The latest ECB bank lending survey showed a dramatic tightening of credit in Q4; effect of LTRO is likely to come through in following months; more tightening is expected for Q1; banks also reported that changes in regulatory requirements contributed to the tightening of credit; Fitch says Italy should focus on growth, not austerity, as rating agencies are becoming more critical of the eurozone's obsession with fiscal belt-tightening; ECB may hold out on a Greek debt swap until private investors reached PSI+ deal; pressure is growing on Lucas Papademos to get an agreement among his three squabbling coalition partners; the Greek labour minister warns that further wage cuts would have dramatic consequences on the social security fund; Angela Merkel may not have a coalition majority for the second Greek programme as more and more German MPs are favouring a Greek exit; China takes over from France as Germany's largest trading partner; Francois Hollande reinforces his lead of Nicolas Sarkozy, but the French president reassures his nervous party that he will be the winner; Jens Weidmann criticises the fiscal compact for being too loose; also says it is too weak to act as a precursor to a fiscal union; German wages are expected to rise at a moderately faster pace this year, but wage restraint is likely to continue; Wolfgang Münchau says the German proposal to deprive Greece of its sovereignty has a point, but any sovereignty transfer in the EU has to be symmetrical; Charles Goodhart, meanwhile, says central banks should not attempt to forecast an uncertain future, and focus on plausible scenarios instead.
Now, Germany's pledge of support is weakening as Greece's economy is in tatters. Greece, in refraining from restructuring immediately as it should have done two years ago when its debt to GDP was 115%, expects Germany to hold up its end of the bargain since such a default two years ago would have lead to immediate contagion in the eurozone and problems for German banks, but Germany's only response is to scapegoat the supposed lack of reforms in Greece.
And yet, there are reports out there that Greece has actually reached a primary balance in its budget, which is no surprise since the country has slashed that budget by 19% in two years, and now the troika is asking for a further cut equivalent to 2% of GDP, or 6% of the budget. 25% in 3 years.
Germany's Role in Europe and the European Debt Crisis | STRATFOR
Germany has decided to make an example of the Greeks. The German public largely has bought into Berlin's narrative of Greek duplicity and German innocence. German Chancellor Angela Merkel has needed to frame the discussion this way, and she has succeeded. The degree to which the German public is aware of the complexities or the consequences of a generalized austerity for Germany is less clear. Merkel must now satisfy a German public that questions bailouts and sees Greece as simply irresponsible. Capitulation from Greece is necessary for her as a matter of domestic politics. The German move into questions of sovereignty has raised the stakes in the debt crisis dramatically. Even if the Germans simply back off this demand, the Greek public has been reminded that Greek democracy is effectively at stake. While Greece may have borrowed irresponsibly, if the price of that behavior is yielding sovereignty to an unelected commissioner, that price not only would challenge Greek principles, it would bring Europe to a new crisis. That crisis would be political, as the ongoing crisis always has been. In the new crisis, sovereign debt issues turn into threats to national independence and sovereignty. If you owe too much money and your creditors distrust you, you lose the right to national self-determination on the most important matters. Given that Germany was the historical nightmare for most of Europe, and it is Germany that is pushing this doctrine, the outcome could well be explosive. It could also be the opposite of what Germany needs. Germany must have a free-trade zone in Europe. Germany also needs robust demand in Europe. Germany also wants prudence in borrowing practices. And Germany must not see a return to the anti-German feeling of previous epochs. Those are several needs, and some of them are mutually exclusive. In one way, the issue is Greece. But more and more, it is the Germans that are the question mark. How far are they willing to go, and do they fully understand their national interests? Increasingly, this crisis is ceasing to be a Greek or Italian crisis. It is a crisis of the role Germany will play in Europe in the future. The Germans hold many cards, and that's their problem: With so many options, they must make hard decisions -- and that does not come easily for postwar Germany.
Germany has decided to make an example of the Greeks. The German public largely has bought into Berlin's narrative of Greek duplicity and German innocence. German Chancellor Angela Merkel has needed to frame the discussion this way, and she has succeeded. The degree to which the German public is aware of the complexities or the consequences of a generalized austerity for Germany is less clear. Merkel must now satisfy a German public that questions bailouts and sees Greece as simply irresponsible. Capitulation from Greece is necessary for her as a matter of domestic politics.
The German move into questions of sovereignty has raised the stakes in the debt crisis dramatically. Even if the Germans simply back off this demand, the Greek public has been reminded that Greek democracy is effectively at stake. While Greece may have borrowed irresponsibly, if the price of that behavior is yielding sovereignty to an unelected commissioner, that price not only would challenge Greek principles, it would bring Europe to a new crisis.
That crisis would be political, as the ongoing crisis always has been. In the new crisis, sovereign debt issues turn into threats to national independence and sovereignty. If you owe too much money and your creditors distrust you, you lose the right to national self-determination on the most important matters. Given that Germany was the historical nightmare for most of Europe, and it is Germany that is pushing this doctrine, the outcome could well be explosive. It could also be the opposite of what Germany needs.
Germany must have a free-trade zone in Europe. Germany also needs robust demand in Europe. Germany also wants prudence in borrowing practices. And Germany must not see a return to the anti-German feeling of previous epochs. Those are several needs, and some of them are mutually exclusive. In one way, the issue is Greece. But more and more, it is the Germans that are the question mark. How far are they willing to go, and do they fully understand their national interests? Increasingly, this crisis is ceasing to be a Greek or Italian crisis. It is a crisis of the role Germany will play in Europe in the future. The Germans hold many cards, and that's their problem: With so many options, they must make hard decisions -- and that does not come easily for postwar Germany.
Reforms of sectors are not going to save the Greek economy. It stuns me that the troika take so much interest in utility deregulation,or the opening of the pharmacy and/or taxi sectors. I mean, who really cares?
Stratfor seems to have bought into this idea that Greece is hopelessly preventing reform, but the fact is, reform is a smokescreen. The gov't has simply slashed expenditures--for public pensions, salaries, health care, and education. Slashed education by an incredible amount. So whatever "reforms" are still to be done, the fact is, public expenditures are way way down.
Nothing is going to improve Greece but an economic bounceback. Reforming sectors is not going to make a difference. They need companies to go back into production, but instead, the opposite is happening. There are companies all over Greece shuttering their factories. That is the real problem.
The troika talk about deregulation like the European Council earlier this week talked about "deepening the single market" as a way out of the crisis: they are true believers of an economic religion and they're not actually thinking about what policy would work or how, they're just going through ritualistic incantations and actions and wondering why they're not rewarded with growth and jobs.
"Reform" is not a smokescreen but a shibboleth.
They have destroyed the Greek economy in order to save it. One can only hope that history will set the record straight, because these people won't be able to see it by themselves.
As to the Greek elites, they're complicit, bot because they share the ideology that "reform" and "austerity" should work but because they agreed to being "rescued" from insolvency two years ago out of a misplaced sense of what "being a good European" means.
Nobody wants to be the ones to go down in history as blowing up the Euro despite the fact that the Euro institutional structures are actually toxic not just in an of themselves but toxic to European democracy. tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
I mean, the Greeks agreed to grow their economy by 3%! But they haven't kept their agreement.
It's just improper usage.
