Jun 042012
George Soros

George Soros

It’s not often that one thinks of George Soros going viral but his speech the other day on Europe and the EU has become the talk of more than just the business community. The full speech is on Soros’ website and runs through a broad range of concepts from the scientific method to social behavior. In it, Soros argues that the European Union was designed as:

  • a fantastical object – unreal but immensely attractive
  • a product of piecemeal social engineering
  • deliberately inadequate so as to require further steps
  • When those steps didn’t happen, the bottom began to fall out
Soros gives the European Union three months to work everything out or collapse as a failed experiment. Probably an accurate a deadline as any.
If you don’t want to work through Soros’ speech, Business Insider helpfully reprints the core section which is definitely worth reading:

I contend that the European Union itself is like a bubble. In the boom phase the EU was what the psychoanalyst David Tuckett calls a “fantastic object” – unreal but immensely attractive. The EU was the embodiment of an open society –an association of nations founded on the principles of democracy, human rights, and rule of law in which no nation or nationality would have a dominant position. 

The process of integration was spearheaded by a small group of far sighted statesmen who practiced what Karl Popper called piecemeal social engineering. They recognized that perfection is unattainable; so they set limited objectives and firm timelines and then mobilized the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent and require a further step. The process fed on its own success, very much like a financial bubble. That is how the Coal and Steel Community was gradually transformed into the European Union, step by step.

Germany used to be in the forefront of the effort. When the Soviet empire started to disintegrate, Germany’s leaders realized that reunification was possible only in the context of a more united Europe and they were willing to make considerable sacrifices to achieve it.  When it came to bargaining they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement.  At that time, German statesmen used to assert that Germany has no independent foreign policy, only a European one.

The process culminated with the Maastricht Treaty and the introduction of the euro. It was followed by a period of stagnation which, after the crash of 2008, turned into a process of disintegration. The first step was taken by Germany when, after the bankruptcy of Lehman BrothersAngela Merkel declared that the virtual guarantee extended to other financial institutions should come from each country acting separately, not by Europe acting jointly. It took financial markets more than a year to realize the implication of that declaration, showing that they are not perfect.

In effect, Europe got a financial union without a political union and as Soros goes on to argue, the founders thought that the that “. . . when the need arose the political will could be generated to take the necessary steps towards a political union.” Obviously, it hasn’t worked out that way.

This is not a pretty picture and the next few months will be decisive not only for the EU but for nations around the globe. Spain is teetering on the brink, Greece is headed toward elections that will lead them out of the EU and into financial default or continue within it and suffer greater economic deprivation (in other words, basically the same no matter which way they vote for the person on the street). European leaders are looking at proposals for greater monetary integration but the political will may not be there. And in effect, they are still focusing on the monetary side and not the political side.

As of this morning, the markets are plunging in Asia and it will be a turbulent week in the European and U.S. financial markets.

Buckle up and hold tight.

Feb 132012
Protests as Greek Parliament Approves Bailout Measures

Protests as Greek Parliament Approves Bailout Measures

With heated debates and recriminations by MPs in Parliament against the muffled sounds of explosions from Syntagma Square, the coalition government in Greece passed the austerity package developed by the IMF, ECB and EU over the past few weeks. The streets outside looked like a war zone with over 45 shops burned and others damaged.

As part of the bailout, Greece still needs to implement the pension and job cuts which will have a significant impact on the economy. And it will have to accept that the upcoming elections are essentially meaningless – they cannot dismantle the agreement.

One major consequence of the turmoil over the agreement (and the same applies to Egypt and other countries over the past year) has been the decimation of the tourist industry. I remember a wonderful dinner a few years back at a cafe in Athens, gazing up at the floodlit Acropolis and the complex cultural history it embodied – we talked into the night about the complicated relationships with Ancient Egypt, Early Christianity, the Roman and Ottoman empires, and the 19th century German scholars who reinterpreted Greece as part of the Western Tradition. Here was a creative and mangled river of broad cultural achievement – influencing others as others in turn appropriated Greek land, ideas, and culture for their own ends.

The history here is long, deep, and fascinating. The beauty of the landscape, particularly the islands, equally so. But it is hard to imagine that many will want to visit a society brought to its knees economically and socially. I’m not sure what the future holds – I’m not sure that anyone knows from the conference rooms in Brussels to the streets of Athens – but I do know the tourists will go elsewhere. And with them goes the money that so much of the Greek economy depends – at least 20% of GDP (and it’s probably significantly higher than that). Tourists usually don’t visit broken societies, unless they’re holed up in resorts isolated from the local population. And sadly, Greece is most definitely broken.

Don’t believe me? Listen to Helena Smith in the Guardian who has reported from Greece for more than twenty years:

The country has reached a crossroads, of that there can be no doubt. But almost two years since it was first “rescued” with €110bn, the nation’s acceptance of this latest lifeline puts it in a perilous place. Politicians, almost without exception, believe they are “damned if they do and damned if they don’t”.

After more than two decades reporting from Athens, I can only concur. For the truth – as unpalatable as it may be for the IMF, EU and European Central Bank, Greece’s “troika” of creditors – is that, far from plugging the country’s budget black holes, the harsh austerity pursued in the name of deficit-reducing goals has pushed it towards economic and social collapse. Relentless wage and pension cuts, tax rises and cost-cutting reforms have left the country a shadow of itself. In its fifth successive year of recession, Greece is a hollowed-out version of what it once was, coming apart at the seams a little more with each day. Men and women forage through rubbish bins late at night. More sleep on the streets.

Late this evening, the stock markets are reacting positively and we will hear the pronouncements of success from the IMF, ECB and EU leaders during the coming days. But as leaders pat each other on the back and breathe a collective sigh of relief, Greece continues its slide toward economic and social collapse.

Feb 112012
Demonstrations in Athens Greece - 2-11-12

Demonstrations in Athens Greece - 2-11-12

A second day of protests in Greece as Parliament edges closer to a vote on Sunday. The Cabinet approved the agreement negotiated with the EU on Saturday.

A few MP’s have resigned in protest but it appears the majority coalition still has the votes to approve the austerity package.

Three measures are up for a vote tomorrow according to Aljazerra:

. . . . recapitalise Greek banks, an authorisation for Papademos and the finance minister to sign the eurozone bailout, and a bond swap with private creditors designed to wipe out around $131.9bn from Greece’s $461bn debt. 

But we’ve been down this road before and even if approved, this is hardly the end of the story. Ultimately, the entire bailout package could be implemented only to come unraveled with possible elections in late spring.

Feb 102012

I remember living in Paris some two decades back and my friends (and everyone they knew) in France, Italy and Greece didn’t have much good to say about the European Union. There had been protests in the 80′s as once separate political entities lurched into something approximating  a political and economic union. No one loved what was happening except perhaps those at the top (the 1%) who would benefit most from the free flow of currency and harmonization of archaic national laws and practices. The common refrain I heard: the EU is no good; but it’s surely better than more of the past. And the past in 1989 was still close enough (as it always is in Europe) with bullet holes and plaques marking the liberation of Paris from German occupation and the endless cemeteries holding the two million French (4.3% of the population) who died in World War I only twenty years before. Europe was a political swampland and a killing field in desperate need of a solution.

Fast forward to the present and the grudging optimism of this-is-the-only-doorway-with-a-future attitude is gone. Germany will happily remain in (and control) the Euro zone as long as they don’t need to bail everyone out. France, Spain, Italy are increasingly confronting their own economic woes and trying to stabilize a present that is really a previous generation’s vision of the future. Continue reading »

Sep 192011
euro and Greek drachma

Euro and Greek Drachma

The Guardian headlines the current crisis in Greece as “The future of  Greece rests on a phone call.” Actually, it will take a lot more than a few conference calls to resolve a crisis of a country on a financial precipice. Moreover, the recent election in Berlin sent shock waves through the Merkel Center-Right government as it is the sixth straight regional coalition defeat in a row.

But this paragraph sums up the dire straights the country is in:

The authoritative Sunday Vima, citing an internal government email, said the country’s international creditors had not only demanded that 100,000 public sector workers be laid off by 2015 but also that the pensions of farmers, sailors and employees with the telecommunication organisation OTE be cut immediately. Around 50,000 state employees would have to be placed on reduced pay in a special labour reserve immediately. With the atmosphere becoming ever more explosive, such measures would almost certainly exacerbate social unrest.

With every new crisis, it would seem that a full default – and pullout from the single currency region – is the only option. In the end, it simply becomes a less painful option for Greece, though how the write-off of a massive amount of debt would impact the rest of the EU (especially Spain, Portugal and Italy) remains to be seen. The question is who among the many players forces the hand? The international creditors, German voters, or people on the streets in Athens? Maybe I’m being pessimistic, but it’s hard to see the current situation of limping from month to month continuing past the end of the year.