Tag Archives: EU

Germans Committed to the Euro

A poll released on Tuesday found that an overwhelming majority of Germans oppose a return to the Deutschmark. A whopping 69 per cent of the respondents answered in the affirmative when asked if they would like to stay in the euro, while only 27 per cent favoured exiting the euro and returning to the old Deutschemark. The results indicate that Germany’s euroskeptics have, led by Bernd Shucke, have very little support. Apparently the country’s robust and consistently well-performing economy swayed the Germans that the single currency is a worthy experiment. Most analysts concede that the on-going fiscal crisis shaking the Eurozone caused great worry among Germans, but the common perception in the country confirms the results of the survey: for Germany, the euro’s benefits outweigh its costs.

Maggie Called It

The former British Prime Minister Margaret Thatcher, who passed away yesterday, was a ferocious critic of the single currency. Her prophetic words ring true today as we are witnessing an unprecedented wave of failing economies across the eurozone.

“Every single fixed exchange rate has cracked in the end. We’re all at different levels of development of our economies. Some countries simply couldn’t live up to a single currency… We should each of us be proud to be separate countries cooperating together,” Thatcher acknowledged already in 1992.

Indeed, the eurozone’s main hindrance today is the development gap between its member state. Even if the euro is still staying afloat, Mrs. Thatcher’s words should resonate with Europe’s policy makers.

Et tu, Slovenia?

The markets had just gotten comfortable with the botched Cyprus bailout and the turmoil that followed, when Slovenia emerged as yet another country to potentially require a bailout. If the eurozone’s history is any indication, rumors tend to come true. Now, Slovenia, with successive governments rejecting attempts to privatise the country’s banks, is facing a banking crisis. The small Balkan state needs to recapitalise its banks, but does not have the means to do so. The eurozone leaders are once again faced with a new challenge likely to spur resentment across Europe. Citizens all over the eurozone are growing tired of seeing a constant flow of tax money to countries that have – for a variety of reasons – mismanaged their economies.

Euro Skepticism

Two prominent, high-profile individuals, both ardent observers of the eurozone, told reporters on Sunday that the single currency will soon be a thing of the past. Paul de Grauwe, a Belgian economist lecturing at the London School of Economics told a Finnish daily that the euro’s woes will eventually bring it down. He added that the blame rest solely on the austerity minded Northern bloc, comprising Germany, Holland and Finland. De Grauwe blamed the tough trio for its save and cut policies and argued that these policies do not correspond with the high expectations the trio’s has for the ailing southern European nations. Bernd Lucke, another skeptic and the founder of Germany’s first eurosceptic party, told The Telegraph on Sunday that Germany has had enough of the single currency. Lucke argues that the euro divides Europeans and will do more harm than good. Unlike de Grauwe, Lucke is a politician whose niche in the debate is quite clear, but de Grauwe wants to see the euro succeed. Motivations aside, both agree that the euro is doomed.

Super Mario to the Rescue?

The euro fell earlier on Thursday as investors were anticipating ECB chairman Mario Draghi’s policy suggestions to revive the ailing single currency following substandard attempts to save Cyprus. Draghi said in a recent press conference that ECB’s monetary policy will remain accommodative.

“In the coming weeks, we will monitor very closely all the incoming information on economic and monetary developments, and assess the impact on the outlook for price stability,” Draghi said to reports on Thursday.

Most investors did not expect Draghi to make significant changes which could have either potentially boost the euro or create a backlash and thus possibly deepen the recession.

In Austerity We Trust

Reuters reported on Tuesday that a German parliamentarian - closely associated with Chancellor Angela Merkel – wants to see more cooperation between triple-A countries Netherlands, Finland and Germany. The parliamentarian in question, Hans Michelbach from the Christian Social Union (CSU) said that the three countries should stand together to strengthen the ailing currency union. Micelbach’s comments came during fierce speculation over the euro’s future.

The highly controversial Cyprus bailout, which Micelbach seemed to praise, raised questions about the tangibility of the currency union, especially in the face of growing discrepancies between the zone’s northern and southern members.

The parliamentarian used some tough language to describe France and Italy by referring to the European giants as “problem children”, reports say. He affirmed Germany’s commitment to its two natural partners, but lamented France’s president Francois Hollande for his socialist experiments and argued that such policies could lead to serious problems.

Euro Bounces Back

The euro bounced back from its four-month low on Tuesday morning as investors were anticipating data from the eurozone’s factory output. Eurozone PMI data is expected to be released later today. The single currency gained strength against the dollar, but Thursday’s European Central Bank meeting led by Mario Draghi will likely be the real determinant of the euro’s general direction. Moreover, concerns over the ongoing crisis in Cyprus continue to worry investors. The eurozone’s handling of the Cypriot debacle has been disastrous and it will take time until confidence in the euro returns in full strength.

Cyprus on the Edge of an Abyss

The bailout talks between Cyprus and other eurozone countries are taking place later today in Brussels. Talks between the parties and officials from the IMF ended late Saturday night without a tangible solution in sight. The creditors have set deadline for Monday and if Cyprus fails to meet the demands of the Troika – EC, ECB and the IMF – it is likely that Cypriot banks will face an imminent collapse. Cyprus has been looking for an alternative to the planned tax levy, rejected by the Cypriot parliament last week. Eurozone officials have insisted that the tax on depositors is Cyprus’s best chance to secure the vital rescue package. The proposed tax levy scared many investors and especially Russians who hold enormous amounts on Cypriot bank accounts. Considering that the tax levy would cut up to 10 per cent from individual accounts, the panic will likely persist. The citizens of the small nation state have been demonstrating the levy, queuing for hours at cash machines and shopping in supermarkets to prepare for the worst.

Decision Time for Cyprus

The debt-ridden Cypriot economy is faced with tough choices in the coming days. On Tuesday the country’s parliament rejected the tax levy on depositors and now the ECB, with the blessing of the IMF, has issued an ultimatum to the ailing Mediterranean island nation. If Cyprus fails to agree to the terms by Monday, ECB said it will no longer provide the Cypriot banks with liquidity assistance unless the country approves the bailout terms.

Moreover, Russia, Cyprus’s other major creditor, hinted that it will not agree to terms that would grant the country with a new 5 billion euro loan. Reports suggest that Russia is not willing to give the loan considering that the country already lent 2.5 billion euros to the island nation in December 2011. The euro group’s chairman, the man in charge of loan negotiations between Cyprus and other eurozone countries, Jeroen Dijsselbloem, told the press on Thursday that he still believes that the tax levy is the best option for Cyprus.

The growing crisis is visible in Cyprus where locals are terrified by the potential consequences of the ongoing debacle. The shell-shocked Cypriots all over the island are queuing at cash machines to drain their bank accounts ahead of the possible depositor tax.

Cyprus is in trouble, but it’s unlikely that the crisis will spread to the rest of the eurozone considering the country’s small size and relative insignificance in terms the single currency’s general health. However, Cyprus needs to decide how to solve the crisis in order to save its banks and calm its increasingly alarmed public.

The Cyprus Debacle

Eurozone politicians, together with the International Monetary Fund, reached an agreement to grant Cyprus a much needed bailout package. The ailing southern European state has been grappling with a stumbling economy and an overstretched banking sector.

The bailout entails an unparalleled and possibly crippling clause. It includes levying 6.75 per cent of all Cypriot bank accounts up to $129,000 and 9.9 per cent for balances higher. Unsurprisingly, the planned levy left many Cypriots wondering whether it would be better to simply withdraw the money and stuff it in mattresses.

The bailout terms sent shock-waves around Europe and the US. The forced confiscation of funds is an unprecedented move which might even push the small island state into chaos. If Athenians can riot, so can the people of Limassol.

But how is the levy any different from a normal tax or a precipitous tax increase? In a way, isn’t all taxation a form of confiscation?

For the wide-eyed euro optimist, the deal that was struck is better for the individual Cypriot because now the burden is shared with foreign companies based in Cyprus, whereas under normal bailout conditions, only the government and tax payers would foot the bill.

Regardless, it’s morally questionable to ask depositors to suffer the consequences of a badly managed economy and it seems that the new levy is simply yet another tax to support a union that can no longer breathe on its own.

The biggest fear of the enablers of the continued survival of the single currency is that a member state will leave the euro. However, the decision makers in Brussels will likely keep the zone together even if it means punishing the citizen.

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