July 1, 2015
By Crimson Alter
Translated from Russian by J.Hawk
As European businessmen like to say, “if you think the situation can’t be made more absurd, EU bureaucrats will easily prove you wrong.” Greece is in default, but one still wants to cool the optimists’ ardor. EU will most likely survive this blow, though the cracks in the “common European home’s” facade will become visible to everyone.
The political context is the most important aspect of the situation in Greece. To put it bluntly, Greece is the epicenter of EU’s structural political crisis, and its being the temporary epicenter of an economic crisis is secondary in importance. As far as direct economic damage is concerned, Greece can inflict a serious blow against European supranational institutions (ECB, EFSF, Target2), but, overall, the EU banking system is more or less protected against Greek toxic assets due to their transfer into the accounts of state organizations (in other words, European taxpayers).
If the referendum results show the creditors the middle finger in response to their ultimatum, Greece has the potential to become an open wound and a headache for European bureaucrats. If the Greeks don’t decide to leave the Eurozone on their own, they can’t be forced to leave–there is no legal process for that. Any effort by Brussels bureaucrats to establish such a process would be:
c) terrifying–because the threat to use the mechanism will be used as blackmail by other Eurozone politicians. There is a rule in politics: any structure which contains a legal procedure for self-liquidation will soon be liquidated. Therefore Greece will be able to blackmail the EU for some time in order to obtain concessions simply by poisoning the eurozone with their presence. We can imagine a very disagreeable divorce, complete with breaking of porcelain and black eyes.
The so-called Tsipras Letter in which EU and Russian media unexpectedly saw a ray of hope for resolving the crisis, and the Wall Street Journal even found a hint at cancelling the referendum, is best described as “proper form, but still a mockery.” Yes, the Greek government agreed to most of the creditors’ demands, except for a “few details”, but those are the details which make an agreement extremely unlikely. Germany’s Finance Minister Wolfgang Schaeuble instantly declared that “there is no basis for negotiations” (http://www.news.com.au/world/breaking-news/greeces-bailout-expires-country-defaults/story-e6frfkui-1227423032206), thus burying the hope that an escalation can be postponed. Tsipras’ subsequent TV appearance in which he announced that “after the referendum the government of Greece will return behind the negotiating table with a stronger position” only strengthens the impression that the “terrible end” scenario is being replaced with the “endless terror” one.
In that context Francois Hollande who is still trying to convince IMF, Berlin, and Athens to agree on something while the possibility still exists before the referendum ( http://www.ft.com/intl/fastft/353621)looks very lonely and unwanted. The French leader is behaving for wholly prosaic reasons–he knows that Greece’s present might be France’s future.
It’s easy to see that the main blow against the EU is in the ideological realm, and it’s a very telling blow: we are seeing the death of the myth of the ECB and European Commission omnipotence, and it is dying together with the myth that the EU is an invulnerable and eternal structure. It’s enough to reflect on Financial Times headlines: “The European dream is dying in Greece,” and “The failed common currency will define Angela Merkel’s legacy”!
When the crisis hits Spain and France (which are already discussed as the next stage), then it will be pain for real because after its failure in Greece (3% of EU’s GDP) nobody in their right mind will believe in the ECB’s and European Commission’s ability to save France’s or Spain’s economy. In a Goldman Sachs research report I cited earlier, Spain is listed as the next landmine whose explosion will be too big to be addressed by printing more euros:
“The medium-term consensus is that the Eurozone may become more cohesive without Greece. That logic assumes that Greece is a special case which of course does not correspond to reality. For example, Spain’s unemployment level is not that different from Greece’s, the populist political pressure is increasing.” http://www.zerohedge.com/news/2015-06-
What makes the situation even more absurd is that the ECB director, Mario Draghi, is a former Goldman Sachs associate. Who knows, maybe he is at ECB on a “temporary assignment.”
The ECB has one option in the medium term–launch quantitative easing (officially or unofficially) and buy Eurozone government bonds from the secondary (and maybe even primary) market. This time it might work, but it would be the last time. Structural problems such as Spain’s cannot be addressed by issuing more money.
There is another aspect to the problem. Wikileaks got busy and sent European media the NSA intercepts of discussions between top French politicians (minister of finance and a senator) who in 2012 discussed how France’s economy is in a much worse shape than everyone thinks, and that it will need radical changes in the next two years.
Two years have passed and no radical reforms…It will be interesting to see how it will all end, but I doubt the leak was accidental. One cannot rule out the possibility that the Europeans are being gradually conditioned to think that, to cite a Financial Times columnist, “the European dream is dead.”
J.Hawk’s Comment: Since both nature and geopolitics abhor a vacuum, the vacuum of power left behind by the EU’s if not disappearance then certainly diminution (and to think that even 10 years ago it was believed it might become the world’s next hegemonic power, eclipsing the United States in that role) will have to be filled with someone. The article doesn’t even mention the basket cases closer to home, such as the Baltic States and the rest of Eastern/Southern Europe which are already suffering. It’s almost like the 1980s in reverse, but this time it is the West that’s suffering from a soft power deficit and self-confidence crisis. Should the European Dream perish, will the Eurasian Dream take its place?