The Curse Of The “Irreversible” Euro

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Young educated Greeks are facing an insurmountable wall of unemployment. With little chance of finding a job in their field, they’re competing for any kind of job. Wages have plummeted. Benefits have disappeared. The economy has shriveled by 19.4% from the third quarter of 2007. Promises that education would open doors to a better future have evaporated.

Yet, Parliament passed another austerity plan that the Troika, the bailout gang from the EU, the ECB, and the IMF, is now loudly praising. It includes a provision to cut public sector employees by 80,000 over the next few years, starting with 2,000 employees this year. And it has to please the Germans who will foot a big chunk of the bill.

In the spirit of helping Greece improve the productivity of its public service, Hans-Joachim Fuchtel, German Deputy Labor Minister and special envoy to Greece, shared some Teutonic thoughts. “Studies have shown that 1000 workers in Germany perform the same amount of work as 3,000 workers in Greece,” he explained. “The partner countries that finance this Greek practice want to hear answers on how the efficiency of public sector workers in Greece can be raised.”

That was on Wednesday. Municipal workers were already furious; apparently, local authorities had been asked to come up with a list of redundant positions to be axed. On Thursday, they were ready for Fuchtel.

A German delegation that included him was supposed to arrive for a propitious conference of German and Greek mayors in Thessaloniki. Starting early morning, protesters gathered by the entrance of the conference center. As they waited for Fuchtel, they shouted, “Throw the Nazis out,” or more generically, “Capitalists should pay for the crisis.” They held up mock grave stones. “Fight to the end” was written on some banners.

But Fuchtel wasn’t born yesterday. He entered through a side entrance. So when Wolfgang Hoelscher-Obermaier, the German Consul in Thessaloniki, showed up at the conference center, all heck broke lose. Perhaps on the basis that all Germans looked alike, the protesters pushed and shoved him, ripped off his glasses, and threw cups of coffee and bottles of water on him. He was able to escape to the inside under police escort—shook-up, coffee-stained, and bedraggled but otherwise uninjured.

So the conference commenced. Outside, anger boiled over. Protesters pried open some shutters, stormed the conference center, and tried to force their way into the conference hall where the meeting was taking place, though they were stopped by riot police.

Inside the conference hall, the atmosphere was warm and friendly, once again pointing at the undercurrent of all “bailouts” anywhere: the people on the street suffer the consequence of decisions made in cushy conference rooms by privileged participants who take care of their own and tighten the belts of other people.

Yet Germany has become a Promised Land for young Greeks. Net migration to Germany (those moving in, minus those moving out) during the first half of 2012 jumped 35% over last year. Particularly strong were the movements from the southern austerity belt where the vision of a future has become a mirage: 53% more Portuguese, 53% more Spaniards, and 78% more Greeks moved to Germany.

Before the euro debt crisis, there was little tension between Germany and Greece. The gravy train of cheap euro debt dramatically elevated the Greek standard of living. But the money is now gone, some of it in offshore bank accounts. Germany, at the time “the sick man of Europe,” restructured. Real wages sank, benefits and pensions were cut, housing stagnated. In 2005, fed-up Germans kicked out Chancellor Gerhard Schröder, the architect of these reforms.

But with the debt crisis came the absurdities. Now a bunch of empowered Germans march around Greece, telling Greeks how to run their country down to the last municipal detail. And the Greek government is demanding hundreds of billions of euros from taxpayers in Germany (and elsewhere). Instead of being able to spend it on its citizenry, the government has to send most of it back to the ECB and the national central banks that had bought its old debt from the banks to bail them out.

This is playing out across the Eurozone. In their effort to keep the Eurozone intact, politicians, elected or not, are beginning to sacrifice the fabric of the European Union, the colorful family of 27 nations that used to wage war on each other. The euro is creating artificial problems between peoples. And by being “irreversible,” as ECB President Mario Draghi had said, it has become a curse—and a religious dictum that must not be questioned regardless of how much havoc it may ultimately wreak.

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  4 comments for “The Curse Of The “Irreversible” Euro

  1. Wolf Richter
    November 16, 2012 at 3:38 pm

    Rik – Agree totally that management and structural problems make the system dysfunctional.

    Your point that the southern states should not have been included alludes to another and I think more damaging issue: disparate countries with different needs and different monetary cultures and vastly different economies are locked into the same currency. Some of these countries now have to go through sudden internal devaluations, which are very painful – but rather than blaming their politicians (and themselves) for it, they get to blame other countries, such as Germany. And that whole theater has now become absurd and threatens the larger harmony between nations.

    The solution should be "default and devalue." Bondholders need to pay the price for their reckless lending (investing in bonds of highly indebted countries without demanding a huge risk premium). But that's hard to do in the euro system.

  2. mijj
    November 17, 2012 at 10:54 am

    The Euro, as irreversible as the Berlin Wall.

  3. Rik
    November 18, 2012 at 6:50 am

    What I miss in the present 'Greek' discussion is the following.
    Imho Merkel looks to have made a huge strategic mistake. Basically by thinking the IMF would move whatever happens (and solves her problems).

    Assuming IMF will stay with 120% and 2020. Not a 100% certainty. But as soon as the issue got so much in the open as now, they can hardly make another move anymore. There might be a tiny move possible but that is it. The IMF has to think of its own credibility and its relation with other shareholders and can not dump its own rules to avoid Germany having to dump theirs.
    Assuming as well that non-3.0 measures wont be sufficient to plug the hole, you simply need a new package (including haircuts and). This is a near certainty. The IMF will be the judge, there is probably the little room for the IMF btw, but it is most likley marginal.
    They need a haircut or something similar.
    Assuming the ECB doesnot move, which looks clearly the biggest if.

    This means that Greece simply requires a haircut (OSI). With the loans mainly running directly from donorcountries to Greece this will mean a haircut as well on those loans.

    At present Germany has seen less than 1 Bn of official government expenditure on this a Greek OSI will increase that amount substantially.

    PROBLEMS: a combination that an OSI runs over the budget and likely requires cuts on other things not only a problem in Germany btw. Combined with the fact that:
    a haircut means in Germany the debtor is bust which means subsequently that no new loans can be provided to them (money transferred to them). And this is budget law (a formal law), which would require a complete change thereof (which takes at best months if politically already possible).

    Will be great to see what comes out. But strictly going by the rules will make approving an OSI a very timeconsuming issue at best (as the budget law has to be changed). Nowhere fast enough to pay out the next term in time.
    Merkel is pretty poor on legal issues in this crisis. And there is heavy opposition to it all, so I would expect there would be enough people that would start a case in Germany (like with the Constitutional issues) if she moves anyway.
    Probably they will try to plug the whole in the usual dodgy way, but that won't be easy. Or limit the amount of the 3.0 as much as humanly possible (read acceptable to the IMF) but that will just move the issue one term (3 months plus the following theater forward (and creates problems before next elections are there).

    By waiting for the Trika report it looks like she has substantially limited her room to do things, may be even so far that Greece cannoit be saved in time.

  4. Cynic
    November 20, 2012 at 9:00 pm

    Greeks have been Gästarbeiten for a long time. When I was in Greece in 1984 I used German as a lingua franca to get round because so many had been working in Germany.

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