Euro crisis: “an existential crisis for the euro zone”

Eurozone finance ministers have withheld the release of a €12 billion loan to Greece in the hope that the Greek Prime Minister, George  Papandreou, can secure a domestic political consensus.  The BBC report quotes from the EU finance ministers’ statement

A statement issued by the ministers called on all political parties in Greece to: “support the programme’s main objectives and key policy measures to ensure a rigorous and expeditious implementation”.

“Given the length, magnitude and nature of required reforms in Greece, national unity is a prerequisite for success,” it added.

The prospect of such Greek “national unity” remains uncertain, at best.  And the BBC’s Robert Peston, still everyone’s hero, questions the logic of the finance ministers’ ultimatum

First, that when people talk about Greece as Europe’s Lehman moment, they are wrong. Letting Greece default in a disorderly, uncontrolled way would probably be a good deal worse for the global economy than Lehman’s collapse – for all that banks in general have more capital to absorb losses than was the case in the autumn of 2008, and are less dangerously inter-connected with each other.

Second, the eurozone ministers’ decision to postpone the definitive decision on a further 12bn euros of bridging loans for Greece is not likely to scare Greece’s austerity objectors into submission.

It could well persuade the Greek opponents of fiscal retrenchment that eurozone ministers are all talk and no trousers, that they are so disunited on how to fashion a fundamental solution to Greece’s excessive debts that Greece is better off taking direct control of its own economic destiny.

However, if this eurozone brinkmanship nudges the Greek parliament to reject the further budget squeeze, we’ll be closer than is remotely prudent or sensible to a 1930s-style financial and economic disaster.

BBC Europe editor Gavin Hewitt is, slightly, more optimistic

George Papandreou, opening a debate on a vote of confidence, has called for “national accord”. He said cash reserves would soon be exhausted. The image of national division was not helping the country survive. He offered a referendum in September on a new constitution that would make it easier to pursue corrupt officials.

He will probably win the vote of confidence on Tuesday. The week after, parliament will vote on the austerity package.

That will be a tense moment, with the risk of further violence. Even if there is another bail-out of around 110bn euros, Greeks have lost faith in the plan. All they see is debt piling on debt.

This is where the danger lies. A creeping despair. Injured national pride. Ten years of austerity.

Even so the bet must be that the Greeks reluctantly, sullenly, will go along with new austerity but I have sensed a despair that last year just wasn’t there and no-one knows where that will lead.

And, along with the diverse political interests noted in that linked Slugger post, the Irish Finance Minister, Michael Noonan, has added his tuppenceworth

Asked if it would be really credible, Mr Noonan said: ‘It has the possibility of being very credible, but the primary Irish interest is to ensure that whatever solution is put in place does not contain elements which would affect us adversely, so we’ll certainly be saying no contagion for Ireland – regardless of what the conditions are.’

Asked to explain that statement, Mr Noonan replied: ‘It’ll depend on the measures that are put in place, but in very simple language, we don’t want any knock-on effects from the Greek deal which would work against Ireland’s interests, and I think so far that is not going to happen.’

As an Irish Times hosted Reuters’ report notes

European media condemned the EU’s ‘shambolic’ Greek crisis management and fretted the region was pouring money down an endless drain by giving aid to discredited political leaders in Athens.

Some commentators said today a swelling popular backlash in Greece against yet harsher frugality was driving the country towards the disastrous default a rescue is supposed to prevent.

The BBC have also collated some of those commentators’ views.  And an Irish Times editorial joins in

We are two years into the crisis, as Pat Cox said on Friday, and there is no sense that the EU is ahead of the curve, only of an endless rearguard action against the markets, cobbled together adhocery.

What is missing in what has drifted by default into an existential crisis for the euro zone is a long term unity of purpose to give the euro the solidity and authority which this one-winged bird of monetary union was not given at Maastricht – a political union. As Joshka Fischer, Germanys former foreign minister, argues in an important article reprinted in the Dublin Review of Books : “The current European crisis is only superficially a financial crisis; at its core, it is a political crisis triggered by the political weakness of the EU and the Euro Group.”

Well, it’s certainly one option…

Arthur Beesley in the Irish Times describes the extent of the problem

EURO ZONE finance ministers gathered last night in Luxembourg for another round of emergency talks on the financial and political crisis in Greece. They may be edging towards a new bailout for the country, but the situation is fraught with uncertainty and risk.

The talks, which resume today, will continue into next month. Although EU leaders meet for their summer summit in Brussels on Thursday and Friday, no settlement is expected at that point. The issues are too complex, the interests too diverse, the politics too difficult. In Brussels the mood is gloomy. Similar strain is evident elsewhere.

And, as he goes on to say

Most analysts – and more than a few politicians – believe Greece will never be able to repay all its debt. But that doesn’t make them any more willing to confront the problem now.

There are no neat answers here, no opportunity for fancy political footwork and little confidence that an acceptable solution is to hand.


, , , , , , , , , , , ,

  • thethoughtfulone

    Increasingly difficult to see a controlled non-catastrophic way out of this.

    Put simply, give them more money and the debt simply increases, meaning when it runs out the stakes are even higher next time.

    Don’t give them the money and it’s crunch time now, a huge step into the unknown, and money markets (still incredibly fragile world-wide) don’t like the unknown.

    Excellent report last week by the BBC’s Paul Mason (argueably better than Peston) who thinks the Greek crisis has world order altering potential.

    He’s not often wrong!

  • Alternative to <b<thethoughtfulone @ 7:36 pm: —
    ¶ assume it’s a crisis of capitalism;
    ¶ capitalism is the most self-supporting system yet evolved;
    ¶ nothing will be solved;
    ¶ but somehow the system will survive;
    ¶ meanwhile, someone, somewhere. is making a whole lot of money out of this.

    Which seems to be the distillation of all the pundits which have crossed my path these recent hours.

    Yeah: I had composed a long, turgid exegesis to the same end, but a bottle of Cab Sauv distilled it down to this shorter version.

  • Zig70

    Greece has less to loose than the ecb. My money is on a greek default. I reckon if France were in the greek position they wouldn’t have hesitated on defaulting. I’ll also bet it won’t bring down the euro but will cause a fall. Time to save up for a few euro purchases.

  • Pete Baker

    “I’ll also bet it won’t bring down the euro but will cause a fall.”

    What are you betting?

    Because the stakes are somewhat higher than any personal wager you might venture.

  • nightrider

    meanwhile, someone, somewhere. is making a whole lot of money out of this.


    Yes, but from whom are they making the money off?

    Is there a bill to be paid someday, or do the economies of certain countries defy mathematics? If so, we need a new philosophy to replace science and logic. Any ideas, with Cab Sauv or without.

  • thethoughtfulone

    “Greece has less to loose than the ecb.”

    Not really, quite a large portion (sorry, can’t remember the exact amount) of the Greek debt is held by Greece itself so a default will totally ruin the country.

    The problem for the rest of Europe with Greece going down is not the money lost “per se” but the wider implications. This in turn calls into question the whole nature of the EMS if it can’t take a knock like this and survive. Then throw in Sarkozy’s comment that without the EMS there can be no EEC and the stakes ramp up very rapidly

  • Greenflag

    ‘do the economies of certain countries defy mathematics? ‘

    They can and they do . The hyper inflation of the German Weimar period being just the most notable example although the continuing survival of the Zimbabwean economy without a ‘national ‘ currency to call it’s own should attract more attention to those addicted to paper assets and currencies . In the case of Greece it required not just a run of incompetent governments but also the willingness of the leading Eurozone economies to turn a blind eye to Greece’s actual economic situation at the time of access to the Eurozone . That of course and the expensive advice taken on by the Greek Government prior to their euro access in the matter of adjusting the national finances to make their entry into the euro zone more credible . Their adviser in this matter was and please don’t laugh none other than Goldman Sachs the eh same financial mega giant which sold ‘profitable great performing ‘investments’ to their clients while from the other corner of their corporate mouth were telling their sales employees to ‘dump’ the worthless crap i.e the great investments .

    In a just world the Chairmen of Goldman Sachs and BOA and Citicorps and Deutsche Bank among many others would be behind bars but alas our politicians are terrified of them and in any event have been aiding and abetting these financial con men for the better part of two decades 🙁

    The fact that Greece was 78th in the Transparency International league table for it’s lack of public and private sector conformance to developed countries ‘norms ‘ was either ignored or not even considered by the rapacious French and German and other ‘lenders ‘including no doubt the Greeks themselves .

    The big picture mentioned by Pete Baker above must also include the possible default of the USA in a few weeks which could outshine any Greek default in terms of financial havoc to be unleashed on an already shaky world monetary order .

    None of the major financial and trading powers seem capable of doing any more than just keeping their own backyards ‘floating ‘ while what happens to the world monetary system is being left to the same people who brought the world the 2008 meltdown .

    the old adage of ‘beware the Greeks bearing gifts’ is in serious need of updating .

    As of June 2011 it should be ‘Don’t look for the world’s richest and most economically powerful countries bearing solutions for the world’s monetary system’

    They still haven’t found a solution they can bear i.e one that will be acceptable to the reckless loan dispensers that go by the name of major banks in their own economies 🙁

  • Greenflag

    here’s a recap on Ireland with Max Keiser

    And here’s Max Keiser having to deal with Vincent Browne and our economic intellegentsia.

    Browne displays his knowledge of the subject by asking the question ‘What is a derivative’

  • Greenflag

    ‘and a more excited and somewhat louder exchange on the British economy ‘

    ‘We are going to have crises again and again and again ‘

    Max’s suggestion of ‘hanging the banksters’ could buy a few decades of ethical behaviour by the unhanged banksters!

  • Greenflag

    Here’s the Vincent Browne debate with Keiser , Gurgiatiev and others

  • Greenflag

    oops part 1 (10 mins) of the Keiser Browne debate
    directly above is part 2

  • Zig70

    What am I betting? I’d like to think I’d invest my Sterling in a few sure bets at the right time, but I’m rubbish at it. Always hold too long. Though, I guess you’re implying I’ll loose my job or a great many of us will. Greeks own about 50% of their debt. The euro banks are insured against default so they won’t loose. I’d be saying to the ecb give me investments not loans otherwise we’ll default, worth a try.

  • DC

    Greenflag – i’ll raise a glass to Max Keiser – thanks to him I made money on physical silver, his campaign to buy silver.

    I didn’t quite manage to sell at the peak which was close to $50 an ounce, but I did good.

    All hail the Keiser!

  • Greenflag

    @ DC ,

    Max is a bit of a showman and his ‘silver campaign’ a bit OTT but behind the public bluster there is more than a grain of truth in many of his assertions the main one being that the people we like to think of as the powers that be -aren’t -our emperors have no clothes and seem more than diffident about putting any on to tackle this failure in the international monetary system -if ‘system’ is the word that can be used anymore in essentially what is a free for all beggar your neighbour international bondholder sweepstake with the weakest sections of societies all across the EU and the USA and further afield being made to pay for the reckless greed of the financial sector.

    We serve neither King nor Kaiser nor for that matter Keiser but the latter deserves more than a little credit for bringing to light the scabrous web of deceit and lies that our politicians and banksters and much of the mass meeja like to put out as the eh ’cause’ of this crisis . Even in Germany ditto In France there is blanket coverage for headlines such as spendthrift and incompetent Greeks and dissolute Irish and Portuguese etc but hardly a word about the reckless behaviour of overleveraged German & French and American banks with lending in places where they knew there was a long record of public and private sector non transparency .

    I see I’venow been yellow carded ? Perhaps Pete could give me a hint as to why ?

  • DC

    Max Keiser said last year – November-ish that silver would hit $50 this year, i didn’t believe him – I bought in when it was around $20 – and only last month or so it pretty much topped $50.

    So yea, he knows his stuff.

  • Greenflag

    It’s now at 36 dollars . Gold could be the next ‘bubble ‘ bust although if you believe the statement made by Peter Sutherland below we could be in for a long period of ‘incoherence and inadequacy’ in international monetary markets for a while yet which is what I’ve been alluding to above in other posts .

    ‘reland’s former European Commissioner Peter Sutherland has criticised the response to the sovereign debt crisis in Europe as incoherent and inadequate.

    In a keynote address to the Irish Exporters Association, where he was presented with its Gold Medal Award, Mr Sutherland said the response had involved a divergence of opinion which had been damaging to the global perspective of markets.
    While strongly advocating European integration, the former Attorney General said the European reaction to Ireland’s problems had been unfair and counterproductive.’

    the full report