November 20 - 26, 2011
15 YEARS AGO
“Is it safe?”|
EPA/ALEXEI NIKOLSKIY MANDATORY CREDIT/RIA NOVOSTI
In November 1996, Bill Clinton won a second term in the White House, while in Russia the star of Boris Yeltsin had already lost its glow, thus leaving the American leader as indisputable world supremo. This was the main fuel that Wall Street used torecord a straight ten days continued rise of its basic indexes. The US leadership in the world was not threatened in any way. Itmust have been this sense of absolute supremacy that led the only super power of the world to a series of blunders like the futileinvasions of Afghanistan and Iraq. Their immense cost, together with the twin American deficits in the foreign trade and thefederal and states budgets, led the US to be over indebted to China.
Eurozone is a dangerousplace unless...
It is quite alarming, seeing the Eurozone turning to politi-cal solutions that in reality constitute a deviation from stan-dard democratic procedures.At the same time, the rest of the world, as it has expressedthrough the so-called markets, seems to be becoming moresceptical about Europe's ability to effectively face to its sov-ereign debt problem.In short, the brief replacements of the governments inGreece and Italy by unelected technocrats, together withthe fact that Berlin and Paris do not seem able to overcometheir timidity vis-à-vis the real causes of the problem, whichis none other than the politically inflicted inability of theCentral European Bank to effectively cope with the crisis.All this paints an alarming political tableau and questionsthe ability of the Eurozone to solve the problem.Unfortunately, markets have come to the conclusion thatthese threats are becoming more severe every day.And infallible indicator of this is the 7.5% interest rate that world investors are now demanding, in order to continuefinancing Italy and 3.6% in the case of France. These inter-est rates are more than what Greece will be charged for itsnew €130 billion package, which means that France and of course Italy will finance Athens with loans carrying 3.5%interest rate, at very high cost to their taxpayers. This last problem will add to the instability of the political tur-moil that prevails all over the Eurozone, and increase the dan-ger of voters turning to extreme parties, as has happened inFinland and Holland. Even in debt-ridden Greece, the surpris-ingly high acceptance of Papademos by the public (to the tuneof 73%, an all-time high) creates the danger of even greater dis-illusionment in the coming months, which may drive centre-right voters to extreme-right parties, which are at present ridinghigh on anti-immigration and anti-European policies. The same is true for Italy – the initial wide acceptance of Mario Monti’s government will turn into equally wide-spread anger, when the citizens come to understand thattheir new prime minister stands for severe austerity mea-sures and deep cuts in public spending.In both cases, Rome and Athens may turn into more explo-sive political situations, when austerity will be felt by every-body and people realise that technocrats have even worsesolutions than politicians. The US had exactly the same financial problems after thecredit meltdown that followed the real-estate crisis. Europe,however, does not possess the two American policy toolsthat helped Washington overcome its own crisis. For onething, the American central banks, the Fed, did not hesitateto help the government and the banking sector by supply-ing them both with unlimited freshly printed liquidity, acritical tool that the ECB is not allowed to use. The next important advantage that the US had in compari-son with Europe was that it was one state and one govern-ment, while in the Eurozone there are 17 and, while the ECBdrawback may in the end be overcome if things turn moresour, the “one government” advantage is to remain only American, unless the entire Eurozone is being governed by technocrats appointed by the Berlin Paris axis, if indeed theFranco-German political bond survives the crisis. The markets and political arenas of the Eurozone havereached a point at which the incorrect steps will be very dif-ficult to rectify – it will take a truly central banking institu-tion in Frankfurt and a real Eurozone financial ministry inBrussels to truly overcome this crisis. Even Angela Merkelthe German Chancellor recognises that what it is done toface up to Eurozone's debt problems is not enough. Sosooner rather than later the EU has to come up with longterm sustainable ground braking solutions.
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ISSN number: 1106-8299
By Dionyssis Kefalakos