Monthly Archives: Tuesday December 6th, 2011

Eurozone, the Unraveling (II): EU/euro support collapses across entire continent

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One of the great underreported stories of the eurozone crisis has been the incredible damage it has done to the reputation of Europe, the EU and indeed the European ideal itself. This has occurred independent of the country in question’s membership status or aspirations. In doing so, the mangled management of the crisis, by both the Princes of the European Council and the supposed “experts” of the European Central Bank, has set back the cause of European integration years if not decades.

It’s true of the EU’s new members. In the Czech Republic, 70% oppose joining the euro. In Lithuania, opposition to joining the euro has risen to 49% as against 43% last year (43% are pro-euro today). In Estonia, one of the few part of the eurozone, 55% say they would choose not to join if the issue were raised today. A Wall Street Journal poll found that even among Poles (perhaps the most europhile in the entire EU) only 16% support joining the euro, notwithstanding the government’s commitment to do so.

In Scandinavia, never particularly favorable to the EU in the first place, support has reached abyssal new lows. In Sweden the same poll found 3.5% wanting to join and another that 87.6% want to keep the krona. In Denmark, less spectacularly, opposition to joining the euro in Denmark rose from 47.1% last June to 50.6% in September. In Norway, a very successful non-EU member, opposition joining the bloc has risen to a whopping 79.8%, while only 12.6% dare voice the opposite opinion.

Similarly, public opinion in the UK has now decidedly turned against Europe. Last October, as MPs voted against holding any EU referendum, both the centre-left Guardian and the hysterically little-English Express reported that almost three-quarters of Brits wanted a vote on EU membership. In addition, both also found about half would vote for withdrawal if one were held.

In the core itself, public opinion is not yet seriously considering a breakup of the eurozone. However, here too, the Council’s structurally-induced propensity for defective, hackneyed compromises and the New Recession have taken their toll. In France, 45% believe the euro is a “handicap” for the French economy and 44% say the common currency is “amplifying the crisis”. In Germany, 60% believe the euro was a bad idea and 37% say they would vote for a euroskeptic party.

All this is occurring in those countries least hit by the eurozone crisis. I’ve not yet mentioned those economies – Greece, Ireland, Portugal and Spain – which Berlin-Frankfurt-Brussels have slated for abolition deflation, recession and emigration. Here, the problem has reached a rather higher plane:  These countries are most likely to believe that the economic crisis is today Europe’s greatest security threat, ahead of terrorism (according to a Eurobarometer poll). In these places, the damage to the EU’s image may prove irreparable.

Europeans’ new euroskepticism is fundamentally different from that of the past. The EU, with the partial exception of migration rules, was not a tangible reality for most people until recently. How many, in their daily lives, could honestly say they’d noticed the 1% of GDP siphoned through Brussels or the obscure regulations for products  standards?

Today is different. The ordinary citizen doesn’t necessarily care for the details of new ever-more-roundabout bailout deals or the ECB’s monetary hocus pocus. However, s/he can see the pathetic spectacle of Europe’s assembled leaders failing again and again to address the crisis notwithstanding their pronouncements regarding “summits of last chance” and “solemn commitments”.

The EU was given the highest responsibility in one area, economic and monetary policy, in which it has now most manifestly failed with unemployment rising and double-dip recession a reality. And is there any issue more important to Europeans today than jobs and economic (in)security?

UPDATE: Great minds think alike? Michaël Malherbe of La Comm’ européenne published a post on the same day looking at pan-EU drops of confidence in European institutions according to the November 2011 Eurobarometer. The percentage of people for whom the EU evokes a “positive image” has dropped nine points, to 31%, since last summer. Graph!

Eurozone, the Unraveling (I): A recession for Christmas

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We’ve reached a new stage in EU history: the most significant exercise in federalism – the euro – has in its current form caused a double-dip recession. This is a tragedy and a perfectly avoidable one at that. This slow-motion train wreck – to not speak of economic suicide – is worth documenting and understanding however, both given the devastation it will cause my generation in particular (youth unemployment, at 20% now, will also rise) and the shame it represents for all convinced Europeans.

So, in honor of Tom Ricks (author of Fiasco on the Iraq War, another avoidable tragedy of higher order), I’m launching this series of posts. I am, sadly, very confident there will be lots, lots more bad news to cover in the coming months (years?).

Eurozone and U.S. unemployment had largely run parallel one another during the first stage of the economic crisis, with both stabilizing around 10%. Now, the U.S. rate is rapidly dropping, reaching 8.6% last month, while the eurozone’s, after a modest decline, rose to its highest-ever figure of 10.3% in October. Deutsche Bank and Barclays are now predicting the eurozone economy will shrink 0.3-0.5% in 2012.

These are the consequences of 18 months of dithering, indecisiveness and denial by European leaders, and in particular those of Germany and the European Central Bank.

There is no indication the existing medicine of austerity, ECB inaction and attempts as social engineering entire nations into “competitiveness” via apatride bureaucrats (the IMF and Commission) will succeed now, any more than it did with Greece.

Nor is there any evidence of a coming change of policy: The Germans have now restated their rejection of ECB intervention, even in the event of a good fiscal union deal. Mario Draghi has already made this fairly clear even before the latest “last chance summit” (which I had the honor of liveblogging into the wee hours of the morn). Paul Krugman’s skepticism towards the optimists’ speculation (including my own) of “ECB intervention for fiscal union deal” was then fully justified.

Ironically, Berlin and Frankfurt’s ham-fisted approach to debt reduction and hard money is unlikely to achieve either objective.  I don’t need to emphasize the devastating effect shrinking economies and higher deficits resulting from unemployment will have on overall debt levels.

Economies like Italy, Spain, Ireland and Portugal – already on the verge of paying interest rates on debt so high it makes repayment a mathematical impossibility – will come even closer to defaults which would wreck the European financial system and wider economy. The debt-death spiral is already resuming after the (increasingly brief) post-summit calm: Italian yields are rising and the euro is now rapidly losing value.

There is no telling where this ends. What is clear is that existing trends are unsustainable and likely to get worse. Means there will be plenty to blog about and many more sleepless Council summits.

UPDATE: Talk of the devil, Eurostat has just come out with its estimate that employment shrank by 0.1% point in Q3 of this year in both the eurozone and EU27. It has likely gotten worse still in Q4.

Eurocalypse 101: Three articles for understanding where we’re at

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For real this time!

The eurozone crisis appears to be heading towards some kind of climax. Haven’t we heard this before? Like ahead of every eurosummit of past two years? While a truly “decisive” solution appears impossible almost by definition given the nature of the European Council (vetoes/Germany), we are getting at a point where either the politicians actually change business as usual or everything falls apart. Or both.

Borrowing costs are rising across the eurozone, including “virtuous” governments like Austria and Finland, with even Germany now being forced to pay more than the UK. It is now clear Italy – if Brussels-Frankfurt-Berlin do nothing – will enter a debt spiral and default on its over €1.5 trillion of debt no matter what the new entirely-unelected government of bureaucrats in Rome does (and, no, actually crying while announcing your €30+ billion austerity cuts doesn’t help), dragging the European financial system down with it in the process.

If staring into the abyss of financial collapse has a way of focusing the mind, so does the fact that the eurozone’s (Merkel’s) dithering non-policies and repeated pseudo-solutions mean that Europe has effectively already entered a double-dip recession, with unemployment rising to 10.3%, the highest recorded since the euro’s founding, even as the U.S.’s has dropped to 8.6%. This, for a young European like myself whose generation faces over 20% unemployment, verges on criminal negligence.

We appear to be at a tipping point for EU leaders with for the first time serious talks of legal fiscal controls to be imposed from Brussels and, less certain, of decisive intervention by the European Central Bank. History, as José Manuel Barroso recently said, is “accelerating”. Economic disaster is getting palpably close and the eurozone appears to be on the verge of a major political transformation. The two are not mutually exclusive.

Still the whole remains hideously complicated. What exactly is going on? I thought I’d highlight three long articles which, though not the most recent, explain the stakes (all worth reading in full).

Economics editor of Bloomberg/Businessweek Peter Coy analyzes the eurozone’s state and searches for the roots of German policy. Basically, according to Coy, the Lady is not for turning. Merkel will not yield on eurobonds or the ECB, though current German policy is “fighting against more than a century of central banking theory and practice,” and her proposed reforms neither address the current crisis nor will take effect soon enough.

In addition, it’s not clear that Merkel has either a strategy or a clear conception of the crisis. ”If Merkel were thinking strategically, she probably wouldn’t risk the European economy falling into a recession,” he says. Conclusion: ”The paradox at the heart of the crisis in Europe is that Merkel’s fetish for stability has become deeply destabilizing.”

Veteran financial reporter for EUobserver Leigh Phillips has let loose in a massive 4,500-word op-ed (really an essay) mapping out how the eurozone crisis has eroded European democracy. Here too there is little to celebrate: Brussels is about to take control of national budgets from elected parliaments and, where no majority for austerity exists, governments of non-neutral Brussels-Frankfurt men of confidence are imposed (“Keynesian experts need not apply.”).

Favorite quote: ”At the birth of the United States, the more egalitarian Thomas Jefferson, believed in equality of political opportunity (admittedly only to white males) and favoured ‘plain folk’ and the ‘yeoman farmer’ over the ‘cesspools of corruption’ inhabited by financiers, bankers and industrialists.” The latter presumably referring today to the unelected eurocrats-cum-Goldman Sachs alumni now running Greece, Italy and the ECB.

Finally Ezra Klein over at Wonkblog provides lots of graphs describing near every aspect of the crisis, including sovereign bond spreads, bank exposure, industrial trends and scenarios for crisis resolution/eurozone breakup. Because we’re visual animals, you know? (Incidentally, Wonkblog looks like it has the most comprehensive coverage of the crisis in general.)

All in all, pessimism still seems warranted. Berlin looks to not be ready to do what it takes to save the economy but Brussels does look set to rob us of much of our democracy. Perhaps the summit will surprise us, but as it stands, it seems we are set for more costly, compromising eurocratic halfassedness. Hélas !