Eurozone Redux

I’ve been absent for two good reasons.  The first is that political events are unfolding at too rapid a rate to make any sensible comment that would last more than a few hours.  Reading other blogs which vainly attempt to prognosticate, let alone to analyze, the collapse of the Euro, Syria’s seemingly unending nightmare, fear mongering, obstructionist Republicans in the US, the mess that is Egypt, Turkey’s coming of age, Russia’s desperate struggle to keep old ties afloat while deliberately alienating the West, etc. etc., I decided the task was not only fruitless, but rather stupid.  So I’ve watched al Jazeera and waited.  The second reason is that I’m busy.

Nevertheless, with yet another “final” Euro summit underway the time seems appropriate to re-address the unraveling of the Eurozone. 

At the crux, of course, is Greece.  The election of the centrist coalition solved nothing,  If the left had won, Germany’s bluff would have been called. But, unfortunately now that particular scenario has been delayed.  In the lottery for the dubious honour of becoming Greece’s Finance Minister so that the Germans could kick him and solutions down the road, Yannis Stournaras won.  He was there in 1994 to negotiate Greece’s entry into the Eurozone.  He may well be there on its exit.

Minister Stournaras only has a couple of moves before disintegration.  Will they happen and will Germany accede?  No.  But, anyway, official time for Europe has expired and we’re now in the first overtime.  Yannis Stournaris must resist the pressure to buy more time by extending the bailout, which will only produce more debt which will be paid to German banks in the end.  Don’t extend the bankruptcy. Call the German bluff.  Get a deal from Europe.

Keep in mind that all the bailout funds masterminded by the Germans are nothing more than payments to the banks, not to the Greek people.  Furthermore, much of the bailout goes to allow Greek banks pay German and other European banks for loans that should never have been made.  Greece’s sovereign debt problem is not being addressed and won’t be until Germany is forced into a position where it can no longer dictate its austerity program for others while maintaining its competitive advantages that were deliberately structured into the Eurozone system.  Money that re-capitalized Greek banks should not be part of the national debt – that releases a bunch of Euro’s, by the way.  Let the European Financial Stability Facility own the banks and do with them what they need to do. 

Everyone, including the Germans, are now talking about a growth strategy.  Well, let’s say growth returns in one or two years.  Until that time there should be no payments required on the loans.  After growth begins to appear, payments can be resumed with a ratio pegged to growth. 

To be clear, I don’t think any of this will happen as Germany, and Germans, seem to forget that their growth is dependent on buyers and as usual are forgetting that their economic strength lies only in exports. Losing buyers in Europe by sticking to an inane austerity policy is just plain stupid.  What they are doing is saving the banks and abandoning the people.

What Germans and the German government refuse to admit is that the Euro ship and its economies are sinking fast and, like the Titanic, it will take down the wealthy and the poor, those who are industrious and those who are not.  Their attitude and solutions are Hooveresque without the quaintness. He and his government, in response to a rapidly disintegrating economy in the US, moved rapidly to reduce government expenditure, and cut wages. He was an idiot then and Merkel and company are the idiots today.

Finally, and what makes the Eurozone almost problematic at this point, is that Chancellor Merkel wants to create a German Europe; every nation should  live, work and apply its governance according to German rulebooks.

Merkel and many (if not most) Germans have an annoying tendency to patronize the southern tier, telling them to “do their homework” for example, so that they can all become good little Germans.  This is nothing more than a tool to bring all of Europe under German leadership.  The word “rule” might be too harsh. Maybe.  However, this makes Germany a threat to the Eurozone and Europe – not Greece, Italy, Spain or Ireland.  So everyone else in Europe needs to decide if they want to live under German leadership or resist.

Merkel keeps saying that she and Germany will do whatever it takes to save the euro; except that every plan presented by others has been vetoed to satisfy German voters, German banks and the German press. Oh, and yes, national interests.

American Moron Romney

MILWAUKEE, WI - APRIL 03: Republican presidential candidate, former Massachusetts Gov. Mitt Romney speaks to supporters during his primary night gathering at The Grain Exchange on April 3, 2012 in Milwaukee, Wisconsin. Mitt Romney addressed supporters after winning primary elections in Wisconsin, Maryland and the District of Columbia. (Image credit: Getty Images via @daylife)

Mitt Romney on the campaign trail. You just can't make this crap up...

“I’m not familiar precisely with exactly what I said, but I stand by what I said whatever it was.”

Would-be president Mittens. Would you buy a used company from this guy?

Once More Into the Breach....

On July 1 the new European Stability Mechanism Fund comes into effect.  It is a more robust attempt to resolve the financial crises that has the Euro on the ropes.  But it is also a key date because in June, Greeks will go to the polls again and if they vote the same way, or even strengthen the anti-austerity parties to the extent they can form a government, then after July either the German led team of austerity believers will blink or Greece will set in motion the withdrawal from the Eurozone.   Because, austerity plans are now a social and economic disaster for Greece, Spain and Portugal.  Actually, austerity is not a plan at all – it is a knee-jerk reaction by the rich and powerful to retain that power at the expense of the periphery in Europe which requires a growth plan – not more austerity and unemployment that it brings.

Germany seems to think that threats are the order of the day.  They seem to forget that the Greek voter makes the choices – not Berlin.  Enough economists have said that the German led austerity program is bogus that perhaps Merkel and her ever diminishing circle of allies should sit down and come up with a compromise because by staying in the Euro, Greece will never recover economically because it will be forced to use a foreign currency within a group of wildly differing economies.  The system does not work.

Jean-Claude Juncker, who presides over the Euro-zone's finance ministers, criticized those who seem to think that threats against Greece were appropriate.  He said that Greek voters must be respected.  Mr. Juncker however, is leaving and thus can easily speak his own mind.  The problem is that the other ministers – Finland comes to mind – are fully supportive of the current policy and their tone to Greece is not diplomatic.  This is a gross mistake because people in general don’t respond well to threats and being treated like children. These same ministers praise Ireland and Portugal for keeping to the austerity route. The problem is that Ireland had no sovereign debt crises – it, like Spain is all private debt.  Frankly, anyone who thinks that Ireland is improving or stable is running a high fever. Spain’s banks are in trouble because of a housing bubble that burst in spectacular fashion and an unemployment rate over 25%.  Austerity is not the solution for Spain.

Coming back to Greece though, is the question of who will replace Juncker?  At the head of the pack is none other than Wolfgang Schäuble, the German finance minister and someone heavily invested into austerity and maintaining German export superiority.  Freshly elected Hollande is unlikely to be enthusiastic about having a German in that spot as he campaigned promoting a growth, not contraction policy.  Putting Schäuble into the driver’s seat is likely to send Greece really over the edge.

In June, Europe will know which way Greece is going.  Withdrawal from the Euro will help Greece, hurt banks and embarrass the EU (read, Germany).  But frankly, it will give Greece the chance to become competitive again.  Hopefully, there is a semblance of a plan in place to deal with the exit.

Economic Denial

100,000 peaceful anti-austerity protesters in front of the parliament of Greece on 29 June 2011. (Photo credit: Wikipedia)

Without question, things are getting a whole lot worse in the Eurozone and in Greece and Spain in particular. 

I’ve done a good deal of Germany and ECB bashing, all of it I believe well deserved.  The German solution to everything has been crushing austerity for everyone except the banks while forgetting that their own prosperity is derived from a fixed game where everyone else has to buy their stuff while simultaneously being unable to devalue because it’s impossible to devalue a foreign currency.  I think it is now pretty much settled that the ECB, by concentrating almost exclusively on inflation, has ignored fundamental economic equality and growth factors needed in Europe.  It is also pretty much settled everywhere outside of Berlin that austerity does not produce growth and without growth you get massive unemployment, poverty and social upheaval all of which might lead to the end of the European Experiment.

Angela Merkel is on the way down unless her party changes course. There are hints of that after the recent drubbing of her party in regional elections.  Even Germans are unhappy.  I would assume that someone has a contingency plan for Greek default, unwinding of the Euro in Greece (and perhaps elsewhere) and the cracking of the current economic structure. After all, even the US has a contingency plan for war with the UK.  But don’t count on it because it is very difficult to convince a buyer that he has bought a fake painting despite evidence to the contrary.

The meetings in Greece over the weekend in the desperate attempt to form a government and avoid another round of expensive elections have not gone as planned.  Curiously, what may result in a new election is the support for the moderates, as opposed to the radical left party, because Greeks actually seem to want to stay in the Eurozone.  This is strikingly similar to the former Greek government announcing that a referendum on the agreed upon austerity program would be held to approve or reject it which, at the time, came as a shock to both Sarkozy and Merkel.  That idea was shot down very quickly and publicly leading to the instant collapse of the Greek government.  Now, we are back to the same position, except Germany can hardly object to elections as opposed to an unscheduled referendum.

The austerity plans so far have resulted in extraordinary economic suffering for people who had little to do with the banking crises but who now are expected to pay for it.  The no-growth austerity policy is virtually impossible to implement and if a policy remains that unachievable (and it was from day one) then it is just a Panglossian academic exercise that is better suited for someone’s doctorate thesis rather than the real world.  So, as in war and sports – everyone has a plan until they’ve been hit. The Eurozone has been hit. The getting-up is up to them. 

Shifting Sands for the Kurds

Flag of Kurdistan (Photo credit: Wikipedia)

Once upon a time the Kurds were frequently shown a red-line by Turkey that they could never cross – independence. Even as late as 2010, the warning was in effect.  To fight the PKK, the Turkish army covers Kurdish regions in the east of Turkey and has intermittently thought nothing of crossing into Iraq, in force, to attack PKK home bases.  But the Kurdish government in Erbil is different. It is rich, peaceful and it is engaged in a cold-war with Baghdad. 

Kurdish Iraq has been part of the country in name only for at least a decade.  Having first been protected by the no-fly zone in effect against Saddam Hussein, it became de-facto independent after his army was pulverized in the first Iraq war and then systematically dismantled by the invasion in 2003.  Both wars were beneficial for the Kurds. (Please note – I am not defending the illegal, ill-conceived 2003 invasion and its badly handled aftermath). Erbil is now probably the richest city in Iraq as a result of oil, maintains a decent military, enjoys relative peace and can thumb its nose at the government in Baghdad.   It is also stable – something Ankara appreciates on its borders.

The former peace-in-the-neighborhood policy is changing to stark realism as Ankara understands that as a major regional power – perhaps the regional power – choices need to be made. Gradually, Kurds in Turkey are gaining their civil rights – a long road lies ahead in that respect – but Turkey knows that being friends with every neighbor is not a policy choice.  As a result, given the tension that exists between Shia controlled Iraq and Sunni Turkey, the Kurds may find that a deal with Ankara and future independence is not just a dream.

Iraq, Syria and Iran are upset with Turkey and Turkey has severed relations with the Assad regime while offering aid to Syrian refugees and has issued blunt warnings of military action to Damascus – not something Iran appreciates or wants to see.  The Kurds, however, have been welcomed. Not so long ago Masoud Barzani, the Kurdish Regional Government PM, paid a visit to Ankara where he was treated as a head-of-state.  Barzani’s government is increasingly tied to Turkey by both trade and the need for security against what the Kurds believe is a hostile government in Baghdad and a not so friendly Iran. This has resulted into a Kurdish policy of not irritating Ankara by showing any sort of support for the outlawed PKK.

In the past few days, the al-Maliki government in Baghdad has even more reason to be annoyed with Turkey. Ankara has said that the fugitive Vice President of Iraq, Tariq al-Hashemi (a Sunni) wanted for allegedly orchestrating death squads and attacking Shiites, is their guest and that the recently issued “red notice” by Interpol is not an arrest warrant and can be safely (if embarrassingly) ignored.  They are not going to do anything except treat him as a guest.  All these past and current events present the Kurds in Erbil with an opportunity for further de-facto independence, if not de-jure.

Some years ago, the suggestion was floated that Iraq should simply be divided in three, Shia south, Sunni west and Kurdish north.  The idea was derided as dangerous.  But it is playing out. If Erbil and Ankara reach a degree a comfort with each other, it would be beneficial to both. 

Austerity and Germany Lose

The big loser on the week ending Sunday?  Germany.  They lost The Netherlands on the same day as the first round of voting in France was underway as its government vaporized because of austerity.  They lost Greece when the ruling coalition lost the elections Sunday.  They lost France – the big one – when Merkozy was fired.  And all because Herr Wolfgang Schauble, the German Finance Minister and Merkel believed in Hooverism for everyone else, except Germany.  Guess what?  German economic theory that put austerity at the top of the list of actions that needed to be taken, followed closely by….austerity in number two position closely followed by – wait for it – more austerity, has resulted in the implosion of the Dutch government, amazing suffering of ordinary Greeks resulting in social upheaval and  the rise of a true Nazi party (ok, named after a fantasy role playing game, but nevertheless…) and defeat for the parties that agreed to the German prattle and yesterday  the dumping of their partner in crime, Sarkozy.  And guess what guys, Spain is next.

Now – suddenly – as if struck by lightning, the Germans are talking about growth policy.  Get this: Foreign Minister Guido Westerwelle said that France and Germany should "quickly get to work on adding a growth pact to the fiscal treaty to promote competitiveness". Then, the architect of the current mess, Wolfgang Schauble says that wages in Germany should rise, so increasing the demand for exports from the rest of the eurozone and raising economic growth. "By raising pay, Germany would help reduce economic imbalances in Europe", Mr Schauble said. It doesn’t get better than this. Now the Germans are warning Greece and everyone else that there will be no change to the fiscal stability pact.  Yes, that’s the position for Germany to take.  Very, very clever those threats.

Oh – and a word to Republican idiots in the US.  Hooverian austerity doesn’t work. Period.

Iran loses Turkey - and everything else

Recep Tayyip Erdoğan, Prime Minister of Turkey at Çanakkale Türkçe: Recep Tayyip Erdoğan, Türkiye Cumhuriyeti Başbakanı (Photo credit: Wikipedia)

After a prolonged absence from posting, I'm back.  I have frankly been immersed in legislative initiatives in Tajikistan and meetings in Kyiv and Istanbul for a major program in the Black Sea basin. 

Nevertheless, the dry spell should be over for the time being. 

The first item on the agenda is a quick post on the fluid dynamics in the Middle East brought on by the Syrian civil war and attrocities which have been committed by the al Assad regime.

The systematic murder of women, children and other civilians in order to crush the revolt represented largely by the Free Syrian Army, has been unresolved.  Kofi Annan says he is shocked by the massive bloodshed committed by Syrian regular army forces in the period leading up to the agreed upon cease fire and withdrawal of army units from cities and towns in Syria.  Why he is shocked is beyond comprehension.  There is nothing in the Baath regime's history that would have indicated other than brutal repression when their control was threatened.  Russia  claims to support the Annan mission - except that it is deliberately facilitating the murders as is China.

Now, the situation is changing because the civil war has become decidedly a geopolitical struggle between Iran and its not-so-friendly neighbors and the West.  The casualties are the civilians.  Nevertheless, Iran seems to have overplayed its hand and is now openly in a war of words with the Gulf States and Saudi Arabia extending to threats of punishment.  They have also slapped away the strongest power in the region, Turkey, by first calling Turkey and enemy of the Syrian people for hosting the Friends of Syria conference on April 1 and then questioning the location of new nuclear talks, advocating a change of venue from Istanbul to Damascus or Baghdad. 

The optics of a successful rising Iran have now changed. Ankara bent over backwards to mediate on the nuclear issue and a week ago Prime Minister Recep Tayyip Erdoğan met with Ayatollah Khamanei to promote negations and avoid a military strike (however unlikely).  The meeting ended with a statement when Ayatollah Khameni said that  “building weapons of mass destruction amounts to a sin in our religion.”  Case closed. Erdoğan and Foreign Minister Davutoğlu went home.

Then Iran rejected Istanbul as venue and the situation began to unravel alarmingly. Clearly, Iran has learned nothing from following the personality of Erdoğan.  He has a tendency to take things personally. Very personally and very publicly.  Beware an Erdoğan scorned.  Now he accused Iran of evasion and self-isolation. Then he turned to the Syria problem and Iran's ally.

Iran has managed to piss-off the most powerful, and formerly neutral country in the Middle East. It has crossed the line and lost Turkey (an overwhelmingly Sunni nation with elections approaching). Tehran’s mendacity is evident not only its anti-Turkish ranting on Syria, where it itself is assisting in the slaughter, but also its astonishing disrespect to Turkey's efforts to find a diplomatic solution to the nuclear crisis.

Now, Erdoğan  says the country will wait "patiently" to see if Syria abides by a cease-fire deadline on Tuesday, but may take certain "steps" if the violence does not stop after that. Nearly 700 Syrian escaped to Turkey last Friday.  During a 36 hour period last eek about 2,800 crossed the to escape a helicopter-backed assault by Syrian troops.  No one can expect Turkey to continue to accept more refugees.  It already host 24,000.

What "certain steps" means is unknown - but the Turkish army can control the border from the Syrian side without too much worry about Syrian army units. Assad is on his way out.  Iran is going to lose this gambit and at the same time has lost the help of important players in the region, furthering its isolation.  Rarely has any country misplayed its hand in such a way.