North/South divisions depended in Europe as a blast from Italy’s prime minister evoked a fierce counterblast from Germany, raising questions about the viability of the institutions created by eurocrats to stem the economic chaos gripping the continent, the subject of our first items.
Growing doubts over German funding and the workability of the “stabilization facility” are sending up other warning flags, though the number two party in Germany is bucking the tide and calling for German guarantees to stability measures. And then we’ve got a Dutch oil giuant pulling cash out of Europe and young Italians, see no future at home, heading abroad in growing numbers,
Lots from Greece, including a growing foreign corporate Grexit, speculation that growing dissent over austerity conditions could lead to new elections and a Syriza-led government, some truly bizarre anti-immigrant hysteria [the biggest threat to Greece in three millennia], a crackdown on pension and benefit fraud, and a Greek bankster sending his own cash abroad.
There’s more bad new for Cyprus, British schoolyard privatizations, a British plutocractic exodus, and a Chinese move on Greenland’s rare earths.
Monti’s blast provokes Teutonic tirades
A plea by the Troika-installed technocrat who heads the Italian government has provoked strong reactions from Germany, the country that’s benefitted most from the euro and has become increasingly reluctant to fund further bailouts of folks down south,
From Deutsche Presse-Agentur:
An appeal by Italian Prime Minister Mario Monti for governments to be bolder in tackling the euro crisis touched a raw nerve Monday in Germany – where politicians perceived it as an attack on the authority of their parliament.
Through a spokesman, Chancellor Angela Merkel retorted that Germany had the right balance of authority between legislators and government.
Monti had told German news magazine Spiegel he was concerned about nations that backtracked on promises.
He said there were “a couple of nations – which are situated north of Germany – who, every time we reach a summit consensus, come back a day or two later and create doubt about the consensus.”
“I can understand that they have to take account of their parliaments. But every nation of the European Union has got a parliament and a constitutional court. Obviously every government has to obey the decisions of parliament.
“But each government also has the duty to educate its parliament. If I had mechanically obeyed the expectations of my parliament, I could never have agreed to the decisions of the most recent Brussels summit.”
Although Spiegel said Monti was talking about Finland, the remarks were interpreted as veiled criticism of Germany, where an opposition party, the hard-left Linke, and eurosceptics have gone to court to block the launch of the European Stability Mechanism (ESM).
Here is a key excerpt from Monti’s Spiegel interview:
Much of what Germany and France have done in the rescue of Greece has also helped German and French banks, who for a long time were major creditors for Greece and Greek banks. That practically doesn’t apply to Italy at all, though. Seen in this way, Italy has not only not been the recipient of any aid, but we have actually given more than France or Germany if you consider the net return. This year our national debt will amount to 123.4 percent of our gross domestic product. Without the aid payments, it would be 120.3. I would explain that to a German businessman.
SPIEGEL: And you believe the German businessman would buy that?
Monti: I would also explain to him that Germany also profits from the fact that sovereign bonds in the Federal Republic of Germany are so cheap and that they can at times even be issued with negative interest rates. It is because of the risk of a euro collapse that the difference between Italy’s interest rates and those of Germany is so great. In this way, the high interest rates that Italy is now having to pay are subsidizing the low ones that Germany pays. Without this risk, Germany would pay somewhat higher rates. In addition, no one can deny that Germany, simply because it is big, so productive and so efficient, is the greatest beneficiary of the common market.
There it was, the unspoken spoken. It’s all quite biblical, as in Luke 12:48: “For unto whomsoever much is given, of him shall be much required”. But then there’ve been plenty of European wars over biblical interpretation too, no?
Other voices raise a similar messages
This time, it’s one German, one Italian.
From Stefano Lepri of La Stampa in Turin via a Presseurop translation:
Last week, the very popular Bild newspaper proclaimed loudly to its readers, as if it were a scoop, that the continuation of the crisis is in Germany’s benefit. It estimating that the country had saved 60 billion euros in long-term financing costs over the last thirty months, a figure many experts consider quite likely. Yet little has changed. The populists revel in this new proof of their country’s success, while most pretend to see nothing.
What is happening on the markets? Some traders explained it very well recently to The New York Times: They know that the Italian debt securities, currently high-yielding, could be an excellent buy. However, they are still selling them, out of fear that a “tidal wave of collective pessimism” that could ruin Italy is spreading among their colleagues.
This is the reality that many German economists keep denying. Their theory does not provide for it, therefore it does not exist. They argue that yields of six or seven percent for Italy and Spain’s sovereign debt are rational, and even that they serve them well. The problem is that, contrary to the Bundesbank’s representative on the Executive Board of the European Central Bank, the ECB itself has taken note of that evidence. Therein lies the importance of last Thursday’s decisions.
The new German nationalism most often talks about something beside the point, in a dangerous short-circuit between electoral demagogy and the dogmas of a conformist academic class.
Indeed. The eurocrisis is revealing the fundamental flaws of the common currency system, which yokes countries into a compact in which the largest share of the take goes to the state with the dominant economy.
In slower and smaller economies things may seem to go well before the inevitable crash guaranteed by the accumulation of debt needed to keep them afloat. But debt’s concomitant, the need to generate ever-increasingly economic activity, insures national collapses in weaker economies when bubbles pop while the dominant strongest economies are buffered from the worst of the impacts by their financial strength, and can ever grow stronger.
And no one talks about the deeper issues, including the viability of an economic system premised by accelerating rates of consumption at the cost of environmental devastation and resource depletion.
Another dissenting German voice
This time, the nation’s dominant news magazine, making more telling points.
Now the latest idea to rescue the monetary union threatens to turn into yet another flop. What Draghi presented last week was not a carefully prepared strategy, but a hastily negotiated compromise that satisfied no one. The plan doesn’t go far enough for Southern European countries, while Jens Weidmann, president of the German central bank, the Bundesbank, voted against it, fearing for the ECB’s independence.
The plan does have its advantages, but because Draghi did such a poor job of selling it, the drawbacks are now its salient feature. The approach is poorly compatible with the central bank statutes, increases liability risks in the euro zone and places the monetary watchdog in a dangerous dual role. The ECB would become something of a secondary government in Europe while at the same time becoming more dependent on politicians.
In the future, there can be no question of the ECB being a fiercely independent institution modeled after the Bundesbank, as it was originally intended to be. If Draghi prevails, the central bank will become a kind of adjunct to the European finance ministers, which could ultimately lead to higher inflation. “The ECB has a clear mandate to guarantee price stability,” warns Jürgen Stark, a former member of the ECB Executive Board. “Every additional responsibility compromises this core function.”
There’s a three-step process for analyzing “problems.” First, you gather and run the numbers, then you use words and concepts to define the results. But it’s that third level that’s critical: The recognition that the first two steps simply don’t include all the variables — especially true in the case of most modern economists, who relegate such things to the realm of “externalities.”
The current level of discussion about the European crisis is sadly limited, and unduly subservient to a very limited range of perspectives.
Ideally, the crisis should be a catalyst for outside-the-box thinking — something sadly lacking except at the margins.
German Social Democrats favor eurobond funding
The number two party in the German parliament, the SPD holds 146 seats in the Bundestag, compared to 237 for Merkel’s Christian Democrats/Christian Socials.
From Open Europe:
Sigmar Gabriel, the Chairman of the main German opposition party, the SPD, today told Berliner Zeitung that his party was prepared to change its eurozone policy by accepting collective debt liability in exchange for stricter budgetary oversight, claiming that the Merkel government’s current strategy had failed. Gabriel acknowledged that for such a move to be possible, the German constitution would need to be altered and put to the public in a referendum.
So far SPD has broadly supported Merkel’s dual strategy of bailouts and savings/reform packages, albeit with additional emphasis on some mild stiumulus measures. And despite scathing rhetoric about the government’s political management of the crisis, when it came to it, SPD MPs have consistently voted with the government in the Bundestag.
While the comments are significant, Gabriel did not explicitly say what form this debt pooling would take. In fact, Berliner Zeitung merely paraphrases Gabriel so it’s not entirely clear exactly what he said. Along with the Greens, the party had previously indicated that it could accept a debt redemption fund – a time limited pooling of a certain portion of eurozone states’ debts – while appearing to rule out ‘full’ debt pooling / eurobonds. In addition, also Gabriel seems to support the classical German quid pro quo for debt-pooling – strict German-style budget oversight across the eurozone. As we’ve argued repeatedly, such oversight is very difficult to achieve. In addition, SPD lacks a single leader – Gabriel is only one part of a ‘leadership troika’ – so it is far from clear whether this is/will become official party policy.
German foreign minister calls for a chill-out
All those furious forensics launched by Monti have got folks all het up, and it’s time to cool it, he says.
German Foreign Minister Guido Westerwelle on Monday warned politicians to rein in the language they use about the euro zone debt crisis after a weekend of ugly exchanges in the German press over Italy and Greece.
Westerwelle’s remarks looked like as much of an attack on ruling coalition allies Christian Social Union (CSU), whose leader Markus Soeder said on Sunday Berlin should cut Greece off by the end of 2012, before it was too late.
“The tone in the debate is extremely dangerous,” Westerwelle said in a statement released in Berlin.
“We’ve got to take care that we don’t talk Europe to death. We can’t allow our actions to be reduced to attempts to raise political profiles domestically – and that goes for Germany too.
“The situation in Europe is too serious for that and there’s too much at stake,” Westerwelle added.
Westerwelle is one of the leading politicians in Germany’s pro-business Free Democrats (FDP), junior coalition partners along with the CSU to Chancellor Angela Merkel’s Christian Democrats (CDU). The FDP and CSU are often at odds with each other.
Shell pulls cash out of Europe
Dollars are looking a lot more attractive.
From the London Telegraph:
Royal Dutch Shell is pulling some of its funds out of European banks over fears stirred by the eurozone’s mounting debt crisis, according to reports.
The company’s chief financial officer, Simon Henry, told The Times that Shell is cutting back its exposure to European credit risk in the worst-hit economies and putting a higher price on doing business with the region’s peripheral nations.
“There’s been a shift in our willingness to take credit risk in Europe. The crisis has impacted our willingness to afford credit,” Mr Henry is quoted as saying.
Asked whether Shell regarded risk as different in Germany compared with some of the eurozone’s southern and heavily indebted members, he said: “We differentiate between different credit risk.”
Mr Henry is cited as saying that the Anglo-Dutch oil major would rather deposit $15bn of cash in non-European assets, such as US Treasuries and US bank accounts.
Some more bad numbers from Spain
Most folks and companies are invoking a legal process that could allow them to hold off on payments. The story doesn’t describe any details of the mechanism, only the numbers of petitioners.
Failures of Spanish enterprises and families are continuously growing, and hit the top from 2004. According to the National Institute of Statistics (INE), the number of companies and persons which asked for a suspension of payments in the second quarter rose to 2272 compared to 2240 in the previous trimester. An increase of 28,6% compared to the same period last year. Of failed firms, more than 30% regards the construction sector, the majority belonging to Pmi.
Young people, seen as burdens, flee Italy
Spiegel reports on the growing exodus of Italy’s young, driven by bleak job prospects in their austerity-stricken homeland combined with a system structured to pit young workers against older workers:
Young people in Italy are not seen as a resource, but as a burden. The unemployment rate among young people under the age of 25 hovered for a long time around 20 percent. Now, it’s shot up to 36 percent. This is the figure that Prime Minister Monti finds so alarming. In the south, in a number of cities in Sicily and Calabria, it’s over 50 percent — as high as in Spain and Greece.
This has to do with Italy’s extremely unfair labor market, which protects 50- to 60-year-olds with permanent, nearly irrevocable contracts. By contrast, young people are paid peanuts, strung along with fixed-term contracts, and are the first to be fired in times of crisis. Indeed, it’s no wonder that two out of three Italians under the age of 35 are mammoni, mama’s boys who still live with their parents. With starting monthly salaries under €1,000 ($1,250) and shockingly high rents, they simply have no choice.
Young people remain benchwarmers — perpetual interns who are seen as not capable of doing much of anything. “There’s no hunger for the future,” writes the liberal newspaper La Stampa. The generation of their parents should take a step back — that would be “the only real gift” to the nation’s youth, writes the newspaper. Or, in the words of national soccer squad coach Cesare Prandelli: “Italy is an old country with old ideas. Perhaps we’re simply not yet ready to win.”
Even Pier Luigi Celli, the director general of Rome’s LUISS University — one of the best in the country — has joined the fray. In late 2009, he wrote an open letter to his son. La Repubblica newspaper published it, and this prompted a nationwide debate. The head of an elite school, of all people, advised his son to head abroad. “Your ambition, diligence and sense of justice,” wrote the father, no longer count in this quarrelsome, mediocre country. “Take a look around, Italy doesn’t deserve you. Finish your studies and go!”
And now, Greece. . .
More foreign corporations state their own Grexit
The latest departures of note are companies in insurance, electronics, and pharmaceuticals trade.
Some examples from ANSAmed:
The recent suspension of all activities in Greece of French credit insurance company Coface, a branch of investment bank Natixis, has had a deep impact on retailers. Coface’s announcement in June that it would stop signing new insurance contracts concerning exports to Greece was due to the fact that the company was facing increasing problems in receiving payments from Greek importers.
The step left wholesalers of electric and electronic equipment and retailers in general without the insurance protection they had received since 2000.
In the same period, the Euler Hermes – a branch of Credit Agricole, the largest commercial insurance company worldwide – announced it would stop providing insurance for goods imported to Greece for fear the country might leave the 17-member euro currency.
Saturn was the last foreign company to leave the Greek market of electric and electronic devices. The first to leave were Electroworld and Fnac, the largest European franchise of high tech and cultural goods.
In the past few days another foreign company, Univel, which produced electronic security systems and other high tech devices in Greece, left the country and moved production to Romania.
More from a second ANSAmed story:
The flight of foreign credit institutions from Greece is growing to epidemic proportions owing to the prolonged, deep recession and uncertainty regarding an exit from the eurozone. As daily Kathimerini reported, sources suggest that the Portuguese owners of Millennium Bank are examining the possibility of selling their local subsidiary, although no interest in it has been expressed as yet. Going down the same road are the two Cypriot lenders — Bank of Cyprus and Cyprus Popular Bank — who are exploring all of their options: From the sale of their activities in Greece, to their legal autonomy, so as to contain the consequences in case of a Greek exit from the eurozone. Societe Generale of France is also contemplating the possibilities for the sale of its Greek subsidiary, Geniki Bank.
More uncertainties about the latest euroloans
New Europe raises the possibility that the austerity memorandum now in the works could lead to a new election that could change everything:
As anticipated by New Europe before Commission president Jose Barroso visited Athens on 26 July, the European Central Bank decided on 4 August to grant Greece a guarantee for €4 billion loans so to defer bankruptcy at least until September.
From there on, nobody can anticipate what will happen as the amount Greece will require in September will be much more, while the entire Euro-American economic nomenclature will be back from the summer vacation and will be fresh, with its batteries charged, ready to face and handle everything and anything.
[T]here are little, if any, hopes that the Greek miracle will occur in mid August.
What will happen, is that the government will attempt once more to gain political time but this time it will be more difficult as in the past there were many warnings by the representatives of Greece’s lenders but always Greece managed to circumvent their promises.
This time, it will be most difficult to circumvent the ultimatum delivered to the Greek Prime Minister by the President of the European Commission in person.
Thus, it should not be excluded that in September, if the European Commission does not approve the disbursement of a large trance of the mega-loan to Greece, before the Greek government declares bankruptcy and exit from the Eurozone, the government calls for election and the Left Coalition comes in power and left alone to manage the catastrophe.
Grand prize winner for hyperbole of the year
It’s not the economic crisis Greece should be most worried about, it’s those damn immigrants, who pose the biggest challenge to the country in the last 3,000 years.
Yep, that’s the official opinion of the country’s minister of citizen protection.
Two days after a massive sweep operation in which Greek police netted over 1,000 clandestine immigrants in central Athens, Public Order and Citizens’ Protection Minister Nikos Dendias defended the campaign saying failure to crack down on illegal immigration would lead to social “collapse.”
“Our social fabric is in danger of unraveling. The immigration problem is perhaps even bigger than the financial one,” Dendias told Skai radio on Monday.
He said the “invasion of immigrants” was the biggest Greece has faced since the invasion of the Dorians.
It is believed that in around 1100 BC the Dorians, a Hellenic group, swept down from the north of present-day Greece putting an end to the Mycenaean civilization.
Greek crackdown on pension, benefit fraud
And there’s lots of hyperbole involved, too.
From Keep Talking Greece:
Aha! Greece is cleaning the Augean stables full of local and foreigners illegally receiving pensions, social and welfare benefits. With a huge broom is sweeping away those who for years profited form public money without being eligible to do so. This weeks’ target of Greek Labour Ministry are the stables at farmers’ fund OGA. Minister Yiannis Vroutsis announced on Monday that 2,800 pension from farmers’ fund OGA will be cancelled because the recipeints did not appear during the funds’ census. “The gain for the public administration will be about 14 million euro,” Vroutsis said adding that “those who will not return the money they will feel the breath of justice.”
Vroutsis made these statement after a meeting with Athens economic prosecutor assigned to investigate and punish those illegally profiting from public money.
Vroutsis stressed that no ‘fake’ pension will be given as of 01.01.2013 and did not elaborate why the measure should be be implemented immediately. Apparently because there is another census going on now, for pensioners’ of Greece’s biggest insurance fund IKA.
During last years’ census 80,000 IKA pensioners were not confirmed with the majority of them to have passed away. Their relatives had simply ‘forgot’ to declare it and kept receiving the pension of the deceased.
The fraud’s not that surprising, with massive unemployment and downsized paychecks for those still working.
Greek banker’s euros bid adieu
Another sort of Grexit, and controversial too.
A political row has erupted in Athens after the former head of a big Greek state bank admitted to transferring 8 million euros ($9.9 million) of personal savings abroad to buy a London property months before his Agricultural Bank headed towards insolvency.
Theodoros Pantalakis, former chief executive of Greece’s Agricultural Bank (ATEbank), strongly denied any wrongdoing, telling Realnews, a Greek website, that he had declared the transaction to authorities in 2011 and had paid tax on the amount transferred, CNBC reported citing F.T.
“I’m on holiday and I don’t plan to say anything more until I come back to Athens,” Mr. Pantalakis told the FT from his villa on the Aegean island of Paros. He is expected to testify on his three years at the helm of ATEbank before a parliamentary committee at the end of August, said a person with knowledge of the dispute.
“Nobody has suggested Mr. Pantalakis sent the funds abroad illegally … But there is clearly an ethical issue since he was serving as the head of a big state bank at time of financial and economic crisis,” said a Greek banker who declined to be identified.
A government official said Greece came under pressure from the European Commission and European Central Bank [cnbc explains] to split ATEbank into a “good” and a “bad” bank and sell its healthy assets. “The alternative they gave us was to shut it down with the loss of 5,500 jobs,” the official said.
Keep Talking Greece adds a telling comment at the end of their report on the brouhaha:
Of course, there is no wrong doing when everything related to transfer was done by the book. But is it ethical? Many Greeks still remember the case of former ND-minister Giorgos Boulgarakis , who had publicly admitted that the had established an off shore company in order to avoid paying taxes. And threw to the stunned faces of Greeks the famous phrase “what is legal is ethical.”
Pantalakis transferred the money in times of economic instability, when Greek banks were struggling for liquidity and were calling on citizens to show trust and do not withdraw their deposits…
Troikarchs sound dismal Cyprus warning
After visiting Nicosia, they came away convinced that another grand austerity program is just the thing, then expressed doubts that even it would work.
“What we have seen is that your fiscal system is worse than we expected … prospects for growth are lower than what we expected, and as a result, there is a huge gap between your income and expenditure,” European Commission representative Maarten Verwey was quoted as saying at the meeting.
Verwey, whose comments were made in English and translated into Greek for the record, said “significant increase and reinforcement” of banking supervision was required.
He said any suggestion of bailout amounts was premature.
Another member of the troika, Delia Velculescu of the IMF, was quoted as saying solving Cyprus’s problems would be painful.
“It would have been easier to have fixed them when times were good. Today it is harder because of difficult times, and worst (days) that lie ahead,” she said.
More economic numbers from Cyprus
And they announce a mixed blessing, one that’s good for the environment but simultaneously reflective of the harsh economic conditions.
Motor vehicles newly registered in the Republic of Cyprus during 2011 decreased by 17.6% to 36.264 from 44.025 in 2010, CNA reports quoting figures from the Statistical Service has announced. According to the annual report “Transport Statistics” for the year 2011, private saloon cars newly registered decreased by 16.0% to 26.409 from 31.423 in 2010. Vehicles of all types and categories on the Register of the Land Transport Department, at the end of 2011 totaled 771.861, compared to 760.112 at the end of 2010. The broad Transport sector registered in 2010 an increase of 5.5% on the gross output, at current prices and amounted to 1.844,8 million euros in 2010, compared to 1.748,2 million euros in 2009. The value added of the sector decreased to 877,3 million euros in 2010, from 888,2 million euros in 2009 and its share of G.D.P. was 5.6% at current market prices.
British coalition sells off school sports fields
And, needless to say, it’s something they’d promised not to do.
From The Guardian’s Jeevan Vasagar and Tom Herbert:
The education secretary, Michael Gove, has approved of the disposal of over 20 school playing fields since the coalition came to power two years ago, despite a pledge to protect sports pitches from development.
Figures released by the Department for Education show that the sale of school sports fields continues even though ministers declared in the coalition agreement that they would “seek to protect school playing fields.”
Jeremy Hunt, the culture secretary, defended the government’s sports policy – pointing to an uplift in the proportion of Lottery money flowing to sport – but admitted that school sport provision was “patchy”.
“I think at the moment school sport provision is patchy in some places, and we need to do what we can to make sure that the very best examples are spread throughout the whole country, and this is absolutely going to be a focus over the next few months and one of the things that we really want to take away from these Games,” he said.
In opposition, the Tories described the sale of school playing fields as a betrayal of Labour’s commitment to school sport.
Britain’s wealthy slowly depart
Rich people don’t like to pay taxes, and we suspect that’s the overarching reason, with weather and crime handy pegs to hang the blame on.
From Louisa Peacock of the London Telegraph:
Crime, high taxes and even the weather are driving a growing number of wealthy Britons to actively consider moving abroad, according to a financial advisory firm.
DeVere Group said the number of enquiries it has received about living abroad from people with savings and investments over £250,000 has shot up almost two fifths year-on-year.
Between January and June 2012, 841 Brits asked the company for advice on leaving the UK compared to 614 in the same period last year, the group said.
Nigel Green, chief executive of the deVere Group, said: “Against a backdrop of increasing taxes, a perceived social disorder, and yes, the weather, we’ve seen that high-net-worth individuals are increasingly likely to consider moving abroad and it is a trend which we fully expect to continue through 2012 and beyond.”
China makes a move on Greenland’s rare earths
This one’s gotta have the Obama administration in a ruckus, given that China already controls the world’s largest supply of the minerals so critical to the high tech industry.
There’s huge pressure on China to force it to sell some of its accumulated reserves, and an action pending before the World Trade Organization to force them to do just that.http://www.bloomberg.com/news/2012-07-23/wto-to-investigate-chinese-curbs-on-rare-earth-exports.html
If they manage to corral a large part of Greenland’s deposits, an administration which has already shifted more military muscle to the Pacific may wind up sending some of it back to the Atlantic.
From Agence France-Presse:
Greenland is a frontier Eldorado with untapped reserves of critical rare earths under the Arctic ice-cap but a nimble China has already stolen a march in getting access, EU industry commissioner Antonio Tajani warns.
The Italian travelled to Greenland on June 16 to initial a deal for the European Union to share exploitation rights to rare earth metal ores in return for technological and environmental mining know-how.
Buried under massive ice fields lie deposits of precious minerals and base elements needed to keep everyday modernity on the move — without them there would be no energy-efficient lightbulbs, smartphones, electric cars or wind turbines to name just a few.
The EU, the world’s biggest single market, is entirely dependent on imports for 14 out of a group of 17 minerals collectively known as “rare earths,” a closely fought over market currently dominated by China which guards these resources tightly.
“The Chinese president (Hu Jintao) arrived the next day,” Tajani told AFP in an interview. “They’re already working the ground — they bought a British company and sent in 2,000 Chinese miners.”