The Euro endgame is now on. And for the first time since this whole saga has started I see the likelihood that something is going to give soon as higher than the whole Eurozone staying together. It is not a forgone conclusion but it is hard to see where the political impetus to decisively change course is meant to come from before the political feedback to the failed European austerity strategy is going to derail the whole show.
Paul Krugman might have it right when sequenced this:
1. Greek euro exit, very possibly next month.
2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.
3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.
3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.
4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:
4b. End of the euro.
What can still be done to avoid disaster? As Greece moves towards a second election the only real asset is that the vast majority of Greeks still want to stay in the Euro. The EU Council meeting on 23rd May needs to change course and give the pro-Euro political parties something to work with (a programme for growth and jobs above all). The Greek state has to be rebuild from scratch as people more knowledgable about the country than I am tell me and this cannot be done over night and whilst in an economic depression with record unemployment levels. It looks more like Greece is in for a decade of structural changes and rebuilding.
If the pro-Euro parties can present such a change of course to the people and the election is boiled down to the question that is effectively underlying the poll: Does Greece want to stay in the Euro? Then, maybe then, there is a chance to set Greece on a workable political trajectory and keep the Eurozone together.
If such change is not on offer we might see the end of the Euro as we know it even before the summer break.
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Greece is increasingly looking like a failed state (financial, economic and political failure) and appears to be the first Western victim of globalisation. They tried to have a modern consumer state but based on a post-modern, neoliberal paradigm of nearly zero production in-country, achieving prosperity through imports — oil from the middle east, consumer goods from China, etc. This model is possible in bigger states like Germany and France, which still produce stuff, but the bottom line is it’s impossible in Greece, so it’s natural that Greece drop out of the Euro, as its economic model was unsustainable.
There is nothing in the Treaty of Lisbon that indicates a way out of the Euro. If the majority of the Greeks want to stay in the Euro (weekend polls suggest), then I see that only the EU is bluffing or is the real culprit that is pushing Greece out. It’s by time we start hearing the Greeks and the rest of the Europeans. We have a problem and we have to address the problem. Greece is part of the EU too!!!
We can’t forget that the ordinary European didn’t participate in the construction of the Euro and this construction has flaws. The Euro was politically created and we are all (Europe) responsible.
Austerity alone is not working! In other countries, it hasn’t worked either!
As Aldous Huxley once observed: “There is no inevitability if one is prepared to contemplate the alternative”.
For the past year the possibilty that one or other country might have to leave the Euro-Zone has been variously described in terms of a ‘crisis’, a ‘disaster’, or the ‘end of Europe’. All these alarmist exaggerations simply highlight one thing: namely that the Euro has become (perhaps it always was) a neoliberal ideological obsession rather that something that Europeans really want, and all the crisis talk is designed to panic people into greater unquestioning subservience to the ideology. After all, how many countries’ populations were ever given a free choice in the matter?
The alternative to the ideology might look something like this : Greece abandons the Euro, reintroduces the Drachma, fixes its exchange rate in accordance with objective economic criteria, tightly regulates the financial markets and outlaws currency speculation, repudiates and ignores the US rating agencies, guarantees and/or nationalises its banks, and introduces its own measures to stimulate internal growth and create jobs. In other words, what the country needs is “more State” and less neoliberal capitalism. None of these measure would end Europe or civilisation on as we know it, despite the hysteria to the contrary. If tthese measures sound like common sense, it’s because they are! If they sound ‘radical’ and ‘socialistic’, that merely indicates how the language, discourse and definitions in the current economic debate are being manipulated.
All of this is poiltically incorrect and anathema to the free-market ideologues of the Euro-Zone, the ECB and the European Commisssion — which is why it is probably a good idea! This is also the reason they will refuse to contemplate this alternative, and why they will remain stuck in a crisis of their own definition, left to face an inevitability of their own creation. They are welcome to their crisis, and others not so blind or ideologically driven are welcome to their equanimity.
May the Greeks rediscover their self-respect and go their own way!
Henning, I see you have joined Paul Krugman’s Chicken Little “The Sky is Falling” crowd.
These gloom and doom prognostications have been going on for some time — Krugman wrote an article for the NY Times well over a year ago called “The End of Europe;” last September Time magazine’s cover story was “Decline and Fall of Europe.” Wolfgang Munchau has predicted the end of Europe about a half dozen times already. Yet Europe is still here, yes?
I think Social Europe Journal readers would benefit by hearing less from Krugman and more from sober analysts, like Ian Bremmer, president of Eurasia Group and author of Every Nation for Itself: Winner & Losers in a G-Zero World. Here is a link to a recent broadcast with Bremmer, in which he specifically criticizes Krugman and his hysterics.
Europe Is NOT About to Implode, Ian Bremmer Says: Paul Krugman Is Being “Disingenuous”
By Aaron Task | Daily Ticker – Mon, May 14, 2012
http://finance.yahoo.com/blogs/daily-ticker/europe-not-implode-ian-bremmer-says-paul-krugman-154110344.html
Notably, NY Times columnist Paul Krugman mused this weekend that Greece could abandon the euro as soon as “next month,” which he speculates could be the beginning of the “end game” for the euro itself. “And we’re talking about months, not years, for this to play out,” he writes.
In the accompanying video, Henry and I discuss these latest euro-developments with Ian Bremmer, president of Eurasia Group and author of Every Nation for Itself: Winner & Losers in a G-Zero World.
Generally speaking, Bremmer believes most observers have “gotten over their skis” about the meaning of recent elections in Germany and Greece.
As for the specifics of Kruman’s latest forecast, Bremmer could barely restrain his criticism, calling the famed economist and columnist “disingenuous.”
“Krugman is a very smart guy and he knows better than to manipulate people ideologically,” Bremmer says. “The notion the eurozone is going to suddenly implode? No CEO with real money on the table today in the U.S. investing in Europe actually believes that. It’s not actually credible.”
Steven, this is my view but I also feel that some US commentators “gotten over their skies” in commenting on Europe. There are quite a few who don’t really know what they are talking about. What I and others are doing is analysing realistic scenarios and it doesn’t look good at the moment. I hope these fears don’t become reality but there is absolutely no inconsistency in any of what Krugman or Muenchau or a few others write. “No CEO with real money believes this” is not an argument. It’s talking up a business case that some “commentators” might have a stake in. The “somehow the EU manages rule” might not be good enough for this crisis and people have to warn about this. We are running towards a wall and the earlier we stop the better.