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Wednesday, 28 September 2011

Will ‘Canary in a coalmine” Greece finally lead to a stronger, more united and decisive European Union?

First to fall over when the atmosphere
is less than perfect
Your sensibilities are shaken by the slightest defect
You live you life like a canary in a coalmine
Pop music can sometimes deliver beautiful metaphores for real life. When contemplating on the situation in Greece, I had to think of the first three lines of this ironic Police-song.

During the last three years, Greece had the dubious honor to be ‘the canary in the coalmine’ for the Euro-zone.

And darn it; what an interesting story this ‘bird’ had to tell:
·   One small group of relatively weak countries (the PIIGS) was (almost) enough to   demolish the Euro and, as a consequence, the whole Euro-zone .
·   The political and economic unity in the Euro-zone was definitely ‘the weakest link’ and it almost led to ‘Goodbye’ for the Euro. In the current structure, it was impossible to make the quick decisions that are necessary to save a currency in distress.
·   The Euro-zone has acted more like 20 frogs in a wheel barrow than as a union over the last three years. Especially in difficult times, politics of choice was the proverbial: “everybody for themselves and God for us all”.
·   Germany, France, Finland and The Netherlands – although perhaps the economic ‘leaders’ of the Euro-zone – are not ‘The Fantastic Four’;
o   Even with the roof and the upper floors of the Euro-house burning, the sense of urgency to form a fire brigade is still missing at the leaders of Germany, Finland and The Netherlands.
o   France’s Nicholas Sarkozy feels this sense of urgency, but is in his own country almost 'presidenta-non-grata'.
o   Germany’s political leadership within the Euro-zone has weakened, due to its current weak Chancellor Angela Merkel.
·    Europe and the US in general share an immensely weak generation of politicians, who are very accessible for the ‘vox populis’ and lack backbone for taking the hard and impopular decisions.
·    The European Commision, on paper the daily executive for the EU and the Euro-zone, is exposed as a toothless tiger with exactly the weak kind of leaders that are favorised by the national leaders of the participating countries: José Manuel Barroso, Herman van Rompuy and Catherine Ashton.

But the Greek debt crisis might be a blessing in disguise for the Euro; finally people start seriously thinking on reinforcing the political union of the Euro-zone and on the deployment of bonds covering the whole Euro-zone: the Euro bonds.

And finally the awareness evolves among the European leaders and citizens that the Euro is a marriage for eternity; not a Hollywood-marriage of which you can easily divorce.

However, the German, Dutch and Finnish people are not yet that far in their mindset and in these countries the populist, anti-European voice is a force to reckon with. But everybody in their right mind knows that it is best for Germany, The Netherlands and Finland  to stick together: losing the Euro would mean losing at least 20% of their yearly exports and perhaps more, is my estimation, based on the German export figures of the last 20 years.

Seen in this light, José Manuel Barroso’s European State-of-the-Union of September 28 was a passionate pledge for reinforcing the European Union before it is too late. And under the current circumstances, I truly hope that it doesn’t fall on deaf ears.

Here are the pertinent snips of Barroso’s SOTU, summarized by the online Canadian newspaper Sympatico ( and accompanied by my comments.

Financial transaction tax
"In the last three years, member states have granted aid and provided guarantees of 4.6 trillion euros to the financial sector. It is time for the financial sector to make a contribution back to society.
"Today, the Commission adopted a proposal for the Financial Transaction Tax. Today I am putting before you a very important legislative text.
"It is not only financial institutions who should pay a fair share. We cannot afford to turn a blind eye to tax evaders. So it is time to adopt our proposals on savings tax within the European Union. And I call on the Member States to finally give the Commission the mandate we have asked for to negotiate tax agreements for the whole European Union with third countries."
I am symphatetic to this proposal for a Financial transaction tax, although I seriously doubt that it will help. It will increase the amount of transactions that are made through notorious tax havens, like The Netherlands Antilles, the Cayman Islands etc. and it will weaken the position of Frankfurt and London, in comparison to Wall Street, Hongkong and Singapore.
Tax evasion is like a virus that should be conquered, as it deprives countries of the money that they need to stay afloat financially. But just like a virus, tax evasion is extremely hard to battle; especially in countries like Greece and Italy, where tax evasion is a national sport.
Slow decision-making:
"The pace of our joint endeavor cannot be dictated by the slowest. A member state has the right not to move. But not the right to block the moves of others. Our willingness to envisage Treaty change will reinforce the credibility of our decisions now."
Barroso is absolutely right here. The Euro-zone has ‘excelled’ in indeciveness, egoism and short-sightedness over the last three years. But unfortunately Barroso has not the stature to directly address this forcefully to the government-leaders of the individual countries. And for a number of EU countries, ‘more Europe is less votes’ for their political elites.
On joint bonds:
"Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all. On condition that such euro bonds will be "Stability Bonds": bonds that are designed in a way that rewards those who play by the rules, and deters those who don't...
"The Commission will present options for such "Stability Bonds" in the coming weeks. Some of these options can be implemented within the current (EU) Treaty, whereas fully fledged 'euro bonds' would require Treaty change."
I’m very much in favor of the fully fledged Euro-bonds, but don’t see this happen within three years, looking at the slowliness of the political processes in the member state. This might be a solution for the next crisis; not for this one.
On economic union:
"We need to complete our monetary union with an economic union. It was an illusion to think that we could have a common currency and a single market with national approaches to economic and budgetary policy."
"In the coming weeks, the Commission will ... present a proposal for a single, coherent framework to deepen economic coordination and integration, in particular in the euro area. This will be done in a way that ensures the compatibility between the euro area and the European Union as a whole."
I miss the words ‘Political Union’ in this statement, but understand that these words are too bold for the current European atmosphere.
On Greece and the euro area:
"Greece is, and will remain, a member of the euro area. Greece must implement its commitments in full and on time. In turn, the other euro area members have pledged to support Greece and each other."
I totally agree on the first sentence, but have serious doubts on the other two sentences. For me, a Greek controlled default (50+% haircut on Greek debt) is the only viable solution.
on Greek economy and lending:
"A program of 500 million euros to guarantee EIB (European Investment Bank) loans to Greek SMEs is already under way. The Commission is also considering a wider guarantee mechanism to help banks lend again to the real economy."
Seeing is believing.
On European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM):
"The EFSF must immediately be made both stronger and more flexible. This is what the Commission proposed already in January. This is what heads of state and government of the Euro area agreed upon on July 21. Only then will it be able to deploy precautionary intervention, intervene to support the recapitalization of banks, intervene in the secondary markets to help avoid contagion."
"Once the EFSF is ratified, we should make the most efficient use of its financial envelope. The Commission is working on options to this end.
"Moreover we should do everything possible to accelerate the entry into force of the ESM (European Stability Mechanism). And we trust that the European Central Bank, in full respect of the Treaty, will do whatever is necessary to ensure the integrity of the euro area and to ensure its financial stability."
It doesn’t matter how big the EFSF and the ESM will be in the future. They will never have the financial fire power that is needed to wear out the financial markets. And as long as politicians in countries like The Netherlands say to their grassroots, that these bail-out funds won’t cost the people any money and don’t need to be bigger than their current size, the financial markets will laugh these funds away.

Barroso’s State-of-the-Union mentioned some extremely important topics and I truly hope that the government leaders take notice of it. But I’m prepared for more stupidity and short-sightedness in the coming months, before the real sense of urgency will evolve. And then it can be too late to save the Euro.

Or just to stick with the analogy of the canary from the beginning of this article: when the poor animal drops, it is time to desperately take measures. And the canary is dropping currently!

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