Dynamics (Europe): Only Greece is Greece!

In the aftermath of Monday night's Eurogroup decision on Greece (a very complicated package/deal the elements of which and their between the lines not clear to the writer, still, 24++ hrs later, but my MBA does help, to a certain extent, to begin to try to understand this complex financial deal), some in Ireland (and I am sure in Portugal too) are wondering "what does Greece have" that they do not have (implicit in that is the working assumption that the deal Greece got was, after all is said (and analysed) a good one).

Well, for one, with all due respect, Greece did not have politicians arguing that their country is NOT Greece. That is if I recall well the case for Ireland and Portugal, at least. I only call it as I remember it, vividly with we "are not Greece" political chants of sorts still in my ears from many many months ago).

Yes, Ireland does not have sunshine. I love Ireland and I wish it did. Not a fan of humidity. Greece never had or claimed to have a Tiger, either. Nor does it benefit from a corporate tax regime that via transfer pricing seems to suck corporate taxable income from other national tax systems, in the EU, Eurozone and beyond (in a very "our taxpayers" age, eg in Germany, The Netherlands, Finland, UK even USA - see other blog posts for the folly of that "out taxpayers" argument though, at least inside the EU and Eurozone).

What Ireland and Portugal do not have, either, is a huge pile of mud that has been thrown at them in the last three years, in the form of "lazy" and other epithets.

It was almost clear to most from the start that the first deal Greece got ("Memorandum 1") was meant to be punitive and, what is more, discourage Ireland, Portugal and other Euro members from ever asking for one.

It also seems clear to at least some commentators of the Eurogroup decision that Greece got a good enough deal considering the potential events re Spain, Italy, increasingly (?), France. And the German political timing/scene (elections next autumn). One that may be revised when the time (in Euro and German politics) is "right". At least that is one way to look at things. There are others.

The paymasters of democracy and one person, one vote

The "we are the paymasters" so our opinions carry (more) weight because of that is being used by some member states of the EU.

But consider possible logical extensions of this rationale:

Does that mean wealthy citizens of a country can "spin off" from it? Or ask for more votes per person?   In other words, that people should have number of votes in proportion to their (declared) income?

Of course not, imho.

But watch for some politician, at national or local level, in Europe making that argumentation. And when you do, think of this post.

I already read somewhere that in some country, they say, there is a thought to give minors (children) voting rights, via their parents of course (the parents would be the ones to vote on their behalf). If that is so, then is that not a Trojan Horse for the one person, one vote core idea of democracy (recall of course than in the US, it is he/she who gets the most electors who wins the Presidency, not the one who gets most votes at national (federal) level - and most member states have decided long ago (each on its own, they have that right) to give all their electors to the winner of the state's vote).

More analysis of the topic and policy and business implications available upon special request.

Who will be the EU's "Romans"?

Judging by some of the arguments being used around the EU27 and the Euro17 today the EU could wind up with city-states or 500,000,000 states of one!

While the best interest of the 500,000,000 imo is ONE country of 500,000,000. (1/14th of world population) able to stand tall next to China (1,300,000,000), India (1,200,000,000) and USA (310,000,000).

Or maybe Europe has "too much" history while not enough wisdom to survive as anything and soon may be taken over (become economic or other subsidiary or cantons) by others! 

Ancient Greece did not have the wisdom to unite into a political union. And paid the price. Does Europe have to wisdom to avoid same price?

Ancient Athens was acting like a primadona (in the Delos Alliance, Sparta left early). Then Sparta beat Athens and acted like an even bigger primadona-bully to the other Greek city-states. Then Thebes eliminated Sparta as a power. Then Macedonia took the lead (reminds one of the EU, with Germany, UK, France playing corresponding parts).

Then came the Romans and engulfed all Greek city states under the Roman Empire. Then others. Greece became a country 180 years ago. So: Who will be the EU's "Romans"? The Russians? China? America? All three? Someone else?

Oh Europe, wake up and see what is going on in the world!

More analysis of the above topic available to clients and close friends

From Euroland to US of E?

So the Tories are saying that the want the Eurozone to become United States of Europe but w/o the UK?

That is what Churchill said too, right?

7 points in defense of Greece

1) Greece does not use nuclear for energy thus does not risk the safety of others, as many other EU/Eurozone states (and others) do.

2) Greece does not use ultra low corporate taxation, thus does not take taxable income away from other EU/Eurozone and other countries/states.

3) Due to geo position (and lack of a US of E), Greece has to spend for defense per capita more than anyone in the EU. EU/Eurozone "paymasters" Germany, France, NL are among the main sellers of arms.

4) Greece has been too loyal a believer in the EU Single Market concept (but alas only on the imports side)

5) Greece joined the EEC and then the EMU/Euro primarily not for economic but other (especially security) reasons (many others did too).

6) Greece's geo location (no land borders with the rest of the EU until 2007 and none with the rest of the Eurozone even today) affects the competitiveness of its exports (existing and potential).  

7) Greece's geo morphology (islands etc) breaks its internal market into many local ones thus hindering economies of scale and competition.

Austerity, marathons and high jumping

German and other commentators are now arguing that Greece has not shown enough progress.

On the other hand, stats from Jan-July 2012 have shown that the Greek budget has performed better than targets/expectations.

So is the claim of the commentators valid for the pre-2012 period?

Well, my view is the following:

Austerity is like (I usually don't like to treat for analysis purposes states or economies etc as persons but making an exception only for the purpose of demonstration of a point via an eloquent metaphor) starving someone, then making him/her run a marathon and accuse him/her when he/she faints at the 5th km from starvation and fatigue!

In my opinion, the goals set by the two Greek MoUs (MoU = Memorandum of Understanding) were too high/unrealistic/punitive. When this happens then even the achievement of lesser goals is hampered. To use another metaphor, from track and field. when the bar is set too high, this causes counter-productive "stress" to the athlete, thus can lead to very poor results! More realistic bailout terms/goals would have caused less "stress" thus could be reached if not at 100% at least near that.

If a member of the Euro trades mostly outside the Eurozone ...

1) If a member of the Euro (whichever these members are) trades mostly outside the Eurozone, does it make sense for it to be in it?

2) If a member of the EU and its single market (whichever these are) trades nostly outside the EU, does it make sense for it to be in the EU?

3) Membership of the EU single (or even common EEC) market "means" a state has focus inside the EU mkt (short though of a Fortress EU mentality)

4) The rationale of the single/internet EU market of 500,000,000 is for it to be (oh well) internal/single. And for members to trade mostly inside.

5) Global mega exporter Germany sells 40% in the Eurozone and 60% inside the Single EU Market. Makes sense!

6) If most EU members trade(d) mostly outside the EU, then what's the point a) of the EU Single Market? b) of the EU?

7) But then again quite a few of the 27 joined the EU/EEC primarily for security rather than economic reasons.

What some people don't seem to get re the hard Euro

In the years of the hard Euro, ie when the Euro was (until relatively recently) quite high compared to the USD, the Yuan and other currencies of major trade partners (and tourist origins eg USA),  that  suffocated much of EZ business because it not only had a hard time exporting to non-Euro markets but also faced (when eg Euro was 1.4 or 1.5 USD) more fierce competition inside the Eurozone and even their own "national" markets.

So while interest rates for Eurozome member states were lower than past thus allowing them to borrow more (via sovereign bonds) than the pre-Euro years, they were still high enough (in order to stick to the 2% inflation target of the then ECB directorate) compared to US, UK and other central bank interest rates, for the Euro to be expensive Euro vis-a-vis USA, China, etc.

So while the budgets of Euro member states benefited from cheaper money, and maybe companies too, the price competitiveness of many Eurozone businesses (including tourist ones) took a severe, IMO, beating.

Is Germany a bull in the Eurozone's China Store?

Some thoughts of mine on PressEurop's very interesting report: Berlin still selling too much (14/8/2012)

1) The FAZ comments IMO, at best, show (let's call it) "non-systemic thinking".

2) Is Germany exporting too much or importing and in general consuming too little? Too little from the Eurozone?

3) In terms of trade surplus, Germany is a bull in a China Store. Funny thing is, Germany's inflation phobia makes China another bull in the Eurozone and EU's "stores"/mkts for goods.

4) Germany saves "a lot" which means it has to find outlets for its investments. No wonder Germany had invested "a lot" in the PIIGS (while selling "a lot" to them too). The rest is not "rocket science"!

5) But the strategic/systemic question is: Is Germany too big to be part of the EU/EZ but too small to be a power on its own? And if Germany is too small to be a world power on its own, what do that say for eg UK's ambitions? France, sometimes arrogant, nevertheless knows it needs "Europe". UK and Germany (and others) act as if they do not.

6) Marketing: What exactly is Germany exporting that the Eurozone (40%), EU (60%), the world, a) cannot substitute or b) always need/want?

7) So with Germany having cornered the high quality market, China the low price one & US the new tech one, what's left for (most of) the rest?

8) Problem not only that Berlin still selling too much but its policy/philosophy not selling (in many parts of Europe/EU/Eurozone)

If the world wants to maintain freedoms in trade and capital

Systemically speaking, if the world wants to maintain freedoms in the trade of goods  and the movement of capital, it must liberate movement of labour & services too.

Otherwise, look at the global, EU, EZ other systemic crises driven by uneven freedoms and the systemic instability they cause. 

Eg see what Achilles Heel for the EU Single Market and Single Currency low intra-EU labour mobility is.

Cut wages or curb over-legislation?

With a fortress EU or Eurozone many wages will be pushed to converge to the EU/Eurozone lowest. Without a fortress EU or Eurozone, to the global lowest.

A way the PIIGS can gain some competitiveness is via radical curbing of over-legislation ("polynomia"), which can improve productivity.

From the systemics Eurozone perspective

My comments on "Deutsche Maschinenbauer für Rauswurf Griechenlands aus dem Euro" in Deutsche Mittelstands Nachrichten :


If 1.8% of the Eurozone economy (Greece) creates structural instability, what does that say re the whole structure (of the Eurozone)?

Would the Eurozone be better off (systemically) w/o

a) Greece
b) the PIIGS or
c) the Euro or
d) Germany?

If the whole of the Eurozone adopted the German manufacturing model, ...

If the whole of the Eurozone adopted the German manufacturing model, what would that do to the world price of quality manufactured goods?

And the winner of last week's EUCO is ....

I have been silent (in terms of blog posts, not in terms of tweets) for the last 2+ weeks, watching developments in the EU and the Eurozone, observing, thinking, pondering, on the road to last Thursday's and Friday's session of the European Council (EUCO).

Those included ECOFIN and Eurogroup meetings, comments from many of the capitals of the member states of the EU and the Eurozone (btw CDU MPs do need to learn how to make much more proper comments re other member states etc), the Rome meeting of Merkel, Rajoy, Hollande and Monti, the football externalities of EU and Eurozone affairs etc.

Some claim Europe won, because Merkel bowed (they think) to pressure from Italy and Spain (Hollande adopted a middle ground approach for which I hear that he was criticised at home (France, see also the drop in his approval ratings). She is said to have been criticised at home for giving up too much at the EUCO. She passed the Fiscal Compact in the first vote but CDU and FDP MPs broke ranks. And the ESM vote.

Some even claim that she "won" at the EUCO.

Some claim that "Europe" won, because Merkel bowed to other leaders' views "for once", and the decisions are a step forward for Europe.

In my opinion, Spain and Italy may have won, but maybe not as convincingly as it appears. Merkel did back a bit, but that is compared to her initial negotiating stance.


So, I insist. The last EUCO may have been a victory for Spain+Italy but not for the whole EU or the anti-Merkel/anti-austerity camp as a whole.

For Europe (EU), the gain was better than nothing but maybe too little compared to the task, late if not too late. A leap forward or sideways maybe be necessary soon. How soon? In EU years, not soon enough.

What does Europe really need?

Food for thought:

Many, among them George Soros (see eg "We need to do whatever we can to convince Germany to show leadership and preserve the European Union as the fantastic object that it used to be. The future of Europe depends on it", June 2) and  Charles S. Maier (professor of history at Harvard, "Europe Needs a German Marshall Plan" New York Times, June 9)  have called on Germany and its PM, Anglea Merkel. to "save" the Eurozone and even the EU. The latter even suggests a German Marshall on Europe.

But as Soros points out in his Trento speech/comments )see link above) the Euro crisis started with a flawed EMU design in the Maastricht Treaty (for which he blames the "center" of Europe as opposed to the "periphery")and adds this crucial comment: "The first step was taken by Germany when, after the bankruptcy of Lehman Brothers, Angela Merkel declared that the virtual guarantee extended to other financial institutions should come from each country acting separately, not by Europe acting jointly".

As he points out, "it took financial markets more than a year to realize the implication of that declaration, showing that they are not perfect".  That Merkel pinpointed the flaw and limitation of the Maastricht based Euro and EMU.

I would add that Merkel's behaviour in the last 2-3 yrs has turned European political union from a difficult to an impossible mission.

So which are the key elements of a solution to the European predicament?

a) The austerity road? Fewer and fewer yet still many think so.
b) A German Marshall Plan on Europe?
c) An orderly termination of the Euro project, possibly with the beginning of a political union project that may or may not include Germany (a political union of the willing and able (in terms of national Constitutional constraints) not necessarily the same 17 as the Euro, after all such a political union would not include a common currency at first, not until full union was established and working)?

If we accept the premise that the Euro was working until Merkel burst the bubble of a flawed Euro architecture with her post Lehman comments, then maybe, I say, what is needed the most is neither austerity not money or unrealistically urgent (if not clumsy or even barbaric) "structural reforms" in the labour markets etc (economic cold showers for the ordinary people, while popular with many economists and policy makers, can be viewed as a form of "torture") but a concrete affirmation of unity of Europe, the one that Merkel may have burst with her post Lehman comments Soros refers to or Merkel's "micromanagement" of the Euro crisis that inter alia alienated The Greeks and many other Europeans, thus making a political union a near mission impossible (while I( argue, before that, it was difficult already).

What would constitute such a re-affirmation though?

That is Europe current 10 trillion plus survival question.

Fiscal integration w/o political union?

Fiscal integration? That IMO requires a federal EU or Eurozone income tax thus political union!

Good luck with that Mr.Rajoy et al

The No 1 structural reform needed is ...

The No 1 structural reform needed in the Eurozone and the EU in general is a real EU single market.

Irish Referendum: The Days After

4 of the 17 Euro member states have by now ratified the Fiscal Compact: Greece, Portugal, Slovenia, Ireland. 12 of 17 needed for entry into force.


Plus of the 25 EU that signed the Fiscal Compact, The 4 Euro plus  Romania, Latvia, Denmark and Poland have ratified.

So, now Fiscal Compact needs ratification by 8 of the rest 13 Euro members to enter into force.


6 Nos among the 13 can block it.

Or Germany's SPD or France.

The cost of denial

How many of the EU 27 and Euro 17 are former super and/or colonial powers still in denial of their lost status?

What is the effect on the EU and the Euro?

Kiss intra-EU trade goodbye?

There are so many scenarios floating around re the future of the Eurozone and the EU.

One thought of mine:

If the EU does indeed dis-integrate, then exporter economies, members of the EU (eg Germany and the Netherlands) can most probably kiss intra-European trade goodbye!

Yes, they can still rely on WTO based trade for intra-European trade! Right. See what is happening with the pro-free trade G20!  Pro free trade rhetoric, protectionist measures and barriers.