It is very easy to get commiserated, bantered or even angered by the European political process around the Euro. I vented my spleen many times over the past 9 months since the creation of this blog and I will continue to do so in the coming months.
But this time, on D-day (or is it €-day?), I want to take a different stance and try to explain why the political process goes the way it goes, by looking at the most important protagonists of it.
This might help to understand the current processes and might shed a different light on the ‘communio opinis’ that the EU is screwing up currently.
And who are the protagonists of this Greek-European drama?
- The large, internationally operating banks from outside the PIIGS with massive exposure to these countries
- Banks inside the PIIGS-countries themselves.
- Chancellor Angela Merkel of Germany
- President Nicolas Sarkozy of France
- PM Giorgos Papandreou jr. of Greece
- PM Silvio Berlusconi of Italy
- PM José Luis Rodríguez Zapatero of Spain
- PM David Cameron of the United Kingdom
- PM Mark Rutte of The Netherlands
- The smaller Eurozone-countries like Portugal, Ireland, Finland etc.
- Mario Draghi and Jean-Claude Trichet of the ECB
- The European Commission.
- The international (financial) media
- The Financial markets
The first thing that strikes me is that – of the mentioned political leaders – NOBODY is operating from a position of strength. All of the leaders here are more or less under fire at their home front, and operate like cornered cats, in order to secure their reelection. This situation makes that national priorities currently even more prevail over international priorities.
This is in itself already a case for a political and economic European Union, for the same reason which makes such an union currently virtually impossible: loss of sovereignty. That is seemingly bad for the individual countries, but much better for the EU as a whole
Large, internationally operating banks outside the PIIGS
The large, internationally operating banks outside the PIIGS-zone all play for keeps. Banks like CA, BNP Paribas en SocGen of France, Commerzbank and Deutsche Bank from Germany, The ING and Rabobank from The Netherlands and RBS and Barclays from the UK would all be in immediate solvability and liquidity trouble, when Greece and (especially) Italy would default.
All these banks have heavily invested in the PIIGS; not only through sovereign bonds, but also through loans to companies, banks and governments in the PIIGS-countries. I recall here the same schedule that I also used in my article Dutch Banks are solid as a rock.
|Amounts in €mln.Source: www.dnb.nl|
And please remember that this is only the exposure of the Dutch banks. The intertwinedness of capital in the EU and especially the PIIGS is enormous.
The ´voluntary´ write-off of 50% of the value of Greek sovereigns that was proposed by the European Commission today, is enough to cause a serious headache in many executive suites. However, an uncontrolled default of Greece and/or (even worse) Italy or Spain would lead to an immediate vaporizing of equity capital in more than a handful of banks all over Europe.
This is the reason that today the banks are screaming for additional guarantees, while being confronted with the EU´s proposal to receive ´voluntarily´ €0.15 in cash and €0.35 in new sovereigns for every €1 of old Greek sovereigns they possess.
Banks inside the PIIGS-countries themselves.
The banks in the PIIGS-countries are in an even worse situation. These are mostly filled to the brim with sovereign bonds and loans to their own government. A government default would immediately vaporize the equity capital of most of these banks.
This 6-year CDU Bundeskanzler of Germany, that has the bad luck of lacking the charisma of her predecessors Gerhard Schröder and Helmut Kohl, lost some important elections in her country lately. She is under increasing pressure of her own party and the German people to be ´tough on the Greeks and tough on debt´.
On top of that she is tied by hand and feet, due to a recent verdict of the Constitutional Court in Karlsruhe that demands that all decisions on European debt are acknowledged by the ´Bundestag´ in advance. Today she got the blessing of the German parliament for an increase of the EFSF, but her leeway is more limited than a flea´s condo.
That is the reason that she doesn´t acknowledge of QE1 (Quantitative Easing) by the ECB and claims it should stop immediately with massively purchasing sovereigns of the PIIGS.
Although the French president does have charisma (and Carla Bruni(!)), it seems to have worked out in French politics. The French people are sick and tired of their president, which makes a reelection very, very uncertain.
The worst thing that could happen to Sarkozy are defaults of large, French banks like the three mentioned before or a downgrade of the French credit rating, making French life more expensive. Add the lagging French industry and economy and you have an explosive mix. This is the reason that France thinks that the whole of the EU should add to the recapitalization of the French banks and that Sarkozy is strongly in favor of QE1 by the ECB.
The Greek PM is dealing with the worst riots since Greece became a democracy. The people don´t trust their (corrupted) leaders and are totally fed up with the European austerity measures. The EU, IMF and ECB on their behalf demand much more Greek austerity. Papandreou is stuck between a ´rock and a hard place´ and is now cutting his economy into smithereens with all the austerity measures. A 5% slump of the Greek economy was the result of his recent cutbacks.
If I would be in Papandreou´s shoes, I would probably ´call it a day´ and let Greece default. He might do so too at short notice.
Where a ´vote of no confidence´ usually means the end for a politician, Berlusconi survived more than 40. He is a cat with 90 lives and a Phoenix that rises from the flames every time.
But the old fox feels that he is at the end of his lifecycle, as he had too many scandals and too much political trouble. Especially since today Italian papers spread the rumour that he would resign in exchange for a raise of the pension age in Italy. This rumour was later debunked by the Lega Nord of Umberto Bossi, his partner in crime. In the meantime there is an agreement on the Italian pension age, but little people know the content of this agreement.
Europe doesn´t trust Berlusconi at all, since most of his promises on the Italian economy were worthless. The Italians are probably sick and tired of his corruption, his connections to the mafia, his monopolistic grip on the media landscape and his bunga-bunga parties. They are also sick and tired of the economy that is now stalling for almost ten years, due to the excess loans costs in Italy.
Berlusconi will do his job to save the Italian banks (that store the cash of his media empire) and to get as much money from the EU, IMF and ECB as necessary.
José Luis Rodríguez Zapatero
The Spanish PM is PM under resignation, which makes his leeway very limited. He also won’t run for PM in the next elections. The Spanish unemployment situation is truly desperate, the economy anemic and the Spanish real estate market a mess. Although the Spanish government cannot be blamed for having senseless politics, the budget deficit of 9% is much too large for the ailing economy to bear.
Zapatero will fight for keeps: i.e. for saving the Spanish economy by getting necessary aid from the EU and the Euro-zone. But he probably won’t have the energy that a candidate running for reelection has.
David Cameron is a Euro-hater (that was a tough one) and – as a true Briton – feels literally more on an island than connected with Europe.
He regrets every day that the UK is part of the EU and regrets even more that he has to defend this decision on a daily basis to his own, even more Euro-phobic, Conservative Party.
Cameron will do everything possible to get out of the group of countries that has to pay for saving the Euro, but thanks to ´his´ banks Barclays and RBS, he is in the Euro-misery up to his ears.
Talking about ´operating from a position of strenght´: as PM of the first British coalition cabinet in ages, he has virtually none. That explains his tough stance on (about) anything European, which annoys ´Merkozy´.
The PM of the first Dutch minority cabinet in ages has to deal with the extremely populistic, Euro-phobic Party for Freedom (PVV;his silent supporting partner for his cabinet) at one hand and on the other hand the Euro-loving opposition. He has to battle for every decision on Europe and gets always some important parties alienated by his decisions.
The PVV doesn´t want one more cent for Greece, while the opposition wants to save the Euro at all costs.
With this in mind, Rutte does remarkably well from a political point of view, but doesn´t have a coherent message for the EU. This is the reason that he currently focuses on the EU Commissioner for the Budget: the perfect decoy for being utterly clueless on what to do with the Greek situation.
His henchman Jan-Kees de Jager (Finance) is busy ´being tough on debt´ and is further known for his misplaced oral outbursts on the Euro and the Euro-zone.
The smaller Euro-zone countries
Since the Slovakian ´nyet´ to the EFSF and Finland (True Finns), everybody is aware that small countries have a voice too in Europe. Sadly enough it is not the same voice, but a mixture of Euro-friendliness (Luxemburg, Belgium and Portugal), angriness on Greece (Slovakia and other small, poor, new Euro-zone countries) and Euro-phobia (Finland). This sounds like a cacophony, but a cacaphony with the right to veto for every soloist.
Mario Draghi and Jean-Claude Trichet
Trichet runs the risk of leaving the ECB, while the organization is in a state of despair. He is forced to take decisions (Euro QE1) that he doesn´t want to take, as his main task is fighting the inflation. He hopes he can leave the organization through the front-door, but fears the back-door.
Draghi, the new president, is already suspicious as being 1. An Italian in an ECB that is dominated by people from the PIIGS-countries and 2. A former Goldman Sachs employee.
He never can do it right: for nobody. If he is too strict on the monetary policy, the French and Italians will blame him. If he is too loose, the Germans and Dutch will hate him for weakening the Euro.
The EC (i.e. José Manuel Barroso and Herman van Rompuy) looks at the current situation with definite tooth grinding, while the EU situation is running quickly out of hand.
They want a political union and want an economic union, but know that this is virtually impossible now. This turns them into toothless tigers that have no power, compared to Merkozy.
The Financial Media
If there is one group that benefits from the current situation, it would be the financial media. These are having their finest hour with Minyanville, Bloomberg, Financial Times, WSJ and even the Dutch Financieele Dagblad being the ´talk of the town´every day.
Not to falsely accuse somebody, but you better believe that even the smallest spark within the Euro-zone will be promoted to a forest fire in the current media climate.
Even the author of this blog couldn´t even dream of having so much to write about in his first year of blogging.
The Financial Markets
It is the task of the companies and people on the financial markets to make money from every situation. That is what they do. Although the people involved are sometimes involuntary whistleblowers, it is not their main task.
Financial Markets are (falsely) accused of deliberately spreading rumours, abused as being scavengers or on the other hand seen as the party that mucked out the stable. All of this and at the same time none of this is true.
They just want to make money.
Is it any wonder that tonight´s ´Mother of all Euro meetings´ can´t and won´t yield a substantial result?!
No it isn´t! The situation is that just too many parties with too many different problems and purposes are involved. That´s sad, but true.