EURO ZONE CRISIS – GREEK DEBT, SYSTEMIC FAILURE AND POLITICAL PROCRASTINATION

Today is D Day for the Euro.  The deadline all in Europe are talking about. Yet denial is still at the forefront of European politics.

The other evening I listened in to a radio interview between commentators from Germany, France and the UK.  It was interesting in the mentality that was on show.  The French and German contributers were accusing the UK of having a “Daily Mail mentality” and saying this Wednesday is not really a deadline and everything will be fine.  They further stated that there was no way Greece would leave the Euro and the Euro will go from strength to strength even predicting that the UK would join within the next 50 years.

"I don't have a clue either Angela"

The UK contributers however, predictably had a rather different view.  Admittedly one of which was Norman Tebbit so we can guess his general view point.

However, what was quite clear from the exchange was the way the Europeans see the crisis and how “deadlines” and the word “crisis” has not really computed.

Having been through the crisis of October 2008 and the rapid re capitalisation that took place, the UK, the markets and the IMF seem to take the view that rapid action will be needed.  The European leaders within the Euro zone however, seem to see their antiquated way of long drawn out discussions eventually leading to some sort of a policy that will be ratified at some time in the future as perfectly adequate.

History however tells us something quite different.

Every time the Euro zone heads of state announce a new strategy, or policy it is quickly superseded by another crisis, or the markets take against it.  Even policies that they actually agree on take 18 months to implement like the recent 440 billion Euro bail out fund which when it was agreed was thought to be inadequate and was only passed recently into law and is out of date as a solution to an ever growing debt crisis.

It does not help that even when an agreement has been made, each finance minister for each country says something slightly different causing confusion and causing concerns in the markets.

The type of solutions now being talked about is a 2 trillion Euro bail out fund to replace the woefully inadequate  previous 440 billion Euro fund.  In addition a writing down of Greek debt, with banks taking a significant amount of the hit; re-capitalisation of the banking sector and yet more austerity for Greece.

The problem as ever will be IF this is agreed, how long will it take to pass into law and for the funds to be available.  The funds are needed NOW, but it will take a significant time to sort out.

In addition, this is just another, rather large, sticking plaster.  Systemically the Euro is failing.

The Euro needs restructuring with a much more streamlined way of taking decisions.  The simple way would be much more political union, one finance minister, and one economic policy with integrated tax and fiscal arrangements.  The chances of this happening are pretty slim, and if it was on the cards would anyone in Europe really have the appetite to do it?

The prospect of a German dominated Euro zone where everyone will have to play by their tune, fiscally, and politically will not go down well especially with the southern nations.

It is either systemic change or the splitting away of the weaker members who are debt ridden so that they can default, devalue and restructure.  This would surely help the Greeks who have no prospect of growth in their economy for a decade or more.  They do not have stagnation to worry about like the UK, but a continual downward spiral of negative growth that shows no sign of abating.

Even if this were to happen then a more streamlined system will be inevitable for the Euro zone if the Euro is to continue.

Would more pain now be better than prolonged pain for the next 10 years?  Greeks needs hope and a way forward.  The prospect of Austerity programmes on top of austerity programmes will not provide a future for new generations.

I seriously doubt that the Euro leaders can pull this one off, and the chances of the Euro zone staying in the form it is now are ridiculously slim.

What no one seems to understand is that with the debt in Europe and elsewhere that someone needs to be allowed to fail, but no one seems to get it.  Passing debt from one place to another will eventually catch up with us, and rather than sinking a few small boats we are determined to take down the entire fleet.

Passing the buck from financial institutions to states – from states to overseeing financial bodies (IMF) or larger political bodies (Euro zone) and then where?

The further problems of economic orthodoxy have also not been addressed which means that even if we do get through this crisis it will almost certainly happen again – the prospects for the Euro are . . . . bleak.

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