Tag Archives: european crisis

There’s More To It

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…than this, or so it seems.

A wave of cash is leaving the eurozone, where returns on safe assets are infinitesimal, if they are positive at all, and headed to the US and other refuges such as Denmark and Switzerland.

Europe’s common currency has fallen 22% against the dollar in less than a year, from $1.39 to $1.08. The euro touched a 12-year low of less than $1.05 this month.

Returns on safe assets are infinitesimal in the US, too, with the Fed still actively suppressing interest rates (to the detriment of those Americans dependent on fixed income assets, but that’s another story). Why, then, would money come to the US at the expense of the eurozone—at the expense of the EU?

For one thing, we’re absolutely politically stable, our problems with the present administration (and the Left’s with the previous one) notwithstanding. So, in fact, are the EU and the eurozone subset of it. Here, though, there’s a growing possibility of Greece leaving, and fear that that will spark a cascade; there’s no possibility of, say, Texas leaving the US.

For another, the currency flow tends to become a self-fulfilling prophecy. As money leaves the euro for the dollar, demand for euros falls and for dollars rises, causing the price for euros to drop and for dollars to rise. The increasing disparity in value spurs more movement from the falling value asset to the rising value asset.

The stronger reason comes from where the money is going when it arrives in the US (or Denmark—an EU member, but not part of the eurozone—or Switzerland). Tommy Stubbington, in his Wall Street Journal article at the link noted that much of the flow into the US is going to US Treasury debt instruments: the constituent nations of the eurozone aren’t issuing government bonds at any sort of rate, so their price is relatively high, with those infinitesimal yields. The central banks of euro recipient nations like Denmark, too, are busily lowering national interest rates in an attempt to discourage everyone else from “piling into the krone.”

But the money also is going into equities. The US stock market is the largest, most active in the world, and it’s the least regulated, especially compared with the EU. Given a desire to leave the euro, there’s just no place for the money value to go besides our stock market (another reason for the market’s ongoing rise despite our underlying economy’s ongoing doldrums) and our treasuries. The latter which also helps the Fed get away with suppressing interest rates.

So why Denmark and Switzerland at all? They’re safe places for Europeans to keep their money nearby.

More Competition Stifling

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New tax transparency requirements between multinational corporations and European governments may be broadened further this year to encompass public disclosure of the companies’ tax arrangements in Europe.

… The bill, if approved by European governments, would oblige national tax authorities to inform each other and the commission about tax deals they agree with multinational corporations.

… Under the draft bill, which must be approved the 28 European Union governments, the disclosure of so-called tax rulings would happen every three months and would include deals going back 10 years.

Because governments lowering their tax rates—whether as competition between nations for business investments or just because it’s good for the citizens they serve—is anathema to social democrats. That would be too business friendly. Never mind that being business friendly (which cronyism most assuredly is not) is being jobs- and employment friendly, and so it’s being consumer- and citizen friendly. Social democrats just can’t read past that business friendly part.

A Greek Exit

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In a piece in Wednesday’s Wall Street Journal, about Greece’s economic status and its relations with the rest of the eurozone, Matthew Karnitschnig had this remark

[A] Greek exit would prove that the eurozone isn’t inviolable and trigger speculation over the future of other weak links, such as Portugal, Ireland and even Spain, in the currency bloc. The euro crisis could return in full force.

Perhaps the crisis could return. But only briefly, and only if misunderstood by the leaders of the eurozone. After all, what’s the long term (or even the medium term) downside of losing “other weak links” in the eurozone? What would be left would be, by definition, stronger.

An Implication of the Greek Elections

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Greece is nearly bankrupt, it has defaulted on one round of national debt since the global Panic of 2008, it has received two bailouts from the rest of the European Union and from the IMF in partnership with various EU institutions (one of which included that default), and it’s demanding another round of…debt relief…against which the current troika of the IMF, the European Central Bank, and the European Commission are refusing to certify that Greece is ready and able to handle another loan. This current crisis reached its fullness last fall, and the then Greek government collapsed, necessitating Sunday’s snap elections.

Against that backdrop, the Syriza party won those snap elections resoundingly, coming from being a back bench party of growing influence to winning 149 seats in the 300 seat Greek Parliament—two short of an outright majority and the ability to govern alone. Syriza has been, throughout the post-Panic crisis, very much opposed to any sort of bailout other than outright debt forgiveness (the polite word for default), while the EU has been just as opposed to any alteration of the terms beyond stretching out payments in return for the Greeks submitting to ever higher taxes and ever reduced government spending. The result of acquiescence to the prior rounds of raising taxes and cutting spending has been an economy that’s varied between stagnation and collapse—driven especially by the combination of cutting spending (which, alone, would have been beneficial) and raising taxes. Hence the appeal of Syriza.

Lacking two seats, though, the party had to form a coalition government; if no one would join, the government would collapse again, and new elections would be necessary. The party thought most likely to join was To Potami with its 16 seats, a generally centrist party, but one also generally opposed to yet more taxing and cutting. Instead, Syriza formed the needed coalition with the Independent Greeks Party, which won 13 seats Sunday.

Either coalition party would have given Syriza sufficient cushion over the 151 seats needed to govern, so why the Independent Greeks? Syriza is a far-left party of Marxists, and the Independent Greeks are far-right party formed two years ago explicitly to oppose the EU’s austerity impositions on Greece. They’re also opposed to immigration and…multiculturism…and they want Greece out of the EU altogether. To Potami, not so much on any of those accounts, and although they oppose further “austerity,” they’re not hard over on it; they’re more malleable.

Now, what happens next? The new Greek Prime Minister, who should be Syriza’s Alexis Tsipras, has said he will force renegotiation of Greece’s existing “bailouts,” worth €240 billion ($268 billion), “or else.”

The EU is just as adamant about not renegotiating. German Chancellor Angela Merkel:

We believe Greece has accepted terms that are not off the table after the election day[.]

President of the Eurogroup [of eurozone finance ministers] of the Board of Governors of the European Stability Mechanism [of financial assistance programs for eurozone members in “financial difficulty”] Jeroen Dijsselbloem on the prospect for “leniency” for Greece regarding its debt:

I don’t think there is a lot of support for that in the eurozone[.]

The most likely (the plurality of a plethora of options) “or else” from this potential impasse would be Greece’s departure from the eurozone—to use its own currency—and possibly from the EU altogether. With the Independent Greeks joining Tsipiras’ coalition, he got the political backbone to hold out for exactly that as the only alternative to debt forgiveness.

A Greek departure has been projected to be a disaster for the eurozone, the euro, and the EU. It certainly would shake them, but even in the extremity of those three falling apart, it would hardly be a disaster. And it would be, in the longer run, good for Greece, too.

Another Response to a Desire for Freedom

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[Spain] Attorney General Eduardo Torres-Dulce charged Artur Mas and two other local officials with four crimes each, including contempt of court and misappropriation of funds, saying they had defied a court order by allowing the Nov 9 vote, in which 2.3 million people participated and more than 80% favored independence.

The Region in question, of which Mas is President and the “other officials” are his Vice President and Education Minister, is Catalonia, an erstwhile prosperous Autonomous Community of Spain, a nationality—so designated by the Spanish Statute of Autonomy. Catalonia consists of the four provinces Barcelona, Girona, Lleida, and Tarragona, and it sits in the northeast of Spain, hard against the Pyrenees and the Med.

The reason its prosperity is erstwhile is because it’s been bankrolling the rest of Spain’s regions and provinces as the latter deal with the Panic of 2008 and the six years of aftermath by spending profligately in the finest European (and becoming American) tradition. It’s Catalan-earned money that’s being used, little of it is coming back to the Catalans, and they’re tired of it.

Eighty per cent tired.

But wanting independence, rather than mere autonomy, wanting to be out from under Madrid’s thumb now is a crime. According to Madrid.