Spain – an appropriate designation for an animal farm where some are so much more equal than others.


In related news:

Britain Grapples With Debt of Greek Proportions

Until now, that is. Suddenly, investors are asking if Britain may soon face its own sovereign debt crisis if the government fails to slash its growing budget deficits quickly enough to escape the contagious fears of financial markets. The pound fell to $1.4954 on Tuesday, its lowest level against the dollar in nearly 10 months. The yield on 10-year government bonds, known as gilts, slid as investors fretted that Parliament would be too fragmented after a crucial election in May to whip Britain’s messy finances back into shape. The slide in the pound followed a sharper decline on Monday after polls released over the weekend indicated that the opposition Conservatives had lost their clear lead in the election race.

Without a strong political majority to tackle Britain’s lumbering fiscal problems, investors could start to make it greatly more expensive for the government to raise funds, setting the stage for a potential double-dip recession, if not worse. “If you really want a fiscal problem, look at the U.K.,” said Mark Schofield, a fixed-income strategist at Citigroup. “In Europe, the average deficit is about 6 percent of G.D.P. and in the U.K. it’s 12 percent. It is only just beginning.” Since the Labour government’s intense fiscal intervention in 2008 and 2009, yields on British government debt have soared to among the highest in Europe. And on a broader scale, which includes the borrowing of households and companies, the overall level of debt in Britain is the second-largest in the world, after Japan’s, at 380 percent of the country’s gross domestic product, according to a recent report by the consulting company McKinsey. In recent weeks, the focus has been on debt scofflaws in Europe like Greece, Portugal and Spain, countries where borrowing costs have shot up in line with their growing deficits as investors demanded higher rates to compensate them for the added risk of lending the governments money.

But the recent plunge in the value of the pound below $1.50 and the gradual move upward of Britain’s benchmark 10-year borrowing rate on gilts to above 4 percent suggest that investors are now getting ready to reassess the country’s fiscal condition. Britain is not in the 16-nation euro zone and, unlike Greece and other struggling countries that use the currency, it retains control over its monetary policy. As a result, it has benefited so far from a huge bond-buying program undertaken by the Bank of England — proportionally, the largest in the world — that has kept mortgage rates and gilt yields at unusually low levels. That means the government and its citizens have been able to continue to borrow at interest rates that do not reflect their true financial situation. Indeed, the increase in private and government debt here contrasts sharply with the deleveraging that has been going on in the United States. British household debt is now 170 percent of overall annual income, compared with 130 percent in the United States. In an echo of the United States’ rush into subprime mortgages with low teaser rates, millions of homeowners in Britain have piled into variable-rate mortgages that are linked to the rock-bottom base rate.

As for the British government, it has been able to finance a budget deficit of 12.5 percent of G.D.P. — equal to Greece’s — at an interest rate more than two full percentage points lower only because the Bank of England bought the majority of the bonds it issued last year. “It’s not just ‘basket cases’ like Greece that can be considered candidates for sovereign crises,” said Simon White of Variant Perception, a research house in London that caters to hedge funds and wealthy individuals. “Gilts and sterling will continue to come under pressure as scrutiny of the U.K. fiscal situation intensifies.” Adding to this concern is the precarious condition of the British consumer. As interest rates have hit new lows, the popularity of variable-rate loans has grown. At the end of December, 40 percent of new mortgages were tracking the government’s base rate. Despite comments from Mervyn King, the governor of the Bank of England, that he might restart his quantitative easing program in light of current economic weakness, the view among investors is growing that interest rates here will rise further, along with higher inflation and Britain’s increased risk profile.

In a speech this year, Andrew Haldane, the executive director of financial stability at the Bank of England, warned about how vulnerable Britain was to a rate increase, pointing out that an increase of one percentage point would cause debt service costs relative to income to double, to 13 percent. “This is a ticking time bomb,” said Nick Hopkinson of Property Portfolio Rescue, a company that assists overleveraged homeowners. “There are over 400,000 people who are in arrears with their mortgage rates the cheapest they have ever been. When rates increase, a lot of people will be tipped over the edge.” As a result, those counting on the British consumer to take up the slack from any scaling back of government borrowing could be in for a shock. Consider Sheridan King, a sales manager who is struggling to pay off his £32,000 ($47,075) in nonmortgage debt. Far from thinking about going shopping, his first priority is keeping clear of his creditors. And even though his variable mortgage of about £100,000 carries a very low rate, interest costs are already chewing up a substantial portion of his pay, and he is deeply worried about the future. “If rates go up, it will be a very dangerous situation for me,” Mr. King said. “It might lead me to consider bankruptcy.”

For the time being, at least, the British government faces no such threat. Despite its borrowing and spending excesses, Britain still maintains a triple-A credit rating and much of its debt is long term. But with 29 percent of British bonds held by foreigners, Britain, like Greece, remains highly vulnerable to the vicissitudes of outside investors. Since early this year, foreign holdings of British bonds have fallen from 35 percent, a trend that has tracked the pound’s decline and contributed to the increase in the yield on its 10-year gilts. As to which political party he thinks is best placed to handle these challenges, Mr. King takes a skeptical view. “We are just struggling to get by with all this debt,” he said. “It’s time the government got its house in order.”


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