The Greek Parliament passed a property tax levy, the latest austerity measure imposed by Greece’s creditors as a condition for receiving the next installment of funding from the Euro bailout mechanism. Of course, a large part of Greece’s deficit problem is poor tax collection, so I don’t see how new taxes will ameliorate the situation; hiring more tax collectors would make too much sense.
The next big vote for Europe comes in Germany on Thursday, with Angela Merkel desperate for passage of an expansion of the Euro bailout fund, the EFSF. Note the undercutting of the premise in this excerpt from the NYT:
Angela Merkel, Germany’s chancellor, finds herself once again in the politically perilous position of balancing the future of Europe and its common currency against a German public that is unhappy at the price the country will have to pay. And, as before, as the euro crisis has unfolded, she finds herself fighting for measures that most experts have already dismissed as inadequate.
Mrs. Merkel needs parliamentary support to carry out decisions made more than two months ago in Brussels, and to bolster her case she met with the Greek prime minister, George A. Papandreou, on Tuesday evening in Berlin. It was a kind of morality play, intended to show to skeptical German voters how the Greek government intends to keep its promises to continue cutting public spending and services to meet stiff deficit requirements, despite increasing political opposition.
Mr. Papandreou spoke again of the “great will for change” in Greece, while Mrs. Merkel talked once more of her “confidence” that her wavering parliamentary coalition would vote on Thursday for an expansion of the European bailout fund, which was agreed to more than two months ago in Brussels.
The cynicism is pretty transparent.
The German vote is a precursor to any new plan, which using leverage still to be defined could boost the EFSF from $600 billion to $2-3 trillion, ringfence Spain and Italy and allow a debt restructuring (read: partial default) for Greece. [cont’d] But the German Finance Minister Wolfgang Schauble “ruled out an increase in the size of the euro zone bailout fund,” even though that’s a key to the entire plan. And you get the sense that the Times’ Stephen Erlanger has had it with the morality play that European leaders are playing out:
The German analysis, shared by the Dutch and others in prosperous northern Europe, like the Finns, sees as the main problem the indiscipline and profligacy of others, especially in the south, like Greece, Portugal, Italy and Spain, which have run up high debts or fiscal deficits.
To rebuild confidence, this analysis says, the sinners must repent, restructure their economies and fix themselves. The road to redemption requires hard work, discipline, sacrifice and pain, even punishment for previous misbehavior […]
The problem with the German analysis, notes Simon Tilford, chief economist for the Center for European Reform in London, is that it is not simply self-righteous, ignoring the bad loans German banks made to the troubled nations, but arguably wrong. It is “probably incompatible,” he added, with the survival of the euro zone, which all leaders insist is their aim.
Growth is the key, the counter-argument goes, not austerity.
Europe has two choices, and continent-wide austerity leading to recession is not one of them. They can either undergo a greater fiscal integration or they can break up. This half-step policy that relies on morality rather than reality and that keeps using a German anti-inflationary monetary policy for countries that need to massively devalue their currency to get out of their troubles, is destined for complete failure.
Now some member nations of the Eurozone want banks to take a bigger haircut on Greek debt. France is resisting because its banks are the most exposed, along with the European Central Bank, which is just fronting for its clients.
The infighting precludes the stronger unification option, and most member states don’t want the loss of sovereignty that would follow. And a euro breakup is seen as out of the question. So policymakers are making the wrong choice again.