Posts Tagged ‘Eurozone’

EUROPE – WHAT IS TO BE DONE?

June 24, 2016

Living in Europe for 35 years, I greatly appreciated the people and their various ways of life. I was happy to return to live in England, since I imagined that within the European Union we could be one. So now that Britons have dropped a nuclear bomb on the relationship with Europe, I am devastated.

That we should have a constitutional crisis, utter confusion, no government and no plan for the future was eminently foreseeable. Yet a majority of voters, including friends of mine, embarked on this apparently reckless course. Why did the Remain camp fail to convince?

Voters knew David Cameron was no friend of Europe, so he had no credibility in declaring he would campaign “heart and soul” to stay in. No more persuasive were statesmen who urged Britain to stay inside the Union to play a leading role in reforming it. If Britain could not fix the defects before, why hang around? As for experts’ prophecies of economic disaster, voters clearly thought economic forecasting had too bad a track record.

A Leave friend wrote on Facebook “Now we will be back in the driving seat again!!!” Indeed so, and the responsibility rests primarily with Leavers to draw up strategies, act and take care of the people of Britain. Just now, they have no Prime Minister, no government and no plan. We Remainers however must realise that the European Union cannot continue as the framework for relating to the continent. Leavers and Remainers have a joint responsibility to end the chaos and devise new ways of functioning with our neighbours.

As for European leaders, they should take this bombshell as a warning. It is not enough to dwell on the Union’s success in ending post-war animosities and providing a democratic framework for liberated Eastern Europe. The people of Hungary and Poland have elected governments that patently care little for this.

It is not a time for European leaders to close ranks to hold the Union together at all costs. Britons are not the only people who are dissatisfied. Who today expresses enthusiasm for the Union? Jean-Claude Juncker, Head of the European Commission, has failed to rise to his task. Angela Merkel performs a useful role as a “nice German” at the heart of Europe but will not act decisively as a leader.

However Europe must have smart people able to solve issues such as the bias of the euro system in favour of Germany. Germans’ insistence that other countries should merely act economically as they do is unrealistic. If limited liability laws enable individuals to go bankrupt, renege on debts and eventually return to economic activity, why can this not be done also for Greece?

The European Union has to resolve the chaotic inflows of migrants, the number one issue in the British campaign. There is talk of “defending frontiers”, but the free passage provided by Schengen has been built into infrastructures of airport and road systems, and can scarcely be dismantled. Britain, for all the boasts of the Leavers about regaining sovereignty, has only a handful of coastal patrol craft, and Italy or Greece have even less chance of sealing off their huge coastlines. However Spain does. It pays money to Morocco and Mauritania in return for measures to head off migrants. Such measures do not choke off channels altogether, but manage the flows better.

Financial stability and migration are among the big issues of our time. They need imaginative ideas and cooperation, far more than exasperated reactions to bothersome bureaucrats.

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SLOVENIA: FALLEN ANGEL OF EX-COMMUNIST EUROPE

December 21, 2013

Spik 2013

In the days of Communist Yugoslavia, Slovenes stood out for being in touch with the West and capable of generating a large proportion of the country’s GDP. Independent since 1991, Slovenia quickly qualified for the European Union, the euro and Schengen.

Yet now it counts with Greece, Cyprus and Spain among the eurozone’s worst financial miscreants. Its main state-owned banks are in dire need of bailouts. As auditors pick through the books, they discover loan after reckless loan for dud projects run by political cronies and personal business friends, secured by precious little.

Governance of the banks is revealed as irresponsible, slack and amateurish. Even the Catholic Church is saddled with large bankrupt businesses which are anything but spiritual. Pope Francis has removed the Archbishop of Ljubljana and the Bishop of Maribor. So much for Slovenes’ reputation for economic competence.

Now the government is starting to bail out the banks. Eager to cling to the independence gained only in 1991, it refused to apply for a bailout from the EU and the IMF, which would have meant foreign supervision. In order to preserve a minimum of international credibility, it reluctantly brought in foreign consultants to inspect the books.

As a result, it embarrassingly turns out that the government needs to put in 4.8 billion euro, four times the amount it originally calculated.

Moreover, EU rules on state aid oblige it to sell its number two and three banks, as well as 75% of the largest. The best hope that the Slovenian Central Bank governor could voice was that foreign buyers (there are no domestic candidates) will sort out the governance mess.

Slovenia has escaped bailout tutelage by the EU and the IMF, but the cost of going it alone will be huge for the Slovene people.

In hindsight, it is clear Slovenes were too complacent because of their success in Communist Yugoslavia. Their capabilities proved inadequate for an open modern economy. Whereas Poland privatised quickly in the earlier 1990s – and got through the recent financial crisis unscathed – in Slovenia, the state still owns half the economy.

So anxious were Slovenes to preserve their independence that they did their utmost to keep out foreign investors. This can now be seen as a damaging fantasy.

One exception is Lek, one of the country’s largest companies, which was bought by Novartis. Its procedures were radically overhauled at the insistence of the Swiss. Now it is solidly implanted in the group as a leading producer of generic pharmaceuticals. At a time when Slovenia’s GDP is falling precipitously, Lek is hiring not firing.

Moral number 1: ex-Communist states of Eastern Europe, even Slovenia, underestimated how much they need to change to adapt to the modern world.

Moral number 2: Slovenia now needs the national unity which won it independence in a 10-day war in 1991. In view of the vicious infighting which pervades its politics, this however seems unlikely.

Its outlook unfortunately is grim.

– Marcus Ferrar is co-author (with John Corsellis) of Slovenia 1945: Memories of Death And Survival After World War II.

New Year falls flat in Italian ski resort

January 1, 2013

The ski slopes in the Italian winter sports resort where I spent New Year were as full as ever, and on the streets the odd fur coat could still be seen. Crisis? What crisis?

But come New Year’s Eve, usually an excuse for unrivalled extravaganza, the hotel served up an aperitif from which alcohol was almost entirely absent. The dining room for the “Cenone”, the traditional New Year Eve’s dinner, was half empty. And when the clock struck 12, scarcely a single firework limped into the sky.

Madrid has turned from one of Europe’s most vibrant cultural capitals into a sad desert where young people make tapas to eat in their homes because they cannot afford to go out.

Is Italy now losing its exuberance too? Dread the thought.

LIBERATING AND CONVENIENT

August 23, 2012

Whilst I’ve been away from the UK in Europe, I’ve crossed frontiers a dozen times, and never had to show a passport or identity card, nor declare goods to customs. Eurozone citizens crossing with me did not have to lose money through changing currencies. I lost 8% to the money-changers by having to change sterling.

When I return to the UK on Sunday, I will have show an identity card at Trieste airport as I leave the Schengen zone. When I arrive in the UK two hours later, I will have to queue to show my identity card again.

I’m still trying to discover the supposed benefits of British insularity. Our currency is devalued far more than the euro is. Staying outside Schengen means we are excluded from sharing of security information.

Nobody likes too much regulation, but that’s not the sole preserve of the European Union – national governments do it too. Democratic accountability in the EU? Maybe not great, but Britain has a first-past-the-post voting system that usually gives exclusive power to a party winning around a third of the votes. Not supremely democratic either.

At least I have not only British nationality, but also Swiss, so like most Europeans I can travel around with a small plastic identity card in my wallet rather than a passport. Switzerland doesn’t even belong to the EU, but it has adapted itself to many EU norms and remains safe even after opening up its frontiers within Schengen.

In most respects I love living in England, the place where I was born and grew up, so I’m working hard on my insularity. But for the moment, I don’t quite get it. Just now, I find European harmonisation liberating and convenient.

Germans remember economic boom, not austerity

July 26, 2012

Germans are said to be scared of a revival of their hyperinflation of the early 1920s, explaining why they don’t want to fund bailouts for eurozone countries. But what Germans remember more is the Depression of the 1930s, when austerity did not work, and even more the 1948 economic reforms which led to the German economic miracle.

Polls show Germans consider the creation of the Deutschmark and the lifting of price controls and other market restrictions in 1948 as one of the two most important events in their recent history (the other being reunification in 1989). Overnight severe scarcities of everything turned into abundance. A bicycle shop which one day had no parts to repair broken bicycles the next day had 60 new ones on sale. The German economic miracle took off and in 1960s growth was still steaming ahead at 9%.

What’s the moral for today? Firstly, in 1948, there were no austerity measures, no cutbacks on public spending. It was economic boom from one day to the next. Today the euro is still a relatively stable currency, for all its recent wobbles. It is firmer against the dollar and sterling than four years ago. It has kept inflation in check, just like the creation of the Deutschmark did in 1948.

So Germans don’t need to force an austerity on others that they did not need in their severest crisis 63 years ago. Nor do they need to worry about inflation.

But what Germans did create in 1948 was a liberal economic market free of distorting price and other controls. The needy eurozone countries have huge distortions in their markets due to all sorts of government measures. Eliminating them overnight, as the Germans did in 1948, may be the salutary example the Germans have to offer.

See A FOOT IN BOTH CAMPS: A GERMAN PAST FOR BETTER AND FOR WORSE by Marcus Ferrar, published July 2012.

Panicked about the euro? Not the Europeans I talk to.

January 8, 2012

British newspapers and politicians have been predicting the imminent demise of the euro for months, but I don’t sense panic among the people who use it in their daily lives.

Travelling on the continent over the past month, I asked a German businessman, a Spanish tourist resort manager, some Italian cultural officials and a group of Slovenian professionals whether they feared the currency they used could collapse. All replied firmly they expected no such thing. They found the question surprising.

Of course it is hard really to believe the promises printed on the banknotes of any currency. However the currency remains viable if people at least behave as if the promises were trustworthy. For that reason, I believe the euro is in no real danger.


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