Category Archives: European Central Bank

Greece: the real question


When the Euro was being proposed and in its early days, some of us had a question: could a common currency be possible within a group of countries all of whom maintained their own individual economic, monetary and fiscal policies?
When we got an answer back, which wasn’t too often, it came in myriad voices.
On one end were those who “promised” us that in some mysterious way this fundamental problem would be solved. At the other end of the spectrum were a few brave if somewhat idealistic souls who advocated the abolition of individual nation states for at least a federal if not a unitary political union for which the common currency would be a handmaiden.
In between, were all the spoken and unspoken solutions, verging from a seemingly commonsense vow that progress toward a commanding central bank and one policy would emerge out of the various European institutions – the bureaucratic European Commission, the nominal multilateral executive, the Council of Ministers and the relatively powerless European Parliament. In addition, this Christmas Tree was decorated with an additional four high-sounding named institutions such as the European Court.
Britain, of course, in the usual pragmatic way of the Anglo-Saxon constitutional process, opted out. It would not and could not abandon sterling, if no longer a challenge to the dollar as a world reserve currency, still served as a handmaiden to The City and the continuing profitable dominance and profitability of London as a leading world currency exchange.
Of course, in what could have easily been predicted would be the new order, each country went its own way. There was even continual conflict between Paris and Berlin, the two central pillars of the new money, with France always flirting with “dirigisme” – central planning – and Germany pretending, at least, to be a full-fledged market economy.
But while the big boys discussed the major issues interminably, the cat was away and the mice, they did play. It was far too easy for Athens [and to an extent Lisbon, Madrid and even Rome, a major EC player] to use their unlimited draw on the common currency to finance lifestyles to which they would like to become accustomed but for which they were either incapable of producing or for which they were unwilling to work hard enough to attain.
True, much of the Greek mess is historical. It has always been easy – with some tjustification — to blame it on the hated Turks’ Ottoman Empire heritage, but now a hundred years away.
Yet no one now speaks above the intense and infinitely complicated negotiations to trim Greece’s exceseses without killing its economy altogether, a game in which Athen’s shrewd if amoral leftwing government pulls the cat’s tail and dares it to take a fatal snap that would destroy the figment of a voluntary association of free nations.
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Greece: Tragedy or farce?


The drama of Greece’s bankruptcy is beginning to take on the aspects of a soapopera.
Again on Friday we are facing another of what has been an interminable list of deadlines; this time Athens is supposed to meet an obligation for repayment of International Monetary Fund loans. In theory, Athens should be able to sell some bonds and come up with the cash. But the European Central Bank, acting as the sheriff for members of the Euro monetary union, won’t take the bonds until Prime Minister Alexis Tsipras agrees to a new round of austerity measures. And even at astronomical rates of interest, the private sector isn’t interested..
Of course, that is exactly why Tsipras’ bitter opposition to just such a program elected him in January with his grumpy leftwing coalition partners. Tsipras argues that even were he to accept what his Euro creditors demand they are about to spring on him, he would have to call new elections or a referendum on any new set of demands on Greek consumers.
The list of Greek economic ailments – from notorious dodging by the ordinary citizen as well as the high and mighty of taxes to an unbelievably bloated government bureaucracy to labor laws it can’t afford to a current capital run for the exits – is long and certainly needs drastic reform. But there is also the argument that if the new demands for cleaning up the mess are too stringent, they would impede growth and make it impossible for the Greeks to ever pay their debts. And Ysipras has had the out until now that there were differences among Greece’s creditors about just what they wanted him to do.
It’s been no secret that the IMF has been calling for Greece’s creditors to take a haircut, especially the Germans with their place at the head of the line of the lenders. But if the gossip – and it changes every 24 hours or less – is now valid, everyone including Germany and the IMF have compromised their differences and are ready to give the Greeks a package of measured reform and aid but with an ultimatum although no one wants to call it that.
Ysipras has an ace not far up his sleeve, of course.
That would be to fulfill his repeated threats and take the Greeks out of the Euro and return to their own national currency. Nobody really knows what that means, even if he had the courage to go through with it. The fantasists who put together a monetary union, now 19 of the 28 states in the European Union, made rules for entry, often bent badly as in Greece’s case. But there is no door marked exit, and Greece’s departure would threaten the Brussels’ bureaucrats who contrary to common sense created a common currency for a group of nation states but with no instrument of common fiscal or monetary policy. The weak European Central Bank has until recently spent most of its time with its chairman wringing his hands at the continuing crisis.
If the Greeks were really to go, it would set a precedent for there are other members of the Euro not in much better shape. [Unemployment in southern Italy, the EU’s fourth largest economy, outdoes the Greeks!] At a time when all the EU economies are largely pawing the ground, the EU really doesn’t need a Greek chorus in the background. And so it looks like the bluffing on both sides has just about reached its end.
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A euro for your thoughts


by Sol Sanders

The European Union has entered a multifaceted and what promises to be an extended crisis.

It will reshape European politics and its outcome will have far-reaching effects on the world economy and international politics. Resolution of the crisis will come with even more difficulty since the Europeans for the first time since the end of World War II cannot count on a strong role of Washington as mediator and mentor.

First off, it is important to remember that despite all the propaganda to the contrary about newly arriving power centers – and the weaknesses exposed by its current troubles – Europe remains the force in world affairs unmatched except by the U.S. Its more than half a billion population with almost a quarter of the world’s total economic activity, enormous cultural diversity and heritage, with infinitely fecund research and technological innovation, and with a diminished but technologically powerful military, still dominates the world scene.

When we speak of “Europe”, of course, we are lumping in a set of complicated relationships as well as groupings. The geographic Europe is everything west of the Urals in mid-Russia, but for the moment Russia has excluded itself from the European family. That’s in part because the European Union now includes all the countries of Western Europe except Norway and Switzerland, and more recently central, northern and parts of eastern Europe for a total of 28 countries [with four more former Yugoslav states soon to join].

The EU institutions include the European Commission, the Brussels-based appointed executive, the Council of the European Union, its upper house of parliament composed of executives of member states, the directly elected European Parliament, the lower legislative house, the Court of Justice, the European Central Bank and the Court of Auditors. At least theoretically, these countries now have a common market and are moving toward a standardized legal system. A separate treaty removes passport controls among all the countries [including Norway] with the exception of the U.K.

Eighteen of these countries – with the exclusion of the U.K., Denmark, Sweden and Poland – are part of the Erozone, using the Euro as their currency. [Seven additional states are obliged under their treaty obligations to join the common currency at a later date.] Since the international crisis of 2007-08, the European Central Bank has become a mini-International Monetary Fund. It has taken on a role of handing out emergency Euro loans to some of its members in deep trouble and is helping to work out individual national economic reform agendas. Through it purchase of national government bonds – Germany has blocked Eurobonds – it also indirectly helps direct the finances of the individual members.

Rather suddenly, a series of problems have grown acute, testing to their limits these and older European institutions in a way not seen since the onset of The Great Depression and the resultant collapse of much of Europe into authoritarianism. These developments put into question whether national interests can be subsumed in a superstate which has become the aim of many of the proponents of further European economic and political integration. Or whether, as an alternative, national and regional sentiments within some older nation-states will scotch this movement, or, indeed, reverse the whole effort.

The problems are, of course, interrelated and will require new efforts at international collaboration as well as mobilization of resources to move on to another stage whatever that may be. It’s no wonder then that any attempt to describe the ideological and more practical conflicts of the various constituents looks like a cat’s cradle of connections which alas! are not likely to fall apart as quickly as success at that old string game.

Putin’s challenge After more than a half century with sometimes bitter but relatively minor wars, Europe is faced with the continuing threat of naked aggression by a major power, Russia. An unstable Moscow regime glories in its inability to assimilate politically to the European consensus. But unlike its autarchic Soviet predecessor for which many of its leaders [and unhappily its citizens] have deep nostalgia, Putin’s Russia is not only directly intertwined with the world economy but virtually totally dependent on its sale of fossil fuels to the rest of Europe. [Recent feints to the East to China are just that with so-called trumpeted agreements falling far short of their ballyhoo.]

Using methods that could have been copied from the aggressive pre-World War II Fascist and Communist dictatorships, Moscow bluffs at least temporarily have overwhelmed European [and American] leadership. Neither Brussels, the national capitals, nor Washington have found an adequate response thereby inviting further aggression from Putin’s ad hoc agenda to restore what he claims is Moscow’s hegemony in Eastern and Central Europe if not a superpower. The fact that Ukraine has become the focal point for the conflict is symptomatic, for it is the irresistible attraction of participation in the European movement toward integration which draws Kviv away from its traditional domination by Moscow.

Democracy quotient The EU’s original deadly fault – top-down imposition of a new regulatory regime on self-governing societies – has finally climaxed in the candidacy of a new president of the Brussels bureaucracy. Tiny Luxembourg’s former prime minister, the lackluster politician Jean-Claude Juncker, has by happenstance become the nominee of the European parliament for the presidency of the EU on the claim that his party now has a majority in that assembly. That claim, reinforced by the lack of other major alternate contenders, in effect would establish parliamentary supremacy against what has been a tradition of hand-picked appointed Brussels bureaucracts..

But Juncker’s advocacy of more “federalism” – further political as well as economic integration – challenges London’s opposition to a stronger federal union at the same time its most ardent advocate is Germany. Furthermore, a clutch of anti-EU parties – some of them proto-fascist – now hold a fourth of the seats in the European parliament.

Britexit The sweep of anti-EU skeptics of the British delegation in a just completed Europe-wide election for the European parliament threatens to increase the growing minority in the U.K. who want to leave the EU. Conservative Prime Minister James Cameron, increasingly threatened by an anti-EU, anti-immigration, nationalist swell on the right, has promised a 2017 referendum on leaving EU membership. At the moment, British public opinion remains divided with apparently a small majority for remaining in the EU, but continuing as a limited partner. However beleaguered is its sterling currenmcy, most Brits count themselves lucky they stayed out of the Euro and thereby reinforcing the role of The City as perhaps the foremost international financial center.

Germany, a proponent of further integration, nevertheless makes preventing the departure of the British, its main ally in opposition to French and other EU partners’ statism, its highest if contradictory priority. Britain’s exit would, of course, have enormous repercussions inside the EU beyond its role as the main opponent of further bureaucratization, feeding skepticism which exists in Scandinavia, for example, and may even be growing in Germany where it has been a dogma of the post-World War II regime.

Economic malaise The European Central Bank president, Mario Draghi’s imposition of a negative interest rate – that is, the national central banks’ deposits into the Euro would be charged interest – is a groundbreaking effort to stimulate growth Theoretically, it would force the central banks to loose their lending policies. It is an attempt to counter the austerity policies throughout most of bankrupt southern Europe’s economies and the resultant high unemployment of low growth rates and increasing political instability.

Draghi’s policies are bitterly opposed by Germany with its paranoia about inflation from the deadly post-World War I expeience. Meanwhile, as by far the largest EU economy it continues to maintain a budget surplus through its “beggar your neighbor” trade policies. [Germany rolled up the highest trade surplus in the world at $270 billion in 2013 despite the fact that 60% of its exports went to other EU partners. [If Germans sanctimoniously blame their souther partners’ priofligacy for their situation, it was German-financed exports that in large part brought on the disaster.]

Germany’ situation is almost unique in the region. Its per capita income is 23% above the EU average with more than a fifth of the federation’s gross development product. That it is inimitable to Draghi’s grand strategy sets up an enormous conflict inside the EU at a moment of economic crisis.

Nor is it at all clear that Draghi’s effort will help given that the bulk of the Euro’s transactions still remain in national budgets, most of them already in deficit. That, of course, is the long term argument for further integration, welding differing financial strategies into a whole behind the Euro. But Berlin’s notorious historical incapacity to lead a democratic alliance contradicts Germany’s hegemonic economic role inside the EU, another reason why its effort to keep Britain inside the union is consered by many,m even in Germany, so critical.

This welter of crosscurrents takes place at a time of a growing perception – probably realistic — among European leaders that the U.S. is retreating from world politics and when the world engine of growth, the American economy, is sputtering.

Any of these various issues and contradictions could at any moment flare up into the kind of crisis that would feed popular sentiment and the 24-hour media, overshadowing the general confusion of these more complex economic and political issues. That question of unexpected events now dominates the European and ultimately, the world scene.

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BOOK REVIEW: ‘The End of the Euro’


BOOK REVIEW: ‘The End of the Euro’,
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By Sol Sanders
Tuesday, December 13, 2011, The Washington Times
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 Johan Van Overtveldt
 European Union
 David Cameron
 Germany
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THE END OF THE EURO: THE UNEASY FUTURE OF THE EUROPEAN UNION
By Johan van Overtveldt
Agate B2, $24.95, 208 pages
The principle problem with this concise book is, of course, that the whole drama
continues. I write as British Prime Minister David Cameron has just dropped a bomb into
the laps of his 26 European Union partners by refusing to go along with a new treaty
aimed at reinforcing economic integration and solving the crisis of the 17 members’
common currency, the euro. Johan van Overtveldt completed his manuscript, he tells us,
on Aug. 30, but the past is prologue, and he has certainly prepared the present scene.
Bravely, he set out to lay out possible scenarios for further developments. In an attempt
by a very systematic mind (no wonder he hints at prevalent Flemish contempt for the
lofty generalizations of his fellow Belgians and other francophones), he lays out three
possible directions. Following his calling, he journalistically labels them “More of the
same [MOS],” “Throwing out the System [TOS],” and “Rebuilding of the System
[ROS].”
MOS means, he says, continuing to throw more credit at the problem, whether emanating
from governments reinforcing failing banks, the International Monetary Fund or the
European Central Bank. A second part of this crisis response was imposing “reforms” on
delinquent creditors such as Greece. But in the end, he argues, MOS is a Ponzi scheme
because deflation enforced on the debt ors means they cannot hope to grow to pay their
debts or even pay the interest on their more -and-more pricey borrowings. The game
would be up, he says, either when the banks fail or austerity brings on political crisis.
TOS suggests individual euro users d ecide their only course is individually to exit the
common currency. Short term, he says, the enforced devaluation of their currencies might
improve their competitive opportunities. But in the end, Mr. van Overtveldt argues, this is
the Argentina route, which several of the southern European debt -ridden countries
resemble economically – one that has not improved the once -prosperous South American
candidate for first world rank. He does argue that Iceland has been as successful as it has
because it was done quickly and with unusual backing of its small and remote population.
ROS, accepting defeat – even the exit of some members – and then rebuilding the
monetary union from scratch is “a Herculean task.” He argues an effective monetary
union requires four conditions: political union, fiscal integration, labor mobility, and
price and wage flexibility. Could the Europea n Monetary Union achieve those conditions
and survive? “Likely no,” Mr. van Overtveldt says.
“Despite the deep crisis,” he concludes, “the European authorities have done hardly
anything really substantial about the fundamentally important issues: rebuilding the
banking sector, restoring the long-term sustainability of public finances, improving the
structure of growth performance of their economies and, most important of all, rebuilding
the institutional framework of the monetary union to make it more durable and efficient.
They are quickly running out of time. As a matter of fact, it is probably already too late.”
Although the author isn’t ready to say it bluntly, he comes to a rath er startling conclusion
– especially at this moment when across the political spectrum in Germany there appears
universal support for attempting to strengthen the EU institutions through new
agreements. He concludes his narrative with a bevy of quotes – he has relied on others’
words for most of his arguments – suggesting that it will be Germany that finally pulls the
plug on the common currency.
He argues that the time is past when Germany’s neighbors – and others further afield –
can rely on German recognition of its culpability in two wars that almost destroyed
European civilization.
“I do not mean to imply that the present generation of German politicians is in any way
unaware of the country’s past,” he writes. “My point is that they seem much less inclined
to let that past dominate Germany’s policies.”
Berlin’s critics point to German business’ profitable courtship of Iran, despite increasing
Western sanctions meant to inhibit its development of weapons of mass destruction. Also
cause for criticism is Berlin’s love affair with Russia’s energy giant Gazprom – even to
the point of cheating its eastern neighbors of transit fees – and its continued refusal to
acknowledge that its export -led incentives are basic to the euro problem. Perhaps, Mr.
van Overtveldt sugarcoats those issues. Although he never quite says it, the author
predicts that it will be German action, with all the power of Europe’s paramount
economy, which will, in the end, spell the death knell for the euro.
Sol Sanders writes the weekly column “Follow the Money” for The Washington Times .

The Euro is dead, long live the euro!


In the spring of 1947, I was on deck as one of that dying breed of transatlantic liners was tugged into Le Havre. Despite decades of experience there was incredible confusion as French stevedores hassled over tying up ropes. A rail companion, a French Jewish refugee returning from American wartime refuge, declaimed, “Eh voila! L’élan francaise”. My 90 hours Berlitz preparation for being a “sois-dissant” Paris student, unabashedly imitating my 20s predecessors, had done me well. But I hadn’t a clue what “élan” meant, so he went into a “cartésien” dissertation on how Frenchmen were individuals as none other, cooperation comes hard if at all, and the genius of the civilization resides in that peculiarity. [Gen. Charles DeGaulle: How can anyone govern a nation that has two hundred and forty-six different kinds of cheese?]

As “Europe” falls apart, it’s natural each of its 27 members would be doing their thing. For the moment – while a search goes on for a missing one trillion Euros [$1, 400 billion] – the Euro has been rescued as a common currency for 17 members, and, hopefully, the whole Europe Project to unite a continent for peace and progress survives.

But continuing crisis, whatever its final outcome, is already rearranging geopolitical pieces on the European chessboard:

London smugly congratulates itself for refusing to enter what is now a failing common currency, preserving The City’s worldwide financial role. But Prime Minister David Cameron backbenchers’ called for a referendum on British EC membership. While put down, they will haunt his promised negotiations to rearrange the UK’s relationship with Brussels.

German Chancellor Angela Merkel will fiercely resist efforts to rearrange London’s other “special relationship”, perhaps forcing a showdown on whether you can be half in and half out. She has rammed through a call for more EC economic and political integration, swapping it for her recalcitrant Bundestag’s veto over more bailout. But at her back are obstinate voters reluctant to pick up the chips for southern bankrupt members of a common market Germany’s export drive exploited so shamelessly.

Chancellor Merkel bested French President Nikolas Sarkozy, facing a tough election next year after failing to produce his promised marketizing of the French economy. He wanted a super-Q-easing by the European Central Bank to save the Euro and inflate. In that grandiose French play, he proposed “comprehensive” settlement while the methodical Teutons wanted step by step – even at the risk of more minicrises and general economic doldrums as austerity brakes growth.

Italy’s tragicomedy starring Prime Minister Silvio Berlesconi featured parliamentary fisticuffs. Worse, his painful promised belt-tightening for the Italian welfare state built since it beat off a near successful attempted Communist coup d’etat in 1948 could get its ultimate test. Does the family, the cornerstone of Italian culture since the Romans, remain strong enough to buoy a society with the lowest birthrate in Europe, the mother of modern international immigration now facing invading hordes on the North African coastal periphery?

Initial market falderal was heartening. News that America, the heart of the world economy still for all the talk of shifting patterns, had grown in the last quarter instead of drooping into doubledip recession, heartened the optimists.

But there is bound to be a second look. And when the spectacles come out, analysts will find less detail to the Euro settlement than headlines. Germany is still keeping a staying hand on the throttle of the European Central Bank. The European Economic Stability Fund still looks more like an impoverished debt set-aside than a mini-IMF. And the controversial Eurobonds proposal hangs over the dusty debris left by two officials’ talkathons

President Sarkozy’s call to China’s Prime Minister Wen Jiapao for help in bailouts and recapitalizing European banks is fantasy. Beijing plays a completely mercantilist hand. With its exports threatened and repeated promises to its own increasingly restless to shift to a more consumer-oriented economy, China’s more than $3 trillion in monetary reserves [20% in vacillating Euros] is mortgaged by a deflating dollar and its own incipient inflation. Ditto, Brazil – in a welter of official corruption scandals – and India with seemingly uncontrolled inflation. President Barack Obama’s op-ed proposing a firewall against a European debacle added insult to injury. U.S. banks sometime back stopped Eurolending — with their exposure still unknown.

Help, if it comes, will look to those glorious European traditions – all of them, as varied and contradictory as they are.

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