For a change of pace, we’ll begin this compendium with a graphic from Greek cartoonist Manos Symeonakis, “Free Greeks.” The words Arbeit Macht Frei [labor makes you free] were emblazoned on the entrances to Nazi concentration camps, most famously this one. The memorandum is the notorious austerity agreement passed by the Greek legislature at the demand of the Troika.
There’s a whole lot to report today as the crisis deepens, starting with the rapidly growing pressure on Germany’s Angela Merkel to tap some of Germany’s might to aid some of the eurozone’s less fortunate members.
Then we’ve got the latest from Spain, another rating agency downgrade for Greece, a German newspaper’s call for a Grexit, the devastating psychological trauma ravaging Greece, a probe of those Greek pharmacists who won’t give drugs without payment, arrests of Golden Dawn members in that vicious sword attack on immigrants, bad news for Greece’s number one industry, a push for more EU free trade agreements, and a warning about debt.
Oh, and the world’s second-largest bank has already tested its Greek ATMs to see if they’ll handle drachmas.
Putting the arm on the Iron Chancellor
When it comes to the eurozone, one player’s holding a financial full house, and that’s Germany. And now, with the crisis spiraling further out of control, pressure’s growing on Chancellor Angela Merkel to play a more active role in fixing the mess.
Germany’s often portrayed as Europe’s economic miracle, the nation that rose from the ruins of a world war to become the continent’s industrial and financial powerhouse.
Often unmentioned is the decisive role the U.S. played in creating the miracle, as Germany was transformed from enemy to leading ally in the Cold War against the Soviet Union.
Michael Birnbaum of the Washington Post writes about the growing pressures on the reluctant chancellor:
Although Merkel has said she wants to take unprecedented steps to hand over long-guarded sovereign rights of budget-making and taxation to the European Union, her timeline is nowhere near fast enough to get in front of a crisis that wiped 3.4 percent off the value of Germany’s DAX index on Friday alone.
The head of the European Central Bank and the leaders of France, Italy, Spain, Britain and even President Obama have all called in recent days for steps that would dwarf everything tried so far. Most of them directed their appeals straight at Germany. The E.U. official in charge of the economy, Olli Rehn, was the latest to warn that the 17 countries that share the euro were at risk of falling apart.
“The way things are going and under the current structures, the euro area has a significant risk of breaking up,” Rehn said in a speech in Helsinki, Bloomberg News reported.
But Merkel has remained mum on taking bigger steps, even though allies such as European Central Bank President Mario Draghi — whose inflation-hawk approach is far more sympathetic to Germany than to more profligate countries — issued a plea this week for European leaders to take quick action, calling the euro zone’s current setup “unsustainable.”
The eurozone, a region in crisis
So what are the pressures that are uniting the rest of Europe against Germany?
In an unusual departure from traditional EU language, European Commission vice-president Olli Rehn and Italy’s Prime Minister Mario Monti have issued dramatic warnings yesterday (31 May) on the euro zone, while European Central Bank chief Mario Draghi openly admitted that the common currency was fighting for its survival.
Despite unprecedented steps to safeguard financial stability since the euro zone debt crisis erupted two and-a-half years ago, “we are still in troubled waters”, Commission Vice President Olli Rehn said, admitting that the Union had managed so far to “contain the crisis, not tame the crisis”.
Addressing the annual Brussels Economic Forum, Rehn went on to issue a stark warning: “We need both a genuine stability culture in the eurozone and its member states and a much upgraded common capacity to contain financial contagion and reduce the borrowing costs for its members. This is the case at least if we want to avoid a disintegration of the Eurozone”.
The spread on Italian bonds remains high, even though everyone agrees that Monti’s government is pursuing the right reforms and is making serious efforts for fiscal consolidation. This lack of “appreciation” from the markets will likely trigger a social backlash, the Italian Prime Minister warned. That is why Europe should accelerate its efforts to limit contagion, by introducing instruments such as collective bank deposit guarantees, he argued.
“It is obviously a difficult place to be in, when you have a country displaying massive and concentrated efforts of consolidation and structural reforms, which are obviously politically and socially costly, and sees its position threatened by huge possibilities of contagion,” Monti said.
Looking at Europe from an Indian perspective
A very interesting NewsClick.in interview on the eurozone crisis with economist Jayati Ghosh of the Centre for Economic Studies and Planning at Jawaharlal Nehru University in New Delhi. Especially noteworthy in light of the above are her comments on Germany as well as her take on the corporate capture of American government:
Spain, now the weakest link
While a Grexit would prove costly for other eurozone members, the real panic these days focuses on Spain, where each day brings more bad news about failing banks, rising unemployment, and social malaise.
From Ralf Bosen of Deutsche Welle:
Delaying Spain’s deadline actually highlights the seriousness of the situation and the helplessness of all parties. Problems for a European heavyweight like Spain could shake the foundations of the whole eurozone.
Most experts fear that if Spain needs to be bailed out by the European rescue fund, then the fund could be torn apart by subsequent financial burdens. That has led many EU officials to consider accepting any supporting measure.
“It’s the eleventh hour for Spain,” said Daniel Gros, director of Brussels think tank the Center for European Policy Studies (CEPS). “The Spanish banking system will soon be unable to refinance itself, and the Spanish government will have to pay interest that it can’t afford in the long-term.”
But he added that it would be a mistake to use the rescue fund to finance the entire Spanish economy. “Europe can’t afford that, because Spain is simply too big,” Gros said. Instead, the EU needs to find a way to recapitalize the Spanish banks without breaking the state’s back.
“What the Spanish banks need is not more loans, but capital,” Gros said. “And the Spanish state cannot provide this capital, because it simply doesn’t have the money.”
Gros makes an excellent point. Adding more debt without the possibility of default or jubilee only postpones the catastrophe, while ensuring that the final collapse will be even more devastating.
And on to Greece.
Moody’s strikes again, Greece downgraded
Once again, it’s all about debt.
By downgrading Greek bonds, Moody’s is insuring that the already indebted country will have to pile more debt at higher cost to meet the austerity mandate.
On a logical level, it amounts to shooting a wounded man in the foot to take his mind off the buckshot in his gut.
Moody’s rating agency late Friday said it was lowering Greece’s highest possible credit rating because there was an increased risk that the country would exit the euro zone.
Moody’s said it “has lowered its assessment of the highest rating that can be assigned to a domestic debt issuer in Greece to Caa2 based on the increasing risk of a exit by the country from the euro area.”
The highest rating “on any Greek security is currently B1, which is rating assigned to certain covered bonds. Any rating actions taken as a result of the new ceiling will be released during the coming week.”
According to Moody’s, although the risk of Greece’s euro exit “is substantial,” it is still not what the ratings agency considers its most likely scenario.
“Moody’s also notes that there is a potential for exceptions whereby a security could be rated higher than Caa2 if the “Greek” issuer is essentially a non-domestic company, has substantial assets outside the country or receives substantial support from an entity outside the country,” the New York-based ratings agency said.
Greece must go, German paper declares
As newspapers go, the German national tabloid Bild ranks with Rupert Murdoch’s notorious British tabloid, the Sun, and the New York Post when it comes to tawdry sensationalism. But when it comes to clout, Bild’s got it, so consider the following in that light.
From A. Papapostolou of Greek Reporter:
Greece is reaching the endgame next week, Germany’s best-selling Bild newspaper said.
Greeks are plundering their bank accounts, imports to the country are not longer guaranteed, rumors abound of drachma being printed and energy suppliers are no longer paid, Nikolaus Blome, Bild’s chief political columnist, said in an editorial in today’s edition.
“Greece is unraveling, it’s coming apart,” Blome said. “Irrespective of how the upcoming parliamentary elections turn out, ‘business as usual’ won’t work any more.”
Billions of euros in more aid from Europe can help Greece through the next day, week or month, but it can’t bring about the far more important new beginning that’s needed in the economy, politics and administration. The Greek state “must be rebuilt, like in a developing nation,” he said.
“Someone among the euro-zone leaders must finally tell the Greeks the truth: this fresh start can only be achieved with a radical first step,” he said. “And that means leaving the euro.”
So Greece is, in Bild’s eyes, just another Third World country. Maybe that will melt the icy heart of Christine Lagarde, who got into hot water for belittling Greeks as whiny scofflaws.
Major British banks tests ATMs for drachmas
Yet another sign that the big money players are betting on a Grexit comes in the form of tests performer by a leading British bank on the Greek ATMs.
HSBC is Britain’s biggest bank and the world’s second largest, and one would suspect the folks who ordered the tests may have some inside information.
From Jon Rees and Helen Loveless of the British financial website This is Money:
HSBC has tested its cash machines in Greece to check whether they could cope with the reintroduction of the drachma if the country drops out of the euro. It is the clearest sign yet that the international financial sector believes Greece is on the brink of quitting the single currency and returning to its former currency.
An HSBC spokesman said, “Like all banks, we have been working with regulators to undertake preparatory work at multiple levels in the event of a sovereign default, an exit from the euro, or any other eventuality.”
The cash machine tests at branches in Athens are understood to have been extensive to ensure that the machines are able to handle banknotes of a different size and texture.
Greece in throes of mental health crisis
There’s a reason they’re call Depressions: They’re depressing.
And with Greece in full meltdown under the austerian mandate and plagued by an epidemic of suicides, the very services needed to help Greeks cope with their growing misery have been slashed.
That, in turn, bodes ill for the future.
From Kate Kelland of Reuters:
Behind every suicide in crisis-stricken countries such as Greece there are up to 20 more people desperate enough to have tried to end their own lives.
And behind those attempted suicides, experts say there are thousands of hidden cases of mental illness, like depression, alcohol abuse and anxiety disorder, that never make the news, but have large and potentially long-lasting human costs.
The risk, according to some public health experts, is that if and when Greece’s economic woes are over, a legacy of mental illness could remain in a generation of young people damaged by too many years of life without hope.
In Greece, suicide rates are already rising rapidly, albeit from a low starting point. Suicides rose by 17 percent between 2007 and 2009, and by 40 percent in the first half of 2011 compared with the same period in 2010, according to a report in the Lancet medical journal last year.
And judging from the experience of financial crises elsewhere, unemployment, poverty and insecurity will also lead to upward trends in demand for mental health services just as they are being cut back.
Greek health crisis draws prosecutorial eyes
With austerity in full flower, the Greek government has been forced to slash health care expenditures, and as a result, people and institutions dependent on the pharmaceutical industry have been forced to do without.
In our last economic wrapup we cited a story about cancer patients who are being denied chemotherapy meds because they can’t pay for them.
Now Greek prosecutors have launched an investigation.
An Athens prosecutor has launched an investigation into pharmacists who allegedly refuse to supply drugs on credit to seriously ill patients due to the state debts to the sector, while at least six hospitals are reporting major shortages in vital material.
The head of the Athens Pharmacists’ Association Constantinos Lourandos told Skai television on Saturday that there are actually dozens of phone calls by relatives of people who have died of cancer and are offering to gift the drugs they possess and do not need any longer.
Pharmacists continue to refuse giving pharmaceutical products on credit to people insured at the National Organization for Healthcare Provision (EOPYY) because of millions of euros of outstanding debts, after the state cut the organization’s funding by about half a billion euros this year.
The Panhellenic Pharmacists’ Association (PFS) sent an out-of-court notice to EOPYY suggesting the latter has not fulfilled its contractual obligations “at all,” as it has not yet paid pharmacists even for March 2012, for drugs amounting to 272 million euros. If this is added to the debt outstanding from 2011, it comes up to 540 million euros, according to the PFS.
It’s a classic double bind. Pharmacists, who depend on sales to live, aren’t getting paid by the state, so they’re denying to essentially give away drugs — a coldly rational move,
So the state launches a criminal probe that focuses on the pharmacists.
People are dying without their medicine, but the real culprits aren’t the pharmacists, who are faced with bankruptcy if they have to give away medicine. The real culprits are the austerians, who demand death as payment for debt.
Golden Dawners arrested in sword and knife attacks
Given the vehement anti-immigrant rhetoric of the neo-Nazi Golden Dawn’s leaders, violent attacks have been inevitable.
And now, in the wake of a series of brutal attacks on Eastern European immigrants, six Golden Dawn members — including the daughter of the party’s leader — are facing criminal charges.
Police detained six people, including the daughter of Chrysi Avgi (Golden Dawn) party leader Nikos Michaloliakos, just before midnight on Friday for their alleged involvement in an attack on a man who ended up in hospital.
The six people participated in a motorbike protest by Chrysi Avgi that started from Piraeus and ended up in Athens.
They then allegedly attacked a foreign employee at a kebab shop at Pireos Street in Athens.
Dominant Greek industry devastated
Tourism is the country’s leading business, even beating out ship-building. But with the economy in tatters and the media filled with stories about violence, tourism is dying.
Once again, austerity lit the fuse, setting off an explosion that can only lead to further grief.
Holiday bookings in Greece since the May 6th election have declined dramatically and if the trend continues it could lead to the loss of 2 million arrivals this year, daily Kathimerini reports quoting a warning by the Panhellenic Hoteliers Association on Thursday.
Association president Yiannis Retsos said that Greece’s image as a country with no government is leading to new hotel cancellations on a daily basis. He suggested that the month of May and the first couple of weeks of June had proved very tough for hotels at holiday resorts.
Meanwhile, the EU grabs at “free trade”
Under the neoliberal doctrine, so-called free trade agreements are the summum bonum — pacts that effectively lead to deregulation and further economic destabilization, all aimed at increasing corporate profits.
Under the neoliberal myth, such pacts “raise all boats,” while the reality, as Americans have seen in the aftermath of Bill Clinton’s North American free Trade Agreement, mean more miseries for the populations on both sides of the FTAs.
From New Europe:
[M]erely a day after the European Parliament criticised lack of labour rights in Columbia and Peru, the Council approved the signing and provisional application of a free trade agreement (FTA) with the two countries. In addition, the Council authorised the European Commission to start negotiations with Vietnam on a free trade agreement.
The agreement with Peru and Columbia, initialled in March 2011, should eliminate high tariffs, tackle technical barriers to trade, liberalise services markets, protect EU geographical indications and open up public procurement markets of the two countries. The FTA also includes provisions on the enforcement of labour standards, whose implementation has been heavily criticised by the Parliament’s International Trade Committee.
The FTA with Peru and Columbia is a part of the greater attempt to forge a trade alliance with the Andean Community. Negotiations on an association agreement with the Andean Community were suspended in 2008. However, the FTA remains open for signature by Bolivia and Ecuador.
The Council also adopted a decision to authorise the Commission to start negotiations on a free trade agreement with Vietnam. Vietnam will be the third ASEAN country to negotiate an FTA with the EU, after Singapore and Malaysia.
A recipe for more debt disaster
For today’s final entry, a revealing take on new government policies on both sides of the Atlantic that seem destined to provoke yet more instability as the crisis deepens.
From Jeff Cox of CNBC:
US and European regulators are essentially forcing banks to buy up their own government’s debt—a move that could end up making the debt crisis even worse, a Citigroup analysis says.
Regulators are allowing banks to escape counting their country’s debt against capital requirements and loosening other rules to create a steady market for government bonds, the study says.
While that helps governments issue more and more debt, the strategy could ultimately explode if the governments are unable to make the bond payments, leaving the banks with billions of toxic debt, says Citigroup strategist Hans Lorenzen.
“Captive bank demand can buy time and can help keep domestic yields low,” Lorenzen wrote in an analysis for clients. “However, the distortions that build up over time can sow the seeds of an even bigger crisis, if the time bought isn’t used very prudently.”
“Specifically,” Lorenzen adds, “having banks loaded up with domestic sovereign debt will only increase the domestic fallout if the sovereign ultimately reneges on its obligations.”
Given that the major banks have been deemed too big to fail, setting them up for another wave of crisis means that when the next wave of crises hit, government will have to move in again to bail them out, and that can only be done through the creation of still more debt.