THE POLITICAL PAGE
May / June 2010
Euro-Storm in May
Jean-Claude Trichet, Head of the European Centralbank (EZB) in Frankfurt judged the earnestness of the situation with the words: "This is the most difficult situation since World War II, maybe even since the First World War."
At first, the main focus was on saving Greece from national insolvency. Until years end, Greece had filed for 45 billion Euros, 8.4 billion of which Germany was expected to carry. In an urgent decision on Friday, May 7, 2010 this guaranteed aid was resolved so that the Chancellor was able to present the agreement at the Summit in Brussels that evening.
However, while the German Parliament was concluding the aid program to Greece on Friday morning, it was discovered at the Centralbank in Frankfurt and the Commission in Brussels that the finance markets were changing from hour to hour like a mounting storm: the bet was not only going concerning the downfall of Greece, meaning that no one was longer willing to lend Athens money, not even at an interest rate of 11% , but nearly all the countries in the Euro-Zone suddenly were not receiving money from the finance markets. No one even wanted to buy bonds from France. Due to the uncertainness of the reimbursement for bond issues from Portugal, Spain and Greece the interest rates shot up to nearly 38%!
Due to this situation, the banks also were not giving out money and hoarded it, similar to the finance crisis a year and a half ago. The money market in Euro-land dried up. It became clear: now it does not only concern saving Greece, but in saving a number of countries, it concerns the Euro in general, as a collective currency.
The meeting of country and government heads on the evening of May 7th, which was, in any case, already agreed upon to wave-through the aid for Greece, suddenly became, within hours, a historical emergency session to save the Euro.
And, naturally, behind this awareness, was the question: if it is not possible to show the speculators, who are betting on the breakup of the Euro, in unity and with a collective concept, that they will never reach this goal when this does not succeed and the association of European countries are not able to help themselves, what value then does the European Union (EU) have? In addition to the defense of the Euro, the survival of the EU also is at stake.
The French president, Sarkozy, speaks of a necessary "general mobilization" in the fight for the Euro against the speculators. He brings it to the point when he says,"The Euro is the Union and the Union is Peace." And the President of the Commission, José Barroso, adamantly declared: "We will defend the Euro, regardless of the cost." As well, Angela Merkel: "If the Euro collapses then not only the money but Europa will collapse."
It is agreed that, by all means, a protective shield will be erected around the Euro. It is left open how much this is allowed to cost and how it is to be constructed. The Finance Ministers, in close contact with their government heads, will decide this 2 days later, on Sunday, May 9th.
The Conclusion: the Emergency Parachute
On this Sunday, Angela Merkel had much to bear: that morning she stood on the grandstand between Putin and Hu Jintao at Red Square in Moscow to honor the military parade celebrating the 65th anniversary of the victory over Hitler-Germany. Afterwards she hurried back to Berlin, where the news reached her that Wolfgang Schäuble was admitted to the hospital in Brussels and would not be able to take part in the historical meeting of the Finance Ministers. Immediately she called Thomas de Maizière in Dresden and asked him to fly directly to Brussels to fill in for Wolfgang Schäuble. The meeting began at 6:15 p.m. and he arrived in the conference room shortly past 8:00 p.m. In the meantime, Angela Merkel has to cope with the defeat of her Party in NRW (Nordrhein Westpfahlen), however the attention was on the happenings in Brussels.
Then Obama called. The USA is worried about the slow decision-making processes in Europe, due to the fact that things happen in the Markets in a matter of hours and often only in minutes. And also, Obama is concerned about the extent of the emergency parachute. Therefore, Obama calls Angela Merkel again, personally, since she always votes for the small and manageable solution. Obama encourages her personally and says: "Act boldly, Angela!"
Afterwards, Obama calls Nicholas Sarkozy. During this discussion the sum of 500 billion Euro is mention for the first time. For a long time Angela Merkel goes against the proposal in order to gather as much concessions for her concept as possible. Finally, at 2:00 a.m. in the morning, as the stock exchange in Japan opens, she agrees to the astonomical sum, under the condition that
Shortly before 3:00 a.m. the Chancellor went home. A historical day! On the other hand, she knows what this decision means for Germany.
Summarized, this conclusion means:
In this way, the opened emergency parachute is a potential guarantee from the richer countries for the endangered, hoping that they will never have to draw upon the prospective guarantees, but rather out of their own strength, over the years to come, through saving and economic growth, will be able to pay interest and amortization.
Naturally, the risks are:
Solidarity and Solidity
Solidarity and solidity are two principles which cause tension between themselves but both are necessary for the Euro to survive, and in a further sense, are necessary for the EU. In the EU they are personified in the person of Nicholas Sarkozy and Angela Merkel. In addition to both of these persons is the national heritage of the French and the German. That Merkel acts as a woman, of her kind, and Sarkozy, as a man, in his nature gives the matter an additional but beneficial turn. Since Germany and France are the largest countries and economies in Europe, it is important to have good harmony between these persons in top-level functions. Giscard d'Estaing and Helmut Schmidt were friends, Francois Mitterand and Helmut Kohl also, Jacque Chirac and Gerhard Schröder were linked together more by anti-Americanism and Nicholas Sarkozy and Angela Merkel are joined throughout the years rather out of respect than with a great affection for one another.
In the current problem of saving Greece and the development of the Euro-parachute, it was of strong interest to Sarkozy to stage himself as Europe's rescuer, which, at the end of a long conference-night, he well accomplished, perfectly prepared by his delegation. While Angela Merkel spoke 3 meager sentences into the microphones on her way home, that the "Euro-group" would give a clear signal to those who want to speculate against the Euro, spoke Sarkozy from the impressive backdrop of the flags of the 16 Euro-countries, which was erected by his collaborators. He sees himself as the man who saved the Euro. The catchwords "General mobilization" and "The Euro is the Union and the Union is peace" were dropped here. And without this being agreed upon or even decided upon, he said: "We have decided to install a veritable economic government for the Euro-zone." The big gesture is always important for Sarkozy. But he really did bring the necessary dynamic into this situation. Angela Merkel's careful touching was not enough; some even say that it damaged and discouraged the speculators. Sarkozy wanted solidarity, he wanted to assist quickly and immediately, regardless of the cost, new debt regardless how high. In the end, with a gigantic sum of 500 billion Euros, he was successful.
Angela Merkel wanted solidarity. She already linked the assistance for Greece together with a savings budget for Athens, which had been amended twice and she also was adamant about the connection between the payment of assistance only to countries with the proof of substantial reduction of costs. In this she was successful. She also was successful in pulling the IMF into the boot.
Naturally, at first, this seemed like a lack of solidarity, but it wasn't; rather it was the recognition of where the root of evil was to be found.
The Root of Evil
Surely, up front, speculators were the cause of the crisis. Like with nature, parasites only ever have a chance when the infested organism is weak and sickly. Likewise, in this case, the first question is not to fight against the parasites, but rather to strengthen the European community. Of course, one must think about finding the best way to keep the parasites away, meaning how one can best put a stop to the speculators and set up rules for the financial markets. But the real problem is how do we keep the national economy healthy? The EU defined "healthy" as: when the new debt of a country does not exceed 3% of its yearly economic performance (GDP). By the way, currently, due to last year's finance crisis, no country fulfills this standard. Angela Merkel wants to make a mark. In order to regain leadership on public opinion in Europe by being an example, the Chancellor pushed the approval for the mega-amount of 123 (max. 148) billion Euros for the Euro-emergency parachute through parliament. Besides this, she is in the process of submitting a savings budget for 2011, which after next year should make it possible to save an additional 10 billion each year."The same thing we expect of the Greeks we should expect of ourselves as well."
In Germany in 2008 a "debt-limit" for government deficit was defined in the constitution, which will become valid for the Federation as of 2016. Germany wants to demonstrate to other countries that this is wise and will help the country to save. What help is the most gleaming example when others do not follow and even laugh at you as being the "model student"? In all of the PIISG-countries in southern Europe, except Ireland, there exists a different view towards saving, honesty and transparency, especially in view of corruption, than in Germany and in the other countries of middle and northern Europe. It truly makes no sense if the EU would become a permanent transfer-alliance of northern countries for the southern counries.
Hence, a surveillance over budegt discipline in some form is needed. Thereby, the fundamental rights of a national parliament, to advise on the budget of the country, should not be affected. This applies especially to Germany, where in 2009 the Federal Constitutional Court, in its decision on the Lisbon-agreement, emphatically pointed out the rights of national parliaments. However, in the future, there must be some sort of surveillance in the Euro-zone. On this point the German and the French governments agree; likewise, towards an intensification of the stability-pact.
In 2002 the Euro was implemented as the collective currency without simultaneously setting up a central office with the assignment to register the various developments within the countries and, where necessary, to correct them effectively. Instead, the Maastricht-agreement was developed, which prescribed a binding stability-pact for all Euro-countries.
This stability-pact intends, among others,
One of the first to break the stability-pact was Germany. Through many discussions with colleagues the Finance Minister at the time, Eichel, 2003 and 2004, was able to prevent having sanctions from the Commission imposed on Germany. Due to this, of course, others claimed the right to do the same, like the model student. In the 90's, under Finance Minister, Weigel, it was Germany who insisted on committing to these stability criterion. In spite of all the resentment, today the Germans cannot point self-opionionatedly towards others. Germany can only be insistent on returning to the pact and, out of the experiences made, to install better controll mechanisms.
Most of them have often lived above their means (=their income) and have submitted debt-budgets, which were often "sugar-coated" and with this, have put burdens on the coming generations. The stability pact has been broken approximately 43 times in the years since the Euro has been implemented.
The No-bail-out-rule of the Maastricht-agreement also has been overriden, even when direct-aid was avoided and a special purpose vehicle was used. But in view of the new situation, a new stability-pact is necessary. "Until Sunday it was forbidden to help other countries in the Euro-Zone. One said: Your debt is your problem. Since Sunday it was said by a voice from Paris: "Your debt is our debt."
It is not otherwise imaginable except that this new step towards structural solidarity find expression in further levels of mutuality. It won't work in any other way. Those who want a common currency must also say "yes" to a common monetary policy.
How the gamblers work?
How can one come to money quickly.
a.) One borrows a bond worth 100 Euros for 4 weeks at the price of 2 Euros and then sells it for 100 Euros. Then bad rumors are spread about this company. Result: Their bonds loose 20% of its value. Now the paper is re-bought for 80 Euros, the lending-fee of 2 Euros is paid, then it is given back and the remaining 18 Euros is "earned" without having to lift a finger. If seven zeros are added to this sum, then at one go 180 Mio. Euros was gained.
b.) Because Josef Ackermann doubted on teleision that Greece could pay back their debt, he expected that Greece - even if it would receive money from somewhere – automatically would have to pay him a high interest rate, if he would give the country money. One percent of billions already is "umpteen" millions.
c.) Betting is a complex business of its own. When someone bets at high stakes that Greece will go bankrupt, what would he do? By scattering bad rumors and campaigns he would do everything to make certain that no one would give Greece more money, except for the high-interest cutthroats, through whom his goal is reached.
d.) If the speculators who loose the bet (or other risky businesses like derivatives) come from a major bank, so that they themselves could go bankrupt, they will be saved by State tax money, if they are seem as "relevant to the system", so that in the end, the small savers are not the loosers.
Since the big finance crisis in 2008 many proposals have been made as to how the speculations, how the entire finance world, should receive rules because, up until then, absolute freedom had reigned in this sector. For example, it was discussed putingt a tax on transactions (trading) with bonds, from an overall bank levy, from a general separation of savings assests and money with which a bank can speculate but where the risks must be carried by themselves even up to the point of bankrupcy, thereby without the assests of the small savers being lost etc. Naturally, these rules must be enforced worldwide, since the players could withdraw to uncontrolled financial centers. However, since nothing can be implemented internationally, not much has been accomplished.
The good thing about the current crisis is that new efforts are being made. For example, even the federal govenment is pressing ahead with a ban on "bear raiding" (empty sales) (case A) in order to finally bring movement into the regulation of the finance markets. Surely, every solo attempt in a union is problematic, however, in this case, this step is certainly justified and, hopefully, will soon be adopted by the other Eurozone governments.
Germany – the paymaster
Germany, in the heart of Europe, with its 82 million inhabitants, is the most populated country in Europe. But not only that, it also has the strongest economy and, until 2008, it was the world-export-champion. Applicable in 2008 was:
that 63.3% of our trade was carried out within the framework of the EU with 176.3 billion surplus. In comparison: trade with the USA made up 6.7% of the German foreign trade. From 1995 until 2008 export rose more than 7% per year. Essentially, Germany can thank the Euro for this. Everyone who is somewhat familiar with economics must say that Germany is the greatest winner through the Euro. The monetary prosperity of this country is due mainly to the Euro.
The return to the Deutsch Mark, including all of the other countries to their national currencies, would be a major set-back for the German economy, because, as in the past, it would have to react to the continual devaluation of the exchange rates of those other countries. With every devaluation, i.e., the Lira in Italy, German products in the showcase would become more expensive. Everyone who has travelled as a tourist in Euroland was happy about the common currency and about the comparability of prices.
The situation in Greece today (that it is to be driven into bankrupcy by "wolves" through speculators and through Hedgefonds) was at that time more likely to have happened to them and to all of the other weak economies than it would now, if they stood alone. The strength of Germany is known throughout Europe and the world. Insofar, Germany cannot hide itself when it comes to questions of financial politics. According to the opinion of the President of the European Central Bank, Trichet, Germany should take over a stronger roll in the debt crisis. He said: "Germany is the largest economy in the Euro-region and a country with healthy national finances." Correct! However, we cannot shoulder everything, so from time to time, it is eventually very useful for Germany to go solo or to refuse, which could lead to international irritation.
- F.A.Z. 7.5./15.5./25.5./28.5.
- F.A.S. 9.5.
- DIE ZEIT 27.5.
- DER SPIEGEL 20.5.
- Stern 6.5./20.5.