One of the dangers of trying to understand what is going on in the Eurozone if you are a hapless but interested American isn’t simply that you’d have to be fluent in a lot of languages to keep on top of the media, but the media themselves are, as NC readers know well, not exactly reliable. Look at how much dictation from business and political leaders masquerades as news in the US. And we have a less controlled press than, say, Italy does.
So I will give readers some fresh data points and let you duke it out.
Data point one. One of my colleagues studied in Germany, has extensive, high level political and economic contacts there, and reads the press daily. He also describes his sang froid as “somewhere between that of a Chinese sage and a dead animal.”
Needless to say, he not prone to overstatement or overreaction and also has a propensity to makes Delphic remarks.
He said the Eurozone is over. In pretty much those words, a simple sentence, no caveats or conditionals. I nearly fell out of my chair. This apparently reflects the German recognition as a result of the Italian elections that they will not be able to surmount domestic opposition in Italy and potentially other periphery countries and would rather pull the plug than continue funding their trade partners. He said there was a fair bit of discussion of Germany leaving the Eurozone after the election. I quizzed him on how they thought they could do that, since the new DM would presumably trade at a big premium to the Euro. We discussed that the likely outcome would be further labor “reforms”. Maybe I am naive, but I don’t see how this would not undercut an critical German strength, that of the good, if also sometimes combative, relationship between German workers and management. My source finally said widespread recognition of the existential impasse at most a couple of months away. He’s never this definitive.
Data point 2. From Duarte via e-mail:
I saw the March 2nd protests here in Portugal referenced in the Links. The article from Al-Jazeera says most of the things usually mentioned in public news reports, but here are a few more details:
The real unemployment rate, if you discount statistical shenanigans, is actually 25,6% (calculations here, but only in Portuguese).
The Screw the Troika movement is actually a front group for the Left Bloc and the Communist Party (which controls the main union). This might be of concern, as we have no idea if they actually mean to shake up the system or just grind down the government to get some more percentage points in the next elections and then put a lid on the protests. They have a long history of chocking out threats to the system that come from the Left, but this time they might actually be desperate (it’s extremely rare for them to work together on anything, due to ideological and historical grudges). Events will tell.
The marches were powered not only by the unemployed young people but also by a lot of retirees that are being fleeced by cuts and thrown out of their homes by the explosion of taxes on home owners and landlords. It is also a lot easier to kick people out of their homes now. Other than that, its the usual horror stories of cuts to education and health as seen in Greece.
The article mentions tens of thousands of people, but this doesn’t make it justice. At least a million people took to the streets (Portugal has 10 million inhabitants). Video from the events in Lisbon here.
The government has said nothing so far. This is very unusual, as they usually come out of the Reichstag bunker to congratulate protesters for upholding the spirit of peaceful protest and dissent that is the hallmark of a healthy democracy or some crap like that. For atleast a few weeks before the protest, goverment members were ambushed everywhere they went by groups of people singing a revolutionary song, which led to their humiliation in the news (a brilliant marketing strategy by the organizers). Hatred towards the goverment is now universal (they don’t dare go anywhere without heavy escort), even by sectors of their own party. The only exception is the Socialist Party, which is poised to take the seat of the Social-Democrats and don’t want to denigrate them too much, since they will follow the same politics (kind of like the shift from PASOK to New Democracy in Greece).
This significance of this report is the scale of the protests (at least 1/10th of the local population) and the fact that officials are concerned about their safety. And they also appear to recognize that even the usual PR rituals might backfire.
Data point 3. Excerpts from a post by Yanis Varoufakis on conditions in Greece:
..in a depression there are no silver linings. Even profitable companies go under because, for instance, the Greek banks’ guarantees are not acceptable overseas, the result being that Greek manufacturers cannot import raw materials on credit – which, in turn, means that their capacity to produce is severely constrained and cannot supply consumers even if profitable and even if they have a full order book. So, the combination of failed banking, wholesale retrenchment in the private sector, savage cutbacks in the public sector, ridiculous new taxes imposed on the exhausted band of dependable taxpayers (who are a minority in view of the tax immunity of the upper class) – all this conspires to create a long Winter of Discontent. One that has lasted for three years and counting….
As you might expect, an imploding social economy cannot but bring down with it its health service system. Pension and health funds have run out of money long ago. Their unpaid bills to pharmacies and pharmaceutical companies causes the latter to stop importing a large variety of medicines (since they lack the cash to do it), and demanding up front cash from patients before they order their medicine from the pharmaceutical companies – in full knowledge that the patients may never get their money back from their fund. Add to this the severe reductions in the size of pensions and wages, plus the rampant unemployment, and you get the picture….
According to an article in The Guardian, Greece is facing a humanitarian crisis with over 10pc living in extreme material deprivation? Is that the case?
If anything this is an under-estimate. The humanitarian crisis is proliferating fast and catches up with hitherto middle class people. We have homeless families who until a few short months ago had a home and whose members had some kind of job. Now they have fallen through society’s cracks, perhaps irreversibly.
Now in theory, what happens in Greece is immaterial as far as the Eurozone is concerned. It’s too small in and of itself. The one way it could make a difference was by leaving and showing an exit was possible, which would have given it leverage had it seriously threatened to depart. That would have led to contagion to the other periphery countries, since they might be emboldened to act (or at least depositors would not be willing to take the chance that they might). But even though it appeared last year that a referendum on the Eurozone might have supported an exit, the pols have played successfully on fears of what going alone might mean, and Greek voters seem to have been cowed into inaction.
Thus Greece for the Germans served pour decourager les autres, to show what would happen if you let your debt levels and finances get as badly out of whack as Greece has. But that might have backfired. Citizens in periphery countries now suffering high unemployment might decide they’d rather take more pain now and gain control over their destiny rather than face being broken later on the Trokia’s rack.
As I said, I don’t have an answer here. I’ve long thought the technocrats underestimated the risk of democratic revolt. Those tail risks are bigger than you think! The European elites beat back that threat in Greece, but Italy may (stress may) prove to be different.
But separately, I’ve heard amazing assessments from my hedgie buddies as to what some fund managers think a Eurozone breakup would mean for US markets:
The US intelligence agencies have been examining this intensely (trust me). In the optimistic scenarios. the best outcomes were to have a strong up move in markets, with lots of liquidity everywhere, when the EuroEvent went off. This will be positioned as a tremendous plus for everyone…a growth driver! Bad debt will be eaten up by sovereigns and central banks. Rebuilding and infrastructure on steriods!
Anyone who can fathom how you get to that conclusion (beyond religious faith in the Fed), please explain it to me. Have they not considered what happens to all that debt the ECB bought if there is no Eurozone, or the Eurozone is very much shrunken? And Germany has so much nice shiny infrastructure already they had trouble in the crisis finding anything more to do on that front. This whole crisis is in large measure the result of the iron grip neoliberal thinking has on policy-making. That wasn’t dented one iota as a result of the global financial crisis. Why should a second eruption change that, absent a lot of further upheaval in terms of who is in the power seat?