Tag Archive for Greece

Running a Eurozone Democracy – Does the Vote Count?

Is democracy working in Europe, more specifically is it working in Greece for example.  The country has voted for and anti-austerity party – the Syriza party, who have a mandate to pursue a specific set of economic policies based on reducing austerity measures and promoting growth instead as a means to reducing the country’s huge debts.

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However as subsequent events have seen, Syriza has very little opportunity to pursue this particular strategy unless the creditors of Greece give their blessing.   The German finance minister was quick to point out in a recent Channel 4 Online documentary covering the results that the new elections changed nothing meaning that it didn’t matter who Greece voted in the elections, the debt has to be repaid and austerity was the main instrument in achieving this.  It seems that democratic choice currently means very little in Greece, a cost of the huge debts it has run up.  Or does it mean that being a member of the Eurozone means that domestic democracy is ceded to Europe’s leaders and financiers.

This is not something that is specific to Greece of course, there are elections in several other European countries this year perhaps most notably Spain.  Here also the radical left are leading the polls headed by the Podemos party, who also are opposed to the strict financial restrictions imposed by Wolfgang Schaulde the German finance minister.  The same has happened in other countries who seek to change their economic direction, the new Italian government were also prevented from investing more stimulus in the short term.

Similar situations are occurring all over Europe, with even France desperate to borrow more and inject some stimulus into their economy.  Most of these economies could borrow and invest more if Brussels allowed them to.  It’s difficult to see how this will play out, it is fairly inconceivable that the same methods will solve all the individual economic woes of the Eurozone countries.  What is good for the German economy and the Eurozone in general certainly won’t solve the debt issues of Greece and Spain, but how can they change direction.  Even string economic mandates have failed to soften the German governments stance, yet Greece for example will face decades of misery if they continue along this road.

The big issue for outsiders is that the Eurozone seems to strip domestic voters and their elected leaders of the ability to make many economic and political decisions.  The Eurozone is supposed to be a collective of democracies, however it’s difficult to see that when the ‘throne’ seems to reside in Brussels and power wielded from Berlin.

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EU Concerns Over Greek Repayment

It seems quite a long time since the doomsayers of the Euro Zone where out in force.   The speculation then was not ‘if’ a country would default and crash out of the currency union, but rather ‘when’ and ‘who’.  There were predictions that Greece, Ireland, Spain and Portugal where likely candidates but at the moment those predictions look misplaced.

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However throughout the hysteria and doom laded forecasts, the fundamental economic data hasn’t really changed.  There are still too many European countries literally swamped in debt with little expectation of that changing soon.  The problems have moved off the front pages of the financial press but they’re still very much with us.

The European Commission has last week urged Greece to step up it’s efforts to reduce national debt quicker than is currently happening.   It is worried that agreed targets for reduction look unlikely to be met despite some swinging austerity measures.   There has been an increase in confidence that the worse was over in countries like Greece, yet EU officials don’t all share this optimism.

Figures like debt being more than 170% of the overall economic output of a country, are truly staggering.  With this sort of burden on an economy, it’s difficult to see where any increase in prosperity can come from.

These economic targets were strictly linked to the bailout of the Greek economy, one of the conditions for example was that debt should be decreased to 124% of GDP by the year 2020.   Latest EU estimates suggest that this target will not be met, in addition further long term goals will also be missed.

However there is hope, and it is expected that both the EU nations and the IMF would react to these problems rather than let Greece stagger towards other defaults and failures which will almost certainly effect growth prospects and confidence.  It was agreed that if these targets were not met, then renewed efforts and help may be available.  It was a realization that these goals may not be realistically achievable in the current economic climate and that other measures may have to be deployed.   One of the important factors that is fundamental to the Greek recovery is the level of interest it pays on it’s debts, lowering this could make a huge impact on the economy in the short term.

The Greek economy will certainly need some more help, it lacks the monetary tools to make significant changes on it’s own.  The UK economy is leading the way of recovery but of course it’s not part of the Eurozone currently.  There is much talk and several decent documentaries available on UK TV documenting this recovery.  To access these you’ll have to be in the UK or have access to a UK IP proxy, try this one.

To end some good news though for the Greek economy.  At the beginning of the month, it was able to return to the Bond market. This enabled the country to at least raise finance from private investors after being absent from this sector for nearly five years.

Cyprus – Debt Deals

It’s very tough to live in Cyprus at the moment, virtually all sectors are suffering from the austerity measures.  You might think it’s fairer that people with money are also being affected by the financial problems, but many of the people with high balances in Cyprus banks are people who have put their lifetime savings there.  The deal that is being put towards the stricken Cypriot government is bailout cash in exchange for austerity and a tax on peoples deposits.

Cyprus might not be the biggest country in Europe, and of course the sums are much smaller than Spain, Italy, Greece and Portugal.  However what happens in this smal island is important for Europe and the future of the Eurozone.  Their latest vote on accepting a new deal was won by only two votes in the Cyprus Parliament.  A loss would have probably involved an exit from the Euro and the establishment of the Cyprus pound as a currency again.

No-one denies that this would have been very painful to the economy, even the opposition parties.  However the idea of exiting the Euro is becoming more and more realistic for many countries.  Just think of the situation on a human level.  You go to live in a country with a reputation as a strong financial centre, you place your hard earned life savings in a Cyprus bank. Suddenly it all goes wrong and a huge portion of your savings are eradicated overnight – basically just removed without your consent from the bank.  The banking sector in that country is suddenly completely without value – would you put any money in a Cyprus bank?

Confidence is shattered in the banking sector, the financial community and in essence the whole economy overnight.  Which business can operate without a bank account?  Two votes have saved the Government from Euro exit, but it’s critics say that the effects will be far, far worse.  Small members like Cyprus will often suffer because they are forced to trade on the same terms as bigger and more efficient economies like Germany.  Different currencies gave countries some flexibility but the Euro means that a Cyprus factory has to compete with one from Hamburg directly.

There are many of us who believe that countries like Cyprus would be better out of at least the Eurozone.  Being able to control their own currency would mean at least Cypriots could compete by modifying their exchange rate.  If I sound emotional it’s because I spend a lot of my time in Cyprus, and worse I’ve found out about this decision via the BBC website – although I had to fiddle with an Ipad and a UK VPN – http://www.uktv-online.com/bbc-iplayer-on-the-ipad-abroad/ to view it!