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Thursday
Nov082012

Merkel Has A Dream

On Wednesday, German Chancellor Angela Merkel set foot in the European Parliament for the first time since 2007 and addressed the only democratically elected European institution—by design, an emasculated one that cannot even originate its own laws, though it is allowed to vote on proposals by the other European institutions. There, she laid out her plans to bring European nations together to where their budgets and other matters would become part of her “domestic policy.”

But first, the current problems should be focused on, she said to the drumbeat of economic deterioration—a day when Greece reported that unemployment jumped to 25.4% in August from 24.8% in July and from 18.4% August last year. It was 7.5% in August 2008 when borrowed euros were still growing on trees. Young people got slammed: 32.9% of the 24-to-34-year-olds and 58% of the 15-to-24-year-olds were unemployed. Revolutions have been triggered by the utter frustrations in those age groups.

So, as tens of thousands of Greeks filled the streets in protest, Parliament approved the austerity package demanded by the bailout gang from the EU, the ECB, and the IMF, the beloved Troika. Another €13.5 billion in spending cuts and tax increases would be imposed on the people so that the next bailout payment of €31.5 billion would wash over the land—actually, most of it would head straight back to the ECB to service Greece’s existing debt.

The Troika should have sent the money in June, but after the election chaos, it sent its inspectors instead. They’d write up a big report behind which all politicians could take cover. In August, Greece ran out of money, and desperate measures began [ Greece Prints Euros To Stay Afloat, The ECB Approves, The Bundesbank Nods, No One Wants To Get Blamed For Kicking Greece Out ].

The report would be finished by September, and if it said so, Greece would get the €31.5 billion. Then rumors surfaced that the White House wanted to have the report delayed until after the election. So the meeting of the European finance ministers on November 12 became the decision date. Turns out, the report still won’t be ready, and the next decision date might be November 26.

Greece might not make it that long. It ran out of money months ago. The government is delaying payments to its suppliers, businesses are shutting down, the healthcare system is cracking... and unemployment in November will be much worse than it was in August.

Even in the previously calm core of Europe, the ground is shaking. Thursday, it was the lifeblood of the German economy, exports. They fell 2.5% in September; exports to the Eurozone plunged 9.1%. And industrial orders, which had been skidding for months, caught up with industrial production in September, dragging it down 1.8%.

Hence, today’s corporate austerity programs: Commerzbank, Germany’s second largest bank, might chop off 5,000 to 6,000 of its 56,000 employees; and Siemens announced that it would shave off €6 billion in costs over the next two years and trim its workforce of 410,000 people—due to the “slowing global economy and more headwinds,” explained CEO Peter Löscher.

Accompanied by this drumbeat, Merkel explained her dream to the European Parliament. It was all about a big power shift from democratically elected national parliaments to European institutions. The European Commission of bureaucrats and appointed politicians would become the actual government of Europe with executive powers over national budgets. The European Council, similarly composed of bureaucrats and appointed politicians, would become an “upper chamber,” she said. And she threw a bone to her listeners: the European Parliament would receive a bit more power as well.

“We need to be ambitious and demanding and should not shy away from a change in the contractual foundation,” she said. So treaty changes. Or just treaty violations, which has been one of the strategies so far. The new system would “coordinate more strongly” a variety of national prerogatives, such as taxes.

Then the instincts of the powerful political animal broke the surface: she proposed a fund to deal with the pandemic of youth unemployment. Because “Europe is all of us together,” she said. “Europe is domestic policy.”

Her domestic policy. The Greeks, for example, didn’t vote for her, and they might not want her to run their show. They didn’t vote for the European Commission either. They might despise Greek politicians, but at least they’re their politicians. Merkel’s dream had no such room for doubts. Together, she said, Europeans would create “a Europe of stability and strength” where some day all European countries would have the same currency. And why not with her on top of the heap?

The EU has already created a ballooning superstructure of governance manned by 41,000 bureaucrats and mostly unelected politicians. But now, the European Court of Auditors released its annual report—a damning document that outlines how up to 4.8% of the EU budget seeped through the cracks and disappeared. Read....  The Art Of Siphoning Off EU Money.

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Reader Comments (12)

Not going to happen for legal and political reasons.

Most people forget but legally the set up simply cannot be changed with opposing views on things.
Main problem being EU-27 law is always senior to EZ-17 law so in case of colisions EU-27 law goes. That is simply heart of the present EU legal system. But now it means that effectively you cannot change the legal provisions for the EZ that are in the EU treaty (and a lot of it is) without the 10 non-EZ countries agreeing, which is even more difficult than having the 17 agree. You need the UK where people are getting totally fed up with 'Europe'. The only option I see is a trade off between 10 agreeing and countries like the UK and Sweden getting a lot of their previously transferred powers back. Combined with the structure in which they will not be faced by a 17-EZ block that via its majority pushes everything through.

Politically as well. At least half the countries need referenda or Constitution change, invluding the usual troublemakers. And that is for the EZ, not even to mention Sweden and especially the UK. Referenda required that will never make it.
For Germany as well the constitution would likely have to be changed also via referenda. Not going to make it and Merkel tries to avoid them as much as possible.
In the EZ itself the usual suspects (PIIGS CS) will have difficulty to have it approved anyway at home. With the added problem that most likely some of them will be in primary surplus waters already when the proposal comes up.

It is a dream and it will remain one. Which means that there will not be a proper mechanism in the set up that basically assures that countries cannot create problems that will affect other memberstates. So the same thing could happen again. And likley will (as the system of governance in the South is still highly disfunctional and corrupt).

Anyway messiahs (eg the yes, the we can tyes), prophets, and dreamers should be kept away from government they likely create more new mess than they solve. Save us from waterwalkers problems al already bad enough without them.
November 8, 2012 | Unregistered CommenterRik
I was in Greece this summer in the company of a leader writer for a major right of center Greek newspaper and his friend, the retired former chair of the EU Environmental Committee when Greece held the presidency of the Commission. This was at the time of the June election. The retired Civil Servant was enthusiastic about the professionalism and honesty of EU institutions when compared to those of Greece: "This is the most corrupt country in Europe", he told me. He believed that Greece had greater democratic scope (he used the word "power", I think) within the Union than outside it. He supported the efforts of the Troika even although his own pension had been greatly reduced in the austerity measures, by something approaching one third, I believe. The journalist offered me an elobourate historical and cultural explanation for Greece's inability to govern itself that boiled down to the notion that his country was essentially oriental in character and had never absorbed the values of the European Enlightenment. He did not seem to me to think that Greece was really a European country. He went on to tell me that Germany was "the natural leader of Europe", that it had tried twice in the last century to achieve that position by force and now had gained it by economic power. He believed that this was as things should be. His basic loyalty was to Europe rather than Greece I felt.
I think these attitudes are quite prevalent among the ruling elite of Greece. I got to thinking about the history of my own country, the UK , and a similar elite disloyalty to nationhood played out in the Thatcher years in favour of the Americanisation of our economy and culture. It made me wonder if there is not a rule of thumb that a weaker nation's power elites are always loyal to greater foreign power (so long as that power is inside the dominant accepted ideology) and not to the interests of their own people. Power calls to power, as it were.
In the tavernas they were all rooting for Syriza. These people seemed like patriots to me. But, as we know, there is a general Greek antipathy to exiting the EMU. I think that perhaps an explanation for this is that on the wealthier right they are desperately clinging to the gravy train (when I jokingly suggested to my journalist friend that it may be a good idea to kick Germany out of the EU it drew from him the heartfelt cry "But the Germans are the only ones with any money".) In the tavernas they have no German gravy. Their reason for clinging to the euro is that they have no confidence whatever in Greece's ability to manage a currency, I suspect. Yes I realise there is a contradiction here.
November 9, 2012 | Unregistered CommenterRoger Yates
Roger - excellent story. I hear some of the same from my Greek contacts, a real dichotomy. The fact that many young Greeks are heading to Germany because they don't see a future in Greece also says something.

Someone told me that Greek politicians and bureaucrats cling to the euro because they want their rich pensions to be paid in euros. The euro has been an incredible gravy train for all of Greece. Real wages (adjusted for inflation) and the standard of living have jumped from 2000 to 2010, while they have declined in Germany. So, certainly many Greeks are attached to that system. The question is: who is to pay for it? The Greeks or taxpayers in other countries (either through taxes or inflation). And your journalist friend answered that eloquently!

Rik - I agree that it's going to be (nearly) impossible to create a united EU-27 with all countries on the euro, though that has been the plan from the beginning. All EU members agreed to adopt the euro as part of their commitment to the EU; they just don't have a deadline. So, like the UK, they might never join the euro.

And Merkel's dream that the Commission has power over national budgets is like the White House approving or disapproving California's budget. Even in the US, that's not going to happen ... though CA and other states got bailed out indirectly by a number of provisions in the stimulus bill, and of course by the Fed's printing press that forced investors to chase yield, regardless of what the risks were (CA issued IOUs at the time because it ran out of money). Something we're now seeing in the EU as well (with Spanish debt, for example).
November 9, 2012 | Registered CommenterWolf Richter
@Wolf I think it is true what you say about pensions payed in Euros. I took my money in Eu 10 notes, anticipating the possibility of paying for my ouzo with a Eu 50 and getting change in euros stamped with a D (for Drachma) that would be 25+% devalued.. In the taverna we were praying for a Syriza victory. The place was the island of Ikaria, known as the Red Rock, which votes left and Communist, and had been where leftists, including Theodorakis, were exiled down the years. I had lived there for the better part of a year in 1963, writing, and working on the mackerel fishery. One road. No cars. A boat engine diesel generator for electricity 4 hours a day. On Ikaria the cops still stay in the police station if they value their health. Recently a new police chief arrived and saw fit to visit a big "fiesta" in the hills (Ikarians like to dance all night to their traditional music). The revelers picked his jeep up, turned it round, carried it back down the road and then showered it with rocks as he fled.
The kind of people hoping for a Syriza win were small business people, the hire car owners, hoteliers, bakers, shopkeepers, fishermen, farmers. What I found most moving was the horror and national shame expressed at the rise of the Fascists.
You ask who is to pay for the Greek debt. Well it was very much in the interests of German exporters that Greece should have the funds to buy their goods. Also Germany owes the Greeks since the war. One Greek said to me "We were just getting our gold back". Also, surely we are forgetting that the present crisis is one of bank solvency and not oif sovereign debt. Rating agencies lied about Greece's financial state and banks loaded the place up with debt (because that is what banks do) on the watch of a "socialist" prime minister who was raised in America and spoke Greek with an American accent.
I simply cannot accept that the "market" is some kind of objective entity that is analogous to a natural force, somehow, and is above or external to politics. It is a political construct that favours the interests of Power. The "market" could be eradicated in 24 hours. It comprises a few buildings, communications infrastructure and people. That is what it is. You might argue: "what will we put in it's place." Exactly, let's talk about that Let's exercise human agency. Even, dare one suggest it, a variety of alternatives. That is how nature actually works. But markets are talked about in hushed tones in the same way as we once worshiped the divine right of kings' as if there could be no alternative. One thing is certain: America, governed by the so called free market. has made quite sure that anyone attempting an alternative political and economic system has been crushed.
The Greeks should tell the banks to go to hell. Iceland did. Of course another way is possible.
November 9, 2012 | Unregistered CommenterRoger Yates
Roger - your last sentence made it into one of my posts in September :) http://www.testosteronepit.com/home/2012/9/27/greece-tell-brussels-to-take-a-hike-and-let-the-troika-bail.html
November 9, 2012 | Registered CommenterWolf Richter
You know I have a real problem with the EU. I am going to stick my neck out and say that the creation of the EU was the only positive political achievement of the last century. It must rank as one of the highest achievements in human history. Europe has had endless wars for generations. My father lived through two catastrophic wars. Fifty million dead in the last war? We forget so soon. When I was young half of Europe was in darkness. It was inaccessible. Spain was a Fascist country in the Beatles era. Now we include Hungary, Poland.....it should have been Russia. You can call it folly, the speed of accession, but was it not a splendid, idealistic impulse? We travel freely. We work freely. We have the same human rights. The same ambitions for a just society. Yes it is thoroughly subverted by late Capitalism and the financial oligarchy who seem to me to be hell bent on its destruction whether consciously or just because they are fools I cannot guess. A complex mixture of power- lust, greed and idiocy I suppose. But we have to keep this structure together. To allow a bunch of criminals to create a financial collapse that takes this achievement down is unthinkable. It would be one of the greatest disasters in human history wrought, not by a massive totalitarian force but by a few criminal scum.
November 9, 2012 | Unregistered CommenterRoger Yates
Thanks Roger,

Excellent comments from the field.
November 9, 2012 | Unregistered CommenterRDE
Perhaps we should just hope Greece collapses this year then? The EU project sounds like a recipe for "civil" war. Might as well face the dragons now....
November 9, 2012 | Unregistered Commenteremptyfull
@Wolf
The difference between Europe and the US is that at the end of the day the US has a plan B (well usually it is a plan C or up) that can be made to work. Europe simply doesnot have a plan B option it has only a dysfunctional from the beginning plan A and the closest thing to a plan B is when donor countries have an own self interest and are able to sell it to their own polulation given the conditions of the problem at stake they might at the end of the day do something. That is a lot of IF.

Euro set up is simply not stable politically in several ways.
The next 5 year or so the whole treaty arrengements will be reneged (they simply will have to be now eg Greece can legally not leave the Euro when not all 27 countries agree (who might want something in return for that) in the present set up all 27 have to agree also on Euro stuff, otherwise because of the legal system provisions in the EZ-17 treaty cannot override anything in the 27-trety. Takes too much time and it simply dysfunctional and gives outsiders de facto a veto.
You start at the wrong end with your perception of the Euro in the treaties. The system will not change reality, reality will change the system, as it nearly always does.
November 10, 2012 | Unregistered CommenterRik
Rik - I certainly agree with you that the EU will stay together. It will probably even expand. Bureaucracy and governance issues aside, the EU is a phenomenal success in that it brought 27 nations together, many of whom have fought each other since long before they were even nations. As a kid, when I was in Germany (Nuremberg), half the houses on my block were still ruins. We took them for granted, and though it was forbidden, we played in them. For adults, these were lives and homes lost during the war. The EU has essentially eliminated the possibility of war between EU countries - as Roger pointed out, that is a huge achievement, one to be celebrated for all times. And as you said, reality will continue to change the system. And that's a good thing.

The euro is a different ballgame. I did a startup in Belgium just after the euro became a currency people had in their wallets. We had business all over the EU, but it was so much easier dealing with our counterparts in the Eurozone than elsewhere. It was great. I had to travel a lot, and going into another Eurozone country was like going from Wallonia to Flanders in Belgium: the language changed, and the culture changed, but the money was the same. Loved it.

The euro is now damaging the EU. It's causing strains where there should be none. Greece could default and return to the drachma if it wanted to, regardless of the treaties - which don't mention an exit. Greece could just do it. It would however remain in the EU and in NATO, and it would probably receive a lot of aid from the EU and the US to get back on its feet.

It's the EU that is important as a family of nations with free flow of people, goods, and capital - nations who get along and cherish each other. The EU will survive. The euro is a different story.

I always liked the euro, but I see how it is straining the family of nations that is the EU. I don't know what the best solution is (I do think Greece should take care of itself and forget about paying back the banks and the ECB), so I'm just trying to decipher the scribbles on the wall.

Thanks everyone for your comments.
November 10, 2012 | Registered CommenterWolf Richter
Wolf I agree with you on the Euro. I think it looks likely that abandoning the Euro (in part or wholly) is necessary to saving the Union. What we are seeing has little to do with the EU and everything to do with saving the bank's hides. I worked "auf dem bau" in Frankfurt in '64. My job was to get the beer in. It was great. I still have a cutting from the Frankfurter Allgemeiner ( Sp ? ) a photo showing me and some others outside the Jazz Haus one summer evening. Happy memories. Check out "An Idyll on a Summer Evening" in my poetry blog Rogeryates.blogspot .co.uk (cheap excuse for a plug). Scroll down to find it and a rather dark historical reference. It's all true. "Saigon Boulevard" recalls passing through Saigon the following year.
November 10, 2012 | Unregistered CommenterRoger Yates
I see several functions in the EU:
Commonmarket/Customs Union;
Body for regional coopereation;
New top layer of government;
Currency/Euro.

The first 2 work great and add wealth.
The other 2 destroy wealth. Furthermore there is no real platform in the population to make these 2 functions work properly. It is great to be able to pay everywhere, but not if it comes at the costs of a crisis every 10 year. And the way the new Merkel set up should work simply still doesnot provide for a stable structure on which the currency is based.
To quantify: In Holland the Government (pretty pro-Euro) did a survey. Showed the common market etc added 10 % roughly to GDP, the Euro less than 2%. So for say 1 1/2% you run all these risks and have all these prolems. Cost now already have been several times larger than that 1 1/2%. Simply not worth it. Doesnot even take independent local CB policies to stimulate the economy into concern (doesnot play with Holland really as they always have been linked to the Mark).

Starting from there the Euro looks a structural problem. Basically a failure. Could have created a very similar result (as far as paying is concerned) if there are no exchange costs and rate differences allowed and cards work all over Europe. However a political construct so will be difficult to shut down.

The Euro combined with further political integration simply has come to the end of its possibilities in the current set up. You need platform in all countries involved and it simply is not there (not even in half of them). East will go along mainly as more integration means more money for them. But both the South and especially the North simply do not have that platform. In some countries politicians will be able to push it through but in others that simply will not be impossible.
With the Euro demanding further integration there (and urgently or the thing will fall apart) it simply means you need to change the basic structure of the EU to accomodate both EZ and countries that donot want to go further).
Simply unavoidable. You get a more tier EU in one form or another or the Euro will fall apart (and possibly the whole charade with it).
Letting the UK out is also not the way to go. You donot force countries with huge added value out and let at the other side basketcases in. Simply not realistic and unaffordable.

On the Euro. Imho it is simply unsustainable. The austerity fatigue in the South probably the smallest of the large problems. Payers up North will not allow a structural transfer union (at least that is highly unlikley). Politically there is not enough platform (not even to mention at voter level) to create a system that works. It will be full of dangers and one or more of those will materialise sooner rather than later so my guess it will collapse most likely because of this crisis but otherwise later.

Immigration. Looks simply also unsustainable in the present form. A large part of the population has enough of that in the till roughly 2000 form. Have seen Poles coming massively in and will simply not accept Balkanites getting in more massively. The countries have standards of living and education skills that are simply to far apart. Combine that with a welfarestate (already unsustainable/unaffordable) and you have a huge problem. This si the main issue for letting new members in as they all are extremely poor according to Western European standards.

Politically I do think it is a good idea to integrate the SE of Europe in the EU. It will most likley stabilise the region considerably. But not in the present EU form with full menbership. You get mass immigration that is simply socially not acceptable up North (mainly).
Turkey. Simply too big and simply culturally too different I do not see that working. If you move anyway towards one country you need things you share. With the Balkan already a problem (and remaining that the next decades most likley, stretching the capacity to cope with that), with Turkey that would even be worse.

Summarised the Euro is a disaster and will put the EU under heavy stress in several ways. A few countries will be added to the EU (but no more big ones (unmanageble and not enough similarities). Structure will be changed. In a more tier one.
If integration will take place it will not be all over the board.
The EU only works as a common market and a platform for regional cooperation, the rest costs more than it brings and creates more problems than it solves.
This all will cause problems with politicians but at the end they will have to give in to the sign of times (especially as they are at best mediocre in every meaning of the word) or will destroy the whole thing.
November 16, 2012 | Unregistered CommenterRik

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