New Europe |Page 3
November 6 - 12, 2011
The G20, intended by the French Presidency as the grandopening of Sarkozy’s re-election campaign, was meant to ap-prove the results of the previous week’s Eurozone summit andboost market confidence. Instead it was thrown into chaos andnever recovered. The final communiqué sounded gloomy, “global recovery has weakened, particularly in advanced countries, leaving unem-ployment at unacceptable levels. In this context, tensions inthe financial markets have increased due mostly to sovereignrisks in Europe; there are also clear signs of a slowing ingrowth in the emerging markets. Commodity price swingshave put growth at risk. Global imbalances persist. “ The global leadersapproved, “the euro area's comprehensive planand urge rapid elaboration and implementation” and welcomedItaly’s monitoring by the IMF. They also noted, “Monetary poli-cies will maintain price stability over the medium term.” They also “made progress in reforming the international mon-etary system to make it more representative, stable and re-silient. We have agreed on actions and principles that will helpreap the benefits from financial integration and increase the re-silience against volatile capital flows.”On the Doha Development Agenda, they recognized “it isclear that we will not complete the DDA if we continue toconduct negotiations as we have in the past,” but promised “topursue in 2012 fresh, credible approaches to furthering nego-tiations.” They said that the G20 would continue as an informal groupbut decided to formalize the Troika. The communiqué finished by thanking the French for “host-ing the successful Cannes Summit.”
Little progress, great confusion at G20
Greece once more made a spectacleof herself for the world to watch. Whenever the country has to decideits future, there has to be a wilddebated, with its major politicalforces taking their rhetoric toextremes just to be seen doing this. It was like this during last week withPM Papandreou announcing he wanted a referendum to ask thepeople if they want to stay in the EUor not. And this despite the fact thatit is widely known that the absolutemajority of Greeks agree on thecountry's position within theEurozone.More that 75% of the citizens when asked in pools agree that they must not leave Eurozone under nocircumstances, including the Stalinistanti EU Communist Party. YetPapandreou found ways and meansto go around reality and create aglobal crisis, which shadowed theG20 meeting of world leaders inCannes, by announcing a referendumhe later on decided not to hold. OnFriday night Papandreou wasexpected to win a confidence vote inthe Athens Parliament, despite thefact that he made his country a badspectacle in the eyes of the entire world. On the other side of the fenceNew Democracy major oppositionparty, under its president AntonisSamaras, after eighteen months of vehemently opposing all and every agreement between the governmentand the Eurozone to bail out thecountry, he agreed last week to votefor the 26-27 October BrusselsAgreement, to cut the Greek debt by 50% and support the country and itsbanking system with anotherpackage of soft loans of €130 bn.Both those leaders know that theircountry cannot survive until the end of the year and will go bankrupt the ugly way, without this Brussels Agreement. Yet both choose to play around withthe very existence of Greece until the very last minute, in order to be seenthat they have it their own way.Papandreou by announcing areferendum and Samaras waiting untilthe very last moments to say that he will support the Agreement.As for their obviously infective“efforts” to form a “cooperative”government, again they both did whatever they could to block thisoption, despite it is widely supportedby the people and despite the fact that within both major parties there arelarge groups of deputies and party official who support the idea of acoalition government. Many Pasok deputies say they would supportPapandreou in the confidence vote onFriday night only if he promises toconcede for a “cooperative”government. In short the two majorGreek political leaders continueplaying the good old game of puttingtheir personal petty interest abovethose of the country. In the case of thePrime Minister however this was autterly dangerous and costly game.In reality the country is only a few weeks away from a total financialcollapse, if the 26-27 October BrusselsAgreement is not approved by theAthens Parliament, so as the €8 bnsixth tranche of loans is released. Without it the liquidity of the Greek state will be completely dried uptowards the beginning of next monthand an uncontrolled default will betriggered. In view of this Papandreouand Samaras have taciturnly agreed toask their parties, Pasok and NDdeputies, to vote for the Agreement.
As for the Private SectorParticipation in the Greek sovereigndebt 50% haircut seemingly everythingis going well and the banks are set toagree to that. Sources in theInternational Institute of Finance,representing the private banks holdingthe Greek debt in the negotiations with Athens, say that the complexpolitical environment in the country does not impede the negotiations forthe haircut and the entire package canbe the in place towards March of 2012.
Now coming to last Thursday'sdecision by Mario Draghi, the new European Central Bank governor, tosurprise us all and pass in ECB'sgoverning council a decision to reducethe ban's main interest rate from 1.5%to 1.25%. Surely it was a generous steptowards more involvement of thecentral bank in the real economy, giventhat this decision cannot be explainedby a retreat of inflationary pressures inthe Eurozone. It is a direct support tobanks and real economy, supportinggrowth, given the problems what haveappeared on both those fronts. It is notonly the banks that need cheapermoney from the ECB in order toboost their recapitalisation effortsthrough increased profitability. Realeconomy in Eurozone also needscheaper money because there arealready infallible signs of a new era of lower or zero growth. Only Germany continues to predict noticeable rates of growth. In any case it seems thatMario Draghi wanted to give a new message to markets and of course theseventeen Eurozone governments thatthe ECB will not be as neutral in thefuture as far as the issue of growth inthe real economy is concerned.
Greece: 'No' to referendum. 'Maybe' to co-operativegovernment. 'Yes' to Brussels Agreement
By Dionyssis Kefalakos
Some people in Ankara must be laughing at the EuropeanUnion’s crisis with Greece. There may be no two countries inEurope more often seen in terms of zero sum foreign policiesthan Turkey and Greece. The sense of irony in Ankara must beboth sweet and bitter.Greece is a fully fledged member of the EU and Eurozone, itseconomy in tatters, and its government in severe crisis. Athenscan only offer the EU more headaches as its social fabric fraysfurther and the country faces bankruptcy. By contrast, Turkey isa candidate in waiting, its economy booming, and its govern-ment at the peak of its power. Turkey has a GDP three timesthe size of Greece (in purchasing power parity terms).As the EU contemplates throwing Greece out of the Euro-zone, thereby risking a deepening of the already grave crisis of confidence in that currency and its economies, EU leaders arealso fuelling skepticism toward the very project of union.Should the EU now be re-evaluating its go-slow policies on Turkey’s accession to help stabilize the political project of union?My answer would be yes. The EU leaders should be reviewingall political options right now. This is not just a fiscal crisis. Con-tradictions abound. Turkey engineered a successful constitu-tional referendum to assert full civilian control of Turkey’s armedforces to meet EU accession criteria, but has been causing in-creasing angst in Europe over its media control policies. Any reasonable assessment would have to be that in the next decade, Turkey is unlikely to be able to meet nominal EU standards insome areas of human rights and freedom of expression. The ap-propriate response to this has to be of the realist persuasion. Onthe one hand, we should not hold Turkey to standards that arenot universally respected by some governments in existing EUmember states. On the other hand, a sober appreciation of theunavoidable socializing effect of EU membership, in terms of bringing Turkish society closer to a broad EU standard, shouldgive some foundation for a political judgment that Turkey hasundertaken enough reform or is on the path to reform. This judgment would include the view that for geopolitical reasons,it is now absolutely essential that the pace of Turkish accessionbe rapidly and unmistakably accelerated. The EU and the world are facing a severe fiscal crisis. The IMF in September2011 in its World Economic Outlook said that the global econ-omy had entered a dangerous new phase. But there should beno mistake. This is also a security crisis of immense propor-tions. The EU now faces its biggest security threat since the endof the Cold War. The elements of this threatening situation are numerous. In ad-dition to the high risk of a severe global economic shock andhigh youth unemployment in its own southern tier states, thethreats include massive social unrest and escalating violent con-flict in its vicinity, especially in Syria (Turkey’s southern neigh-bor), while tensions are escalating between Israel and Turkey,and between Iran and some Gulf states, especially Saudi Ara-bia. This deteriorating geopolitical picture has important effectson Europe’s external and internal security interests, not least be-cause of the potential economic impact of large scale disruptionsto EU oil imports and/or the global energy market. This crisismay well be the last opportunity for the EU to get its Turkey de-cision-making right. The choice as I see it is as follows. Look forward to a shrinking and delegitimized union, plagued by es-calating internal and external threats, and increasingly unable torespond to the accumulating global economic instability. Orlook forward to a re-energized union that is going to be en-riched economically, politically and culturally by the quicken-ing pace of Turkey’s accession.
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Greece out, Turkey in?Saving the Union
By Dr. Greg Austin