Monday, June 18, 2012

Delaying the inevitable ?

So the Greeks voted to stay in the €.  That at least is the spin that the French and German newspapers have put on yesterdays vote for New Democracy. The reality is that the new Greek government lacks a mandate to implement further austerity . It relies heavily on the vote of the over 50's. The under 50's voted for renegotiating the measures agreed with the ECB , IMF and EU. This morning the view in Athens amongst the leading pollsters is that new elections, with a very different outcome ,  will follow early next year .

The conclusion must be that the Euro will hold together for the rest of this year. In 2013 it now appears almost certain that Greece will drift out of the common currency . After all New Democracy is the governing party that got Greece into this mess and which has been irritatingly slow in applying the reforms that the ECB and European Commission have asked for . The long expected Grexit scenario still is in play . 

With growth slowing and unemployment rising pressures within Spain and Italy to move away from austerity are also growing . Rapid progress needs to be made on structuring a banking union and political / fiscal union if the crisis is to be resolved . If the next two EU summits fail to come up with real steps towards implementing these two measures then the risks of the Euro splintering into a hard Deutschemark bloc and a soft  , constantly devaluing , southern tier will grow. Where France positions itself between these two poles  is perhaps the biggest and most intriguing question of all. Will it lead the southern bloc and give up pretensions to being Germanys equal ? Or will it stick by Germanys side and put in place the steps needed to trim its deficit ?

1 comment:

  1. Surely, Angus, the actual most interesting question is: Will Germany ALLOW France into the Neue Euro? Financially and fiscally – ‘No bloody way’. France hasn’t balanced a budget since 1975 and is unlikely to do so for some time yet. Its political class gives way at the first sign of trouble (farmers’ blockades, student riots, strikes in the civil service, railways etc etc) while living the life of Reilly themselves. They are xenophobic, protectionist and ruthless at manipulating the system for their own ends – hardly good neighbours.

    However, geopolitically, a German currency union without France smacks too much of a ‘Greater Germany Union’. This wouldn’t play well in the rest of Europe (although the rest of the world could probably live with it quite comfortably). IMO the longer the crisis continues the more the German populace will dig its heels in and say ‘we can manage very well thank you, on our own – we don’t need [and can’t/won’t afford] the political support of France.

    If France is desperate to stay with Germany, which it will be, the terms demanded by the Germans will be too onerous and humiliating for any Frenchman since Petain to accept – I think! But who knows?