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Eurozone Crisis Averted? We Really, Really Hope So

Posted on the 22 July 2011 by Periscope @periscopepost

Eurozone crisis averted? We really, really hope so

Eurozone leaders, led by German Chancellor Angela Merkel and French President Nicolas Sarkozy, have come to an agreement about how to restructure Greece’s massive debts, thereby encouraging further monetary union for the single currency (the euro) and with any luck averting impending doom. The European bail out fund will provide £96.3 billion to Greece, with private lenders contributing more. The interest rates on Hellenic loans will be cut by 1 percent, and its time period for paying them back doubled. It still remains possible that rating agencies will call this a default. Is this just putting sticking plaster on a mortal wound? Or is it a full-blown tourniquet? Nobody really seems to know.

  • As long as it’s only for Greece. It’s “a bigger plan than expected,” said Gavin Hewitt, slightly breathlessly, on the BBC, with “sweeping new powers” being given to the European Financial Stability Facility (the bail-out fund) which will make it act almost as a European Monetary Fund. Projections that the private sector will contribute 106 billion euros need “to be treated with some caution”, as its involvement is voluntary. The key is that investors understand that this plan is only for Greece, not Ireland and Portugal. Whether Greece remains committed to its austerity measures remains to be seen, but it’s great that European leaders, recognising Greece’s needs for growth, “have offered to divert money from the EU’s structural funds.” Though Europe’s “heavy weapons” have been used, “it remains unclear what real difference these measures will have in bringing down Greece’s huge debt mountain.”

Read the 14-point “Marshall” (or “Merkel”) Plan to rescue Greece

  • Baby steps? Yeah, but anti-democratic baby steps. With the details still needing to be hammered out, said The Guardian’s leader,  “here’s what can be said about the proposed 14-point deal: for the first time since the sovereign-debt crisis flared into life, the elite of eurozone policymakers have shown that they actually get it.” It’s a “new chapter”. But there are problems: “eurozone leaders have failed once again to make a democratic case for what they are proposing. The pot for eurozone bailouts, the European Financial Stability Facility, is set to balloon, representing a sizable claim on European taxpayers,” and the deal was “rammed through in a few hours at a summit – with no mention of a vote or accountability to electorates.” Policymakers have shown resolve, but is it enough to “ quell the panic in southern Europe? Probably not; but it is a baby step in the right direction.”
  • Sinister dogmatic faith will lead to certain ruin. Nonsense, said Peter Oborne on The Daily Telegraph. It was a “shambolic and panicky eurozone summit”. This isn’t like most recessions, but is “far more sinister” because its “underlying cause is a structural imbalance which cannot be solved by conventional means.” The 1929 Wall Street Crash had terrifying reprecussions; the news is as bad for us. The situation is woeful in America, but “desperate” in Europe, because it “has been exacerbated by a piece of economic dogma” that is, faith in monetary union. The expansion of the bail-out fund is a “decisive step” towards fiscal union. Integration will lead to prosperous countries propping up failing ones. This is “the final realisation of the dream that animated the founders of the Common Market”. The consequences are dire, with Greece, Portugal, Spain and Italy becoming “vassal states” providing cheap labour. Germany will become an empire. “Indeed, a paradox is at work here.” Whilst the European Union was intended to foster peace, “nothing could have been more calculated to create civil disorder and national resistance than yesterday’s demented move to salvage the single currency.”
  • It’s so hard to get out of it! Lending more money isn’t enough, said The Times rather soberly. We need something bigger, “that signficantly reduces the amount these struggling countries owe and persuades the markets that it is safe to continue lending to Spain and Italy.” The taxpayers of Germany and France are not happy with the fact that they will have to prop up “profligate southerners”. Long term-solutions requiring bonds backed by the entire Eurozone mean that “it seems likely that some further transfer of sovereignty will eventually be agreed by eurozone leaders, prepared to do anything to keep the euro together.” Britain is safely and happily out of the eurozone, but “[t]hose countries who are a part of it, and who are experiencing its disadvantages, are finding, to their cost, what a difficult mechanism it is to get out of.”
  • Temple for sale, one careful owner now spending more time on Olympus. Greece’s “major assets” may be demanded “as collateral,” said Tom Newton Dunn and Steve Hawkes on The Sun,  ”including its airports and state-owned power and water companies. Greeks fear their famous ancient sites such as the Acropolis, home of the Parthenon temple, and even some holiday islands like Corfu, could end up in foreign ownership.”

More on the European crisis

  • Germany and France reach deal
  • Is there a future for the Euro?
  • Bank stress tests to be published

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