Another act in the Greek tragedy?

There will be a General Election in Greece on 25th January and its result will be watched with some degree of apprehension in the rest of the Eurozone.

The Greek Parliament has been dissolved before the end of its term because it has been unable to agree on who the next Greek President should be. The candidate nominated by Antonis Samaras, the Prime Minister, was the former European Commissioner Stavros Dimas. However, in each of three successive ballots, Mr Dimas failed to secure the necessary 180 votes.

The post of President is largely ceremonial, wielding little power. However, the law states that in such circumstances, new elections have to be called, so Greek voters will have to go back to the ballot boxes after barely 2½ years.

The last election, held in June 2012, took place when the country’s strings being pulled by the so-called “Troika” – the European Central Bank, the European Commission and the International Monetary Fund. Greece was in its fourth year of a recession which saw the country’s economy shrink by 25% overall. The government was bust and the loans provided by the “Troika” came with strings attached – widespread privatisation and a drastic slashing of the state budget including thousands of public sector redundancies. This has caused great hardship for the Greek people. Anecdotal evidence talks of children scavenging for food in school litter bins, a sharp increase in the suicide rate and shortages of essential drugs in Greek hospitals.

At one stage, it appeared that Greece might exit the Euro. The ability to devalue a country’s currency reduces the debt burden and makes exports more competitive. Tied to the single currency, Greece did not have this option. Its government debt was already pretty substantial before crisis struck – in fact, even when Greece applied to join the Euro, the books had to be fiddled to enable the country to meet the necessary criteria. The recession therefore only compounded a long-standing problem.

In the 2012 elections, PASOK, the Greek Socialist party, bore the brunt of the voters’ anger. The dominant party in the period following the end of military rule, it is now a shadow of its former self, polling only 13.2% at the last election and expected to lose half its remaining seats this time round. Like many socialist parties in the EU, its loyalty to the great European project is unwavering. When George Papandreou, the former prime minister and PASOK party leader, provided a rare exception to this rule by threatening to offer the Greek electorate a referendum on the Troika’s austerity policies, opposition from Brussels forced him to resign. Lucas Papademos, a former ECB Vice President, was appointed to succeed him and he became Prime Minister without ever having stood for office in his life. Significantly, Papademos had been Governor of the Greek Central Bank at the time the country made its flawed application to join the Euro.

Although Papademos’ caretaker coalition was eventually replaced by a government headed by Samaras and the centre-right New Democracy Party at the 2012 elections, this has not meant the end of socialism in Greece. Enter the firebrand Marxist Alexis Tsipras and the Syriza party – or rather coalition, as Syriza – Συνασπισμός Ριζοσπαστικής Αριστεράς, (SYnaspismós RIZzospastikís Aristerás) in full, means “Coalition of the Radical Left”. It is a ragbag alliance of, among others, left-wing populists, Greens, Maoists and Trotskyites, all united in their opposition to Troika-imposed austerity. Tsipras once insisted he will tear up the current agreement with the Troika the day Syriza enters office, calling it “barbarous”. He has since toned down his language hut still intends to seek a re-scheduling of Greece’s debt and to reverse the swingeing public sector job cuts imposed in the last two years – a classic socialist “Tax and Spend” policy that Greece can ill afford with its government debt standing at over 175% of GDP. Furthermore, some of Tsipras’ colleagues have not toned down their rhetoric one iota. One Syriza MP, Yiannis Milios, said that whereas “New Democracy and PASOK have decided to pay up, ….we are saying that we might not pay. We might not pay because we will negotiate and say that this [bailout] program is not sustainable.”

In a nation still reeling after six years of harsh recession, Syriza has struck a chord. Even though anyone looking back over the last 100 years of history will recognise that Marxists, Maoists and Trotskyites have a much better track record of creating problems rather than solving them, the party has enjoyed a consistent lead in every opinion poll since the snap election was called. “The future has already begun,” Tsipras proclaimed after the elections were announced. “You should be optimistic and happy.”

Prime Minister Samaras has urged voters not to rock the boat and has warned that a Syriza-led government’s refusal to meet Greece’s debt obligations could lead to a default and ejection from the Euro. This is where things really start to get interesting. Although opposed to austerity, Syriza professes itself to be pro-EU and pro-Euro. However, its support is not unconditional. Panagiotis Lafazanis, the Syriza deputy leader stated in October that the movement must “be ready to implement its progressive programme outside the Eurozone if need be.”

In 2012, a determined effort was made to keep Greece in the Eurozone at all costs for fear of a domino effect if the country defaulted on its debt and returned to the drachma. There were concerns that a default by Spain or Italy might follow which would result in the collapse of the entire single currency. Two and a half years later, the Eurozone is still in a bad way, but the ECB believes the single currency bloc can better withstand the shock of “Grexit”. However, Ambrose Evans-Pritchard, writing in the Daily Telegraph (http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11319525/Greek-expulsion-from-the-euro-would-demolish-EMUs-contagion-firewall.html), maintains that the “firewall” is nowhere near as robust as senior EU politicians believe it to be. The evidence suggests he is correct. There is great alarm in Germany at the prospect of a Syriza victory. Wolfgang Schäuble, the German finance minister, made it clear that in his view, “there is no alternative. If Greece takes another path, it will be difficult. New elections will not change the agreements we have struck with the Greek government. Any new government will have to stick to the agreements made by its predecessor.”

Yiannis Milios replied that Germany was seeking to overturn Greek democracy. “Nothing is stronger than the sovereignty of the people”, he said. “If the Greek people decide to change policy by voting for Syriza, we are obliged to respect the people’s will. Mr Schäuble is forgetting this democratic principle.” It is interesting that George Papandreou has returned from the dead, leading a new party called “Allagi”. In spite of his offer of a referendum on the austerity measures in 2011, Papandreou is still viewed by the electorate as a spineless individual who caved in to the Troika. He is unlikely to receive many votes, but could it be that he is acting as a “spoiler” for Syriza? Indeed, in view of a recent piece in Huffington Post, allegedly written by Papandreou which encouraged meek acceptance of the Troika’s austerity measures, some commentators are wondering whether his attempts at a comeback is being sponsored by the EU or even the USA in a desperate attempt to derail Syriza.

But even in the unlikely event of this move succeeding, waiting in the wings in Spain is Podemos, another recently formed far-left party which came out of nowhere to win 5 out of 54 Spanish seats in the European Parliamentary elections. The party’s name translates into English as “We can”, which hints of Barack Obama, but its role model is rather Alexis Tsipras. On hearing of the news that elections were to be held in Greece, Pablo Iglesias, the leader of Podemos tweeted, “2015 will be the year of change in Spain and Europe. We will start from Greece. Come on, Alexis! Come on, Syriza!”

The Eurozone might survive the departure of Greece, but Spain, where elections are due to be held later this year, is a different matter. Like Syriza, Podemos is pro-EU and even reasonably pro-Euro, but what if Syriza wins this election in Greece, maintains its stance against the Troika, precipitates a Greek expulsion from the Eurozone and then a Greek recovery? Podemos might then alter its stance on the Euro. Meanwhile, Beppe Grillo’s Five Star Movement in Italy and Marine le Pen’s Front National in France make no pretensions to be pro-Euro. They too would benefit politically from a successful “Grexit”.

As we have noted, the powers-that-be in Brussels will do their utmost firstly to deny Syriza victory and if this fails, will try to persuade Tsipras to compromise, but it is only a matter of time before one anti-establishment party in an EU member state will find itself in power and will refuse to give in to pressure. With opposition to the EU rising in much of Western Europe, the forthcoming election in Greece looks set to herald a particularly fascinating and unpredictable period in politics. On this note, Happy New Year!

Money down the drain

Recent visitors to Spain have noticed the excellent motorway system the country has recently built – indeed, it almost seems a case of overkill, as a lot of them seem to be empty. It’s the same with Spain’s airports. The country has a staggering 47 state-run airports. Does a country with less than 75% of the population of the UK need so many?

The answer according to the Spanish government is no, and two and half years ago, they started to close them down. Indeed, some of them never really opened. Not a single flight has ever landed at the International Airport of the Murcia Region, which cost 266 million euros.

How has Spain, which has been through such a tough time recently, found the money for these grandiose projects? The answer is that it hasn’t. You and I, the European taxpayers, have footed the bill for these white elephants.

The auditors of the European Union have finally woken up to this waste. They recently declared that more than £100 million of European Union funding to build airports has been “wasted” and an additional £165m was “poor value for money”. Nine of the 20 airports across the EU they studied were “not needed at all”.

Unsurprisingly, the European Commission claims that the auditors are not presenting the full picture. “It is a completely unrepresentative sample of Europe’s airports,” said a spokesman.

Perhaps, but the busy airports like London Heathrow or Amsterdam’s Schipol were not built with EU funds.

Furthermore, infrastructure spending in Spain and Portugal has always been viewed as an investment worth making in order to have a “dry run” for the bigger infrastructure improvements needed by the former Soviet bloc countries. These have already started and no surprise, airports in Poland and Estonia were also mentioned by the auditors. In Poland, according to Euractiv, over 100 million euros has been spent on thre “ghost” airports.

Anyone who visited Central and Eastern Europe during or immediately after the Days of the Warsaw Pact would agree that the infrastructure of those countries was inadequate, but are these white elephants really good value for our money? Tony Blair defended his decision to give up Mrs Thatcher’s hard-won rebate in 2005, saying that we must “transfer wealth from rich countries to poor countries”, and that we were, “investing in Eastern Europe.”

The British people are remarkably generous in supporting worthy causes, voluntarily giving millions of pounds in relief aid following last year’s typhoon in the Philippines, for instance, but we have no choice about this international compulsory wealth redistribution. We were never consulted as to whether we wanted to support the worthy cause of improving the infrastructure of Eastern Europe. It was certainly not included in Labour’s 2005 election manifesto. Even if the money had been spent wisely, our own government urgently needs it to reduce our national deficit. Given it has been spent very badly, Blair’s arguments nine years ago look more vacuous than ever.

Europe’s woes

It is now six months since elections to the European Parliament returned the highest percentage ever of EU-critical MEPs of varying hues. Since then, for the UK electorate, the focus has been on UK withdrawal and the torrid time David Cameron has had to endure. He opposed the nomination of Jean-Claude Juncker as president of the European Commission but found no real allies, he lost two MPs to UKIP and then lost the resultant by-elections. A former Cabinet minister has called for him to invoke Article 50 and begin the withdrawal process and his speech on immigration went down like a lead balloon. With so much happening so quickly on the debate about our future relationship with the EU, it has been easy to overlook a number of developments across the Channel.

When we do so, the picture is quite alarming. “Sooner or later, there won’t be a Europe to be part of” wrote Jeremy Warner in a rather apocalyptic piece in the Daily Telegraph last month. “It’s not a question of in or out, but of whether Britain can avoid the flames of destruction”, he continued. “Politically and economically, Europe is sinking fast.”

The economic data make grim reading. Deflation is entrenched in six Eurozone members – Greece, Cyprus, Slovenia, Slovakia, Spain and Portugal. Belgium and Italy are in danger of joining the club, especially given the recent and ongoing fall in commodity prices. Unemployment, particularly youth unemployment, remains stubbornly high. It may have fallen in Spain recently, but this is as much due to emigration of younger workers as to any real improvement in the economy.

The cutbacks imposed by the “troika” – the European Central bank, the European Commission and the International Monetary Fund – have been imposed on countries which are still struggling to pull themselves out of the Great Recession which began six years ago. Incredibly, in spite of the resentment this has generated across “Club Med”, the Eurozone has held together. “Grexit” was averted in 2012 and talk of other countries leaving has faded away. Significantly, during the height of Greece’s problems, it has recently been revealed that the Dutch Government conducted a study into the costs and practicalities of bringing back the Guilder.

Will it ever be dusted off the shelves? Who knows. If elections were held today in either the Netherlands and France, the parties currently registering the largest support in both these countries – Geert Wilders’ PVV and Marine le Pen’s Front National, – have talked of leaving the EU. Spain, which appeared to take the Troika’s medicine without complaint has recently spawned a left-of-centre anti-austerity protest party Podemos, which has seen spectacular growth in the space of less than 12 months it has been in existence. In Greece, another left-of-centre anti-austerity party, Syriza, has topped a number of recent opinion polls. Both these parties loudly assert their pro-EU credentials, but were either of them to be elected to government and to tear up the agreements with the troika, the consequences would be very unpredictable. Meanwhile, Germany’s anti-euro party Alternative für Deutchland, rises higher and higher in the polls. The German mainstream parties, both on the centre left and centre right, look with horror on this party which is challenging EU orthodoxy in its very heartland, but for how much longer will they be able to shun any sort of coalition with AfD and dismiss them as “a people locked into the past?”

Meanwhile, outside the Eurozone, the Swedish government has collapsed after only two months in office when the anti-immigration Sweden Democrats (Sverigedemokraterna) voted with the mainstream opposition to defeat the government’s budget.

All this only six months after the European Parliamentary elections and the record number of MEPs either committed to outright withdrawal or else hostile in varying degrees to the Single Currency or further integration. The response by the mainstream political groups to the rise of such parties was to coalesce around a candidate for President of the European Commission, Jean-Claude Juncker, who epitomises everything the assorted protest parties dislike about the EU. It is as if they were saying “Blow the electorate; let’s carry on with business as usual.”

As the Eurozone limps from crisis to crisis, the reverberations are being felt across the whole EU. Forget the upbeat media reports about the Eurozone’s alleged “recovery”. “Business as usual” may not be an option for much longer.

Dutch farmers welcome EU cash to head off Russian boycott impact

Fruit and vegetable market photoDutch fruit and vegetable growers are set to benefit from a €125m compensation package set up by the EU following the imposition of an import ban by Russia. The money will go to compensate growers for not harvesting or removing produce from sale, farming commissioner Dacian Ciolos announced on Monday.Dutch junior farm minister Sharon Dijksma has welcomed the move. ‘This is the right step and something the Netherlands has been urging for within Europe,’ she said. ‘The situation for vegetable and fruit growers is also particularly acute in our country. It is important to take direct action in the markets for apples, pears, tomatoes and bell peppers, among others.

Financial help

The Dutch cabinet has already agreed that growers affected by the boycott and transport firms can apply for financial help to reduce the impact of shorter working hours on their staff.Dutch farming association LTO Nederland welcomed the European move, saying it is a powerful signal to the market.‘No one wants the market to be flooded with produce,’ said chairman Albert Jan Maat. ‘We are finding suitable solutions by working together with organisation such as the food banks.’ –

(This article courtesy of Dutch News: http://www.dutchnews.nl/news/archives/2014/08/dutch_farmers_welcome_eu_cash.php#sthash.wxk5q6T4.dpuf)

Photo by tornatore

The single market – not as wonderful as we thought

The Bertelsmann Foundation has just published a report to mark twenty years of the single market and interesting reading it makes. It found that, between 1992 and 2012, Germany’s GDP increased by €37.1bn per year as a result of its membership of the EU’s single market – equivalent to €450 per inhabitant. By contrast, UK GDP only benefited by an additional €1bn per year, equivalent to €10 (or just over £8.50) per inhabitant.

Denmark has benefitted even more than Germany. Its GDP increased by €500 per inhabitant per year. However, Southern European nations have not done so well. The per capita figures for Italy, Spain, Greece and Portugal are €80, €70, €70 and €20 respectively. It is unsurprising that these countries have fared badly relative to Germany. Tied to the single currency, their exports to Germany have become progressively more expensive while Germany has been able to grow its exports across the Eurozone after making significant gains in productivity a decade or so ago.

However, even Greece and Portugal, hamstrung by a currency that has not worked in their favour, have gained more from the Single Market than our country. As the debate about EU membership hots up, one of the concerns frequently expressed by figures from the business world is that it would be a calamity to be excluded from the Single Market. It has been taken as read that any trading arrangement with the EU for a newly-independent UK should include access to the Single Market and there is no question that this remains the cases. However, the size of the benefit to the UK economy has not proved nearly as significant as we were led to believe.

The Eurozone crisis is far from over

Three years ago, it looked like Greece would have to leave the Euro. The country was bust and had to be bailed out by the European Central Bank (ECB), the International Monetary Fund and the European Commission (the so-called “Troika”) as no one wanted to loan such a profligate state any more money. Of course, the country should never have been allowed to join the Single Currency in the first place. The books were cooked to hide the huge debt burden the government owed even back in 2000. One of the culprits was Lucas Papademos, the governor of the Central Bank at the time. He was later installed as Greek Prime Minister without any ballot after the incumbent, George Papandreou, incurred the wrath of Brussels by threatening to put the Troika’s tough bailout proposals to a referendum and was forced to resign.

The governments in Spain and Ireland had not been guilty of such profligacy, but the Eurozone interest rates in the years before the Great Recession of 2007 were too low for their housing markets, creating an unsustainable boom that turned into bust. Also vulnerable were Portugal and Italy. Portugal in particular had been struggling because some of its most important exports, such as textiles, were being undercut by cheap goods from Asia. With both countries being tied to the Euro straitjacket, they were unable to respond in their time-honoured manner – devaluing their currencies. (Remember how many lire you used to get to the pound on those Tuscan holidays?)

However, although the Eurozone wobbled for a while and its break-up was prophesied by a number of respectable economists, it became apparent that the various EU institutions were prepared to go to quite extreme lengths to ensure no country withdrew from the Single Currency. One particularly significant moment in the crisis was a speech in London in July 2012 by Mario Draghi, the ECB governor, who promised to do “whatever it takes” to keep the Eurozone together. In the weeks following this speech, Draghi didn’t actually do very much, but his words calmed the markets and borrowing costs for the Spanish and Italian governments started to fall from levels widely regarded as unsustainable. Last year, even the Greek government was able to return to the money markets after recording a “primary surplus” (greater tax revenue than expenditure excluding borrowing costs) for the first time in years.

So it’s all rosy in the Eurozone garden now? Not quite. The price paid by countries who have required a bailout has been very high. In order to balance their books, the governments of Spain, Italy and Greece have been forced to slash their expenditure. While the number of public sector employees in Greece in particular has been too high and their pensions too generous, the scale and the rapidity of the cuts has resulted in a series of strikes and a sharp rise in unemployment. In Greece, over one quarter of the entire workforce has been out of work for almost two years, with youth unemployment remaining stubbornly above 50% in spite of many young people leaving the country to find work elsewhere. Two years ago, one third of business in central Athens had closed because of the downturn. The unemployment figures in Spain are equally dire. Over half the young people are out of work here too and there is very little sign of things improving.

Although no one is talking about bailouts, government finances are facing increasing pressure because of low or, in some cases, negative inflation. While very low inflation is good news for consumers, governments rely on inflation to pay their bills. If you are a government which has borrowed a hundred thousand euros over a 10-year period, it helps if prices and wages go up because, thanks to a bigger tax take, you receive more money to help pay off your debt by the end of the loan period. If prices are actually falling, as they are in Greece, Cyprus and Portugal, people defer buying big-ticket items in the hope that they will become cheaper. Besides this being bad for governments, it does not help manufacturers either, as they suffer a fall in orders.

Then there is the problem with some Eurozone banks – particularly but not exclusively those located in the Mediterranean countries. The precedent set by the bail-out of banks in Cyprus, where savers had to take a hit, means that any hint of insolvency will cause a run on the bank in question. Portugal’s Banco Espirito Santo rattled the markets last week, and this is unlikely to be a one-off incident. In November this year “stress testing” of over 100 Eurozone banking groups by the ECB due to start. In order to ensure that their assets meet the necessary criteria and do not offer the slightest hint of insolvency, banks are tidying up their balance sheets and keeping well clear of any loans with an element of risk. This, of course, is hardly a healthy environment for businesses seeking to borrow money to finance expansion. , and the recent problems with Portugal’s Banco Espirito santo .

Added together, these developments have resulted in a climate of stagnation in much of the Eurozone. The stock of both consumer credit and mortgage loans across the 18-nation single currency area are decreasing and manufacturing in several countries is also in decline. France’s industrial production shrank by 1.7% in May compared to April while Italy’s fell by 1.2%. It is widely believed that the Italian Prime Minister Matteo Renzi dropped his opposition to the nomination of Jean-Claude Juncker as President of the European Commission in exchange for an agreement to relax the austerity policies demanded by Germany as his government struggles to balance its books.

So far, these ongoing troubles in the Eurozone have been kept out of the headlines. However, Anthony Couglan’s recent report on Ireland (See link here ) which captures the sombre mood of a country which has been widely touted as “the poster-child for austerity”, illustrates what is rumbling beneath the surface. The Irish, like the Spanish, Portugese and Greeks, have made heroic sacrifices to keep the Single Currency afloat. But if another spark causes a renewed eruption of this still-ongoing crisis, how much more will they be prepared to take?