Tuesday, May 22, 2012

“United” They Fall: Grexit Haunts Conflicting Eurozone

Conflicting eurozone is searching conciliation while being haunted by the specter of Grexit – Greece 's exit from the eurozone.
At the just concluded G-8 summit the conciliation effort produced an ad hoc understanding, and the witness was an isolated Angela Merkel. A deeper dividing line ran through the communiqué the summit produced.
Now, as the specter of Grexit appears larger Merkel and co. is airing a plan for a smaller divide and a stronger union. Jörg Asmussen, the former German deputy finance minister and, at present, the German board member at the European Central Bank, a Merkel-voice, has floated the idea of a federalized political and financial union within the EU: a politically integrated eurozone splitting the Union into two, with the core forming a “banking, fiscal, and political union”, temporarily abandon its expansion plans in the Balkans and Turkey, and the European parliament wielding more extensive powers.
Is it the dream of the German capital? The idea simultaneously shows aspirations and limitations of a section of capital in Europe that aspires to be all dominant but lacks the power to dominate. Materializing the plan is an almost impossible task now.
Merkel finds herself increasingly isolated, a show of disunity, while she represents a capital adamant to impose its diktat on the weak – prey to powerful capital. In the G-8 summit, Barak Obama kept a hand of friendship on the shoulder of François Hollande, the socialist French president.
In the coming formal and informal meetings in Europe , Hollande will stand closer to Mario Monti, the Italian leader. And, David Cameron will play the second fiddle, which will be, at times, insignificant, and at times, will not sound sweet to Merkel's ears.
Hollande will push the Germans to accept the idea of growth measures and eurobonds. But that's not acceptable to the Germans. Herman Van Rompuy, the European council president, appeared to lend support to the German agenda while Italy and Britain  are expected to back Hollande.
These testify Merkel's further isolation in Europe , fractures in the continent, and conflicting interests that dominating capital fails to unify.
The G-8 summit found a seemingly adamant Merkel. But Obama's choice was conciliation as he was in need of that posture. The German position carries risk of aggravating European crisis that in turn may push up the US jobless number. Obama can't afford the number ahead of his election travel. Cameron tried to act as a conciliator between contending parties. The Anglo-American alliance jointly encountered the Merkel position. She had to make a retreat.
The German leader considered that it was not the business of the G-8 to tell the EU states the way to handle their economy. But the summit communiqué iterated the right of the super-group to discuss the state of the European economy, and the German opposition was by passed. The super-group signaled: Europe is yet not a German domain.
The communiqué committed the G-8 to “take all necessary steps” to strengthen their economies. It said: “ Greece should remain in the eurozone”.
The official document declared in its opening paragraph: “Our imperative is to promote growth and jobs.” For the time being, the communiqué stands as a document of victory for Obama and Hollande. However, differences on policy issues persist.
Trans-Atlantic interests and power equation thus got reflected in the communiqué. But Grexit continues to rock the boat.
Grexit is an interesting issue! It unites, and it divides, it makes unsure, and it makes stubborn. Behind closed doors, the prime actors threat Greece to evict while publicly they assure Greek's membership in the zone. A section is scared of Grexit while another section calculates possible losses in case of the exit.
The interests differ as they are not sure of the way to deal with the issues emanating from a sick economy that is threatening the continents' economies. A weak scars a strong! The fear of chain-reaction of the Greece syndrome is now haunting eurozone politicians.
All bank-interests have united to threat the Greek voters. They are now warning Greece , and manipulating Greek politics so that pro-austerity politicians turn winner in the coming election. Their message is point blank: Voting for Syriza, the radical left coalition opposing austerity and bankers, will be a dangerous gamble.
In the task of warning the Greek voters Cameron has lent his voice to Merkel. He has issued a warning. In Chicago , he said: “We now have to send a very clear message to people in Greece : there is a choice – you can either vote to stay in the euro, with all the commitments you've made, or if you vote another way you're effectively voting to leave.”
A drama of denial and assertion preceded the Cameron-warning. It was reported that in a telephone conversation with Karolos Papoulias, the Greek president, Merkel suggested Greece hold a referendum on euro membership as part of the general election. But Merkel's spokesperson denied the report. However, the Greek interim Prime Minister Panagiotis Pikrammenos's office stated that the chancellor had presented the proposal during a telephone conversation with Papoulias. “It is true”, said a Greek government spokesperson.
Cameron and the German leader stood together. Grexit has united.
Jens Weidmann, the Bundesbank president, warned Europe 's central banks not to increase their exposure to Greece because of political uncertainty there before the elections. Is it a banker's way of bargaining or putting pressure on client?
Wolfgang Schäuble, the German finance minister, said Greece had to elect a government that continued to adhere to the international bailout program. “If Greece … wants to remain in the euro then they have to accept the conditions. Otherwise it isn't possible. No responsible candidate can hide that from the electorate”, Schäuble said. Ken Clarke, the British justice secretary, has warned: Greece will face a disastrous future, and may be forced to leave the euro if it votes for “cranky extremists”. A direct instruction to voters!
More threats to the Greek voters are there. Martin Schulz, the European parliament president, said a €130bn rescue package reached with international creditors in March could not be renegotiated. “ Greece […] shouldn't self-destruct”, said the German politician. “We want Greece to remain part of our family, of the European Union,” said Jose Barroso, European Commission president. “That being said, the ultimate resolve to stay in the euro must come from Greece itself.” The EC is insisting that Greece must honor the austerity measures. Juncker, the prime minister of Luxembourg , said: The coming election would be Greece 's last chance. If Greece fails to form a government that respects the conditions for previously agreed to financial aid to Greece set by the EU, IMF and the ECB, “then it is over”.
Jean-Claude Trichet, the former European Central Bank president, argued that eurozone states should be able to declare fellow members bankrupt, and take over their tax and spending policy. But the idea was dismissed by economist Nouriel Roubini as “totally undermining national sovereignty”. Roubini has missed the already undermined national sovereignty in Greece and Italy . [One can now easily perceive the way poor countries in the periphery are dictated, threatened, and manipulated, the way their sense of national honor is trampled. Junior employees from countries in center ask these peripheral countries: “Do it.”]
The threats, warnings, etc. reveal the higher level of stake in Greece with about €400bn in external debts. “Officially”, a press report says, “eurozone governments say they're not talking about a Greek exit. But it's a different story behind closed doors. Finance ministers meeting in Brussels last Monday threatened to evict Greece .”
Exact Greexit-chain reaction is unknown to all. There are assumptions and fears: From market melt down to political backlash to bankruptcies to recession, and a lot will follow.
The European sovereign debt crisis has also become a banking crisis. Spain is on the brink. The country can uncork bigger problem. The crisis has been exacerbated by the revelation that the Spanish deficit is larger than previously feared, putting pressure on its sick banking sector. Merkel summoned her Spanish counterpart, proud, conservative Mariano Rajoy, to meet her.
Banks in Italy and Portugal are in “solidarity” also. All of them are facing risks. They may drag down the German banking system. Britain is heavily exposed to the crisis. The US will not be immune to the Greek disease. The US Fed is becoming increasingly concerned about the situation in Europe .
Rating agency Moody's has already downgraded 26 Italian and 16 Spanish banks. Spanish banks were sitting on €148bn of bad loans in March. The proportion of bad loans of Spanish banks has risen to an 18-year high.
Fitch has put three Cypriot banks on rating watch negative. Fitch warned that Cypriot banks remain highly sensitive to Greece-risk.
A loss of confidence in the banks will be catastrophic. Fear of a full-scale bank run is high. The consequences will be serious.
Deposits in Greek banks have already come down by almost a third. Greek savers are withdrawing euros from their bank accounts. Recently, in a single day, about €900 million was withdrawn. The Greek banks, according to an analyst with Moody's, have become “economically insolvent”.
The European Central Bank has confirmed that a number of Greek banks have now been cut off from its refinancing operations.
Wealthy individuals in crisis-hit countries are moving billions of euros to areas they consider safer. There are signs that section of French rich are moving to London .
“And now”, Paul Krugman writes, “comes the moment of truth.” (“Apocalypse Fairly Soon: The Moment Of Truth In Europe ”, The New York Times , May 18, 2012 )
Terming the euro as a “grand, flawed experiment in monetary union without political union” Krugman assumes: “[T]he euro as a whole would blow up. Things could fall apart with stunning speed, in a matter of months, not years. And the costs — both economic and, arguably even more important, political — could be huge.”
He echoes the already widely expressed fear: “[A] euro breakup would have negative ripple effects throughout the world. For the biggest costs of European policy failure would probably be political.”
Euro was one of the biggest projects of capitalism in Europe . Now, a significant portion of capitalism in Europe – the eurozone – is struggling within, with self. Its intricate inefficiency is now coming out to view of the common persons. It's not its tragedy, it's one of its attributes. It dreams to encompass all and everything but it doesn't know to control the forces it nourishes and unleashes. Contradictions it is confronting now were created by none, but itself. It has widened the extent and consequences of the contradictions, to far flung areas, crossing oceans.
In the continent, it is barbarously waging a class war not only against labor, but also against broader society, not only in a single country, but in countries, and crossing the continent, it is endangering not only poor countries, but also its class allies – the uncouth rich – in those poor countries. It's its capacity that undermines its legitimacy. It's its power, a power that can try to survive only at the cost of others, class enemies and class allies.
It is intervening in countries' political system, and it is propagating non-interference. It is dictating countries, and it is propagating democracy. It's standing on fault lines, and it's sure of its destiny.
Grexit , Spain , Italy , Portugal , and euro-disunity and euro-unity are facilitating further shifts in the continental plates.