Home · Maps · About

[ Read Responses | Post a New Response | Return to the Index ]
[ First in Thread | Next in Thread ]

view flat

Re: EUEUEUEUEU Crisis leads to technocracy rewriting rules in EUEUEUEUEUEU

Posted by Olog-hai on Mon Nov 14 23:13:46 2011, in response to HBD Explains it all (Re: EUEUEUEUEU Germany must decide whether eurozone lives or dies), posted by JayMan on Mon Nov 14 02:04:08 2011.

---

Crisis Rewriting the Rules in Europe

November 10, 2011 | 0248 GMT

Events in Europe over the past 72 hours have been nothing short of extraordinary.

The International Monetary Fund, rather than asking the Russians and their $500 billion in currency reserves to help, has advised Moscow to protect itself from fallout from the European financial crisis. European government officials are no longer chastised by their peers when they publicly raise the need to eject Greece from the eurozone. European Commission officials are directly telling the Greeks and Italians what their governments should and should not look like. And in the United Kingdom there are requests that mainland Europeans finally choose someone to be in charge of everything.

If someone is going to be able to get ahead of the crisis, it is going to be the Germans — but they are working with a tool kit that isn’t even half full. They don’t want the European Central Bank (ECB) to continually support damaged states by directly purchasing sovereign debt — Berlin sees that as rewarding bad behavior. Germany’s citizens don’t support continued transfers of wealth to Southern European states. Berlin cannot force these states to implement austerity, since EU treaties guarantee their member states’ fiscal autonomy. Germany cannot even use public pressure to nudge Southern European governments to do what they think is the right thing: The public image of Germany as a bully is now so prevalent in Southern Europe that German statements often generate the opposite of their intent.

Efforts to enhance what tools there are have actually weakened existing options. During a late-October summit, eurozone leaders tried to expand the reach of Europe’s bailout fund, the European Financial Stability Facility (EFSF). The EFSF could originally access €440 billion of state guarantees, which the Facility uses to raise cash on private markets, funneling the money raised to states under bailout regimens. €440 billion might sound like a lot. Indeed, this sum is sufficient to fund the existing bailouts of Greece, Ireland and Portugal, with enough left over to make an honest effort to support Spain. Still, no one thinks the sum is sufficient to support a bailout of Italy. The October summits thus shifted the EFSF structure to guarantee returns on only 15-30 percent of investments (the details have not yet been finalized).

Instead of attracting more funds, this has disrupted external and private interest in the EFSF to the degree that the Facility — even using full guarantees — was barely able to raise 2 billion euros this week to fund its pre-existing commitments. Far from having the capacity to bail out Italy or even Spain, the EFSF right now is unlikely to be able to handle the smaller bailouts that have already been agreed to.

Yet those larger states are still in danger, most notably Italy. Rome has €1.9 trillion in outstanding government debt, about 120 percent of Gross Domestic Product — proportionally twice that of Spain’s. An Italian funding shortfall, absent a much enlarged EFSF, will lead almost immediately to an Italian default. The aftereffects make it impossible to see the eurozone surviving.

Germany’s plan

Yet as the European financial crisis deepens and spreads, we are seeing the rough outlines of a German plan that uses what tools are available. States that will not agree to austerity in good times are proving somewhat more pliable as they move closer to financial catastrophe. Germany has made considerable efforts to alter both Greece and Italy in recent days.

The Germans are nudging both the Greeks and the Italians toward forming national unity governments. If successfully installed, the German hope is that these governments will be able to achieve four things.

• Full implementation of EU-mandated austerity programs. The hope is that technocratic governments can force through policies that would be political suicide for a normal, elected government.
  
  
• Constitutional amendments that would lock the states into somehow balancing their budgets. Germany needs these states to generate budget surpluses so they can whittle down their debt loads and mitigate their exposure to financial markets.
  
  
• Approval of treaty changes that will allow European institutions far more intrusive access to national procedures; the goal of which is to allow the direct rewriting of budget procedures so that these states can never again engage in what the Germans see as fiscal irresponsibility.
  
  
• Finally, Germans hope all of these things can be achieved without triggering elections. Berlin fears that any election now would be perceived in both Greece and Italy as a referendum on Europe in general, or specifically on German-inspired austerity measures, and that public rejection of Europe or austerity would bring down the entire European edifice.

That’s the plan, but there are several problems.

First, these governments must be successfully formed. Italian Prime Minister Silvio Berlusconi refuses to say on what date he will step aside. In Greece the main political parties, while eager to find someone to take the political heat for imposing austerity programs, have so far been unable to find a temporary prime minister willing to thereby end their political career.

Second, the parliament of even a technocratic government is not excused from the requirement of voting on austerity, treaty and constitutional revision packages. National unity governments sound nice, but the broad scope of changes the Germans are demanding mean that politics will not be held completely at bay.

Third, the citizens must not rebel. Europe is in an agitated state; strikes and unrest are the orders of the day. Governments — even national unity governments — seen as caving to the Germans are going to be challenged by citizens who do not wish to submit to the rules of a foreign state. The appeal for Germany of technocratic governments is that for a time they can ignore the people’s voice. Yet this approach could radicalize the populace, making it feel powerless and disenfranchised from a political process it already sees as being dominated by disconnected elites.

Fourth, changes agreed to by an interim government will not necessarily be honored by subsequent, more politically charged governments. European officials are attempting to force Greek parties to sign documents committing them to never challenge the austerity programs. So far, such efforts have been firmly rebuffed.

Finally, all of this has to happen without the markets bolting and thereby triggering immediate funding crises. This is perhaps the most dangerous catch. Germany needs these states to feel the financial heat, but too much pressure could result in financial destruction.

In the past 24 hours, Greece has struggled with the first, third and fourth problems; Italy with the first and fifth. At the time of this writing, Italian debt is trading at about 7.3 percent, nearly a full percent higher than it was a day earlier and more than the Serbian or even Namibian equivalent — and only aggressive ECB intervention this afternoon prevented a financial catastrophe.

It’s a delicate dance: Applying sufficient pressure to induce sharp changes, while the ECB provides a financial drip feed. The margin for error is very slim.

---