Wolf Richter www.testosteronepit.com
"The case of Greece is hopeless," Otmar Issing said today during an interview. He should know. He was a member of the Executive Board of the Bundesbank and of the Governing Council of the ECB. Another substantive voice in an increasingly loud chorus.
But it’s legally impossible to kick Greece out of the Eurozone. So he suggested a procedure: Tell the country that it has to implement reforms as a condition for financial help. When implementation is lacking, the basis for financial help disappears, and “you have to end it,” he said. “Then it's up to the Greeks to think about what they want to do."
That has been happening all along. The bailout troika (EU, ECB, and IMF) has offered money in exchange for a broad range of tough reforms. At first, it was easy for Greece to agree to reforms in return for bailout billions, but adequate implementation turned out to be impossible. Demonstrations, strikes, and riots, an unwilling bureaucracy, a political power struggle, morose economic conditions—all have seen to it that the unpopular German dictate, as it’s called, would fail.
“Greece must implement the agreed measures and reforms,” German Finance Minister Wolfgang Schäuble told reporters in Brussels. “And of course, all Greek parties must agree to the measures."
Another set of German must’s that Greece won’t be able to fulfill. By design. It gives German and Greek politicians an out—no one wants to be tagged with having made the first historic step in breaking up the Eurozone.
So, they’re going through a drawn-out step-by-step procedure of demands for reforms, promises, failed implementations, rebukes, withheld bailout transfers that then might still be made, and so on. The idea is to keep markets from panicking, give governments time to prepare for the inevitable, and render politicians blameless for Greece’s exit from the monetary union.
Return to Otmar Issing. "A monetary union without political union is absurd,” he said. “The keyword today is fiscal union. But a fiscal union cannot function without a political union. Yet decisions in that direction have to be democratically legitimate ... and that takes time. Those that defend the concept of a fiscal union know that."
So, Chancellor Angela Merkel, Schäuble, and the hordes of proponents of a fiscal union know that it cannot function without a political union—and yet they keep paying lip service to it. Beneath the surface, are they loosening the ties of the monetary union? Because the price of saving the impossible is just too high? It seems. And word is getting out.
“The fact that we profit massively from the euro doesn’t mean we have to accept every political horse-trade to save it,” said the president of Germany's Association of Exporters. For how the German industrial elite opened up about exiting the Eurozone, read.... ‘The Old Europe’ Is ‘Not An Option For Germany.’
In Greece, the economic tailspin continues. Squeezed from all sides, and faced with oil prices that have nearly doubled in 2011, Greeks have been heading into public woods to chop down trees; they need logs for their fireplaces to make it through the winter. Authorities filed 1,500 criminal complaints in 2011, twice as many as in the prior year.
But not everything is doom and gloom in Greece. Tourism set a record in 2011: 16.5 million tourists, up by 10% from 2010, and responsible for a 1% increase in GDP, according to the Association of Greek Tourism Companies (SETE). And it expects another record in 2012. While the number of tourists from the EU declined, Russians increased by 88%. And the uptrend is expected to continue. Easier visa requirements, it seems; sometimes, the Greek government does something right.
And Greece’s exit from the Eurozone? According to the SETE, the drachma would turn Greece into a tourist mecca for all budgets, and business would boom. So the only major growth industry in Greece declares that it would be even better off if Greece left the Eurozone. A ringing endorsement.
Indeed. Austerity measures are taking their daily toll. Suicides jumped by 22.5%. Pharmacies are having difficulties obtaining medications. More cuts are coming. If there is no agreement on the debt swap and with the bailout Troika, Greece will default in March. But now, even the Troika is in disarray. Read.... Disagreement Everywhere, Rift in the Troika.