Tag Archives: common currency

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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Meanwhile back at the ranch …


Mesmerized by the Osama Ben Ladin drama, world attention has swung away from world economic issues. That may not be for long. A three-ring circus of instability matching P.T. Barnum’s extravaganzas is in full swing. But unlike Ringling where only the viewer’s attention connects acts, so intertwined are these convulsions even the most arcane market punter is having difficulty telling us what is going on – much less how to invest.

  • · Ring No. 1 is the soap opera – to change my metaphor — playing out with Europe’s common currency. It is becoming increasingly clear, as some of us predicted at the beginning of the crisis, the Euro cannot survive in its present form. With Greece near civil war, the markets tell anyone listening there is no confidence in bail-outs even as a new one is underway in Greece and one just put together for Portugal. Because default could come at any moment, borrowing rates are too high for recovery even where recalcitrant politicians have the courage to inflict the pain of austerity. Joining Ireland, and soon probably Spain, clinging to the Euro vitiates unavoidable belt-tightening their separate currencies once forced on earlier regimes. Threat of a German taxpayers’ revolt grows for German Chancellor Angela Merkel’s increasingly shaky federal coalition — wounded recently by loss of the largest state after 34 years of conservative rule but still soon facing four state elections. Public opinion sees Berlin doing the heavy lifting for spendthrifts but ignores it was those miscreants who gobbled up German exports. Unfortunately, the Brussels EUrocrats’ rescue stratagems invite a future dramatic Euro crash. By procrastinating, they increasingly are making the common currency’s fate synonymous with the whole “European project” of creating a united continent to avoid wars and preserve prosperity.
  • · Chinese delegates have decamped Washington after another annual talkathon with a befuddled Obama Administration trying to spin what is in reality a dismal impasse. Just as everyone was being lulled into myths of Beijing’s boosting consumption, April marked record trade surpluses. The combination of higher imported commodities, slackening appetite for its subsidized exports and growing concern about its real estate bubble did not stem the tide. Beijing’s escalating humongous dollar holdings show where big chunks of the Fed’s “quantitative easing” [printing dollars] have gone. Meanwhile, Beijing further screws down political repression. Announced internal security costs are larger than its understated publicized defense budget. On the eve of a generational transfer of power, there is paranoia about “Arab spring” contagion and much shin-kicking among leaders. The Communist politburo is in no mood for “experiments” but “keeps on digging its [financial] hole”. That is now leading to inflation [if paused for the moment], especially in food, the overwhelming concern for most Chinese. Thus, recruits to the tiny China-will-implode prognosticators, among them yours truly, is growing.
  • Our third ringmaster [or perhaps snakeoil salesman to mix out metaphor again] proclaims greedy oil companies are the cause of high gasoline prices. Mr. Obama’s own clamp on Gulf offshore drilling as well as Alaskan oil are the real culprits. Of course, as markets showed in mid-May, probably temporarily, a sudden stronger dollar and lower commodities prices could sink notoriously unpredictable crude oil prices – but probably only as a sign of a descent into double-dip recession. For the moment, relief seems unlikely for Memorial Day weekend driving with Louisiana’s 15% of refining capacity threatened by the Mississippi River flood  And continued high prices at the pump could just be the 2011 election eve deciding lollapalooza rather than the current concern for fiscal discipline by an American electorate burdened with  joblessness and foreclosures now running three months in arrears.

Interconnections among all these phenomena are infinite and mostly unpredictable. But the 1997-8 crash apparently did not teach us – there are signs among our bankers – clever derivatives and exotic algorithms are not going to give us a road map to recovery. Just as the self-emulation of a single unemployed Tunisian – the least likely trip-wire in the whole Muslim world — set off a wave of unpredictable revolutionary unrest among 300 million Arabs, the world economy, too, is at the mercy of unforeseen events and their unanticipated consequences.

Tighten your seat belts!

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