German Chancellor Angela Merkel and French President Francois Hollande met yesterday in Berlin, in what was kind of an awkward summit. But they did appear united on one point: that Greece must keep their promises and stay in the Eurozone.
Both spelt out their concern that Greece should remain a full member of the common European currency, while promising to consider new measures to revive economic growth in the country. But they also agreed that Athens must carry out the austerity programme it has agreed with the European Union and the International Monetary Fund [...]
“We have to respect that there will be new elections in Greece,” she added. “We will make it clear that we want Greece to remain in the eurozone, and that is what the citizens are voting on.”
That meant fulfilling the commitments in the EU and IMF programme, she said, but added: “We will also give proposals to Greece to encourage growth.”
Mr Hollande went further, saying that “I hope that we can say to the Greeks that Europe is ready to add measures to help growth and support economic activity, so that there is a return to growth in Greece.”
The lip service toward growth is charming, but basically France and Germany united on keeping the same austerity program alive in Greece, the one that has caused a major backlash and new elections, with the prospect of the anti-austerity far left coming to power. That could trigger a Eurozone exit. Because the Eurozone remains staggeringly popular in Greece, European leaders and even the press want to frame the new elections that way, as a referendum on the euro.
In anticipation of that, we’ve seen a major capital flight from Greece.
Greek depositors withdrew €700 million ($898 million) from the country’s banks on Monday, fueling fears of a bank run amid the growing political disarray.
With deposits falling, Greek banks become even more dependent on the European Central Bank to meet their funding needs, exposing the central bank to potentially huge losses if Greece leaves the euro area.
Greek President Karolos Papoulias told the country’s political leaders that bank withdrawals plus buy orders received by Greek banks for German bunds totaled some €800 million on Monday, a transcript of his comments said. A central bank official confirmed the figures.
Obviously, if Greece leaves the euro, a massive devaluation would ensue. So the smart move would be to shift your euros into another country’s bank, and there are no limits on this kind of transfer in the Eurozone. That’s an old-fashioned bank run, and it’s what you would expect out of other troubled Eurozone countries if Greece ends up leaving.
Despite all this, Eduardo Porter makes the point today in the New York Times that exiting the euro may still be the more rational option. You have to compare the chaos that could ensue from returning to the drachma to the alternative, with an austerity-induced depression and little hope for growth at any point. And that’s true across Europe.
A little over a decade since the first euro bills hit the shops in Madrid and Berlin, the euro’s design flaws have pushed much of the European Union into a deep economic pit. And political imperative is again being deployed as a major reason to stick to the common currency. “This enormously important motivation is often underestimated by outsiders,” argued the Financial Times columnist Martin Wolf, the most sober analyst of Europe’s economic maelstrom.
Yet for a project intended to draw Europe together, the euro did surprisingly little to build solidarity. German voters endured a recession two decades ago after bringing in their brethren from the Soviet bloc. They now appear unwilling to spend a pfennig to help the Greeks, Spaniards, Portuguese, Irish or Italians.
Conceived as a tool for integration, the euro could, instead, tear Europe apart.
The currency works for nobody, save perhaps Germany. And despite their “strong” 0.5% growth in the first quarter of the year, that actually indicates that the euro crisis is bringing them down as well. The euro was supposed to bring Europe closer together. It’s only driving them apart. Countries with no ability to set their own monetary policy based on local conditions are countries that cannot survive. So there are no good options, but the status quo is certainly unsustainable.




14 Comments

Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About FDL News Desk
Wonderful reporting, David.
I guess Hollande is showing his stripes here. I’m a bit disappointed for the French, and for Europe as a whole. He had a chance to stand up to Germany and Merkel, and instead stepped into Sarkozy’s still-warm shoes.
Agreed. David’s been excellent on this (as well as many other issues). Also wanted to say kudos to you on the comment too about Hollande and that situation.
Spot on.
The status quo IS being sustained; it’s called downward trajectory.
The ship is sinking and no one on the bridge can call for abandoning ship so the passengers will have to decide for themselves.
Yes, charming, as in the discrete charm of the 1% as they grind the 99% down. Simply mahvelous. Well, guess we now know: French President Francois Hollande-Obama. As predicted. Too bad, so sad, get used to it.
I also put forward my kudos to DDay on the continued excellent reporting on this and other issues. Thank you very much.
Yep looks like another fraud running a country.
There was never any chance that Hollande would do something big on what was essentially a ‘meet and greet.’ They are all treading water right now, while the technocrats figure out a way to save the euro when the inevitable happens in Greece. The problem is that all they have to offer is the line that Greece has to save the euro for the good of Europe. The obvious Greek response is ‘what’s in it for us?’ The Austerians really have no more bargaining power. They forced austerity on the Greeks, it failed, and everyone knows now that it will fail again. Starting to look like the Western Front in 1915-16. If at first you don’t succeed, throw some more bodies into the fire.
yes… there has been a huge run on the banks the past week in greece….
one pundit brought up a good point. its not so important how much money the greeks are withdrawing, the IMPORTANT thing is what they are doing with the money.
Are they stashing under their beds, binge buying goods like food or ammo, moving the money to switzerland. That will tell you what the greek people are thinking.
The mnain reason they are running on the banks is that they dont want to be stuck with euros when they revert to the drachma and lose 1/2 the value. They are better off exchanging it for dollars or swiss francs or buying gold and then exchanging that for the their new currency.
Austerity is the name of this game. Disguise it as “growth” if you like. It comes in all flavors. Just remember, austerity never fed your family. Now even Pelosi is into the game. Whatever will she tell her grand kids? No food for you, bad boy.
how come when the French have an election the new guy starts the next week. When we have an election we have to wait like three months!! Hollande hasnt even had the time to marry his girlfriend. And speaking of significant others, I am sad to see Mrs. Sarkozy depart stage left.
The results of moving back to the Drachma will be much lower prices in greece relative to the Euro and the dollar. Greek goods and vacations will become more attractive. Greek citizens will see the price of any foreign goods skyrocket so they will be more limited that way.
Overall, you cannot have a currency where the nations involved have clearly different approaches to monetary policy. No rational individual or organization would buy Greek bonds under current circumstances, so the status quo doesn’t work.
it’s called downward trajectory. I would add tyranny and debt slavery. This is no way for one human being to treat another..doh.. I keep forgetting the psychology of the psychopath and the wanton excess of greed and power.
Herman Achille Van Rompuy, Mario Draghi….the people whose wealth you stole, expected to pay and pay with empty pockets. Austerity for the people and great wealth for the few is no longer going to fly. That plane is out of fuel and so are you.
I would hold a large cash position right now if I had any :)
It is a cosmic dance eh hosers so get the beat and go with the flow…Admission is free. The only rule is not to paddle upstream because you won’t get anywhere worth getting to.
The people of Greece, Spain, Italy are not going to go along with the program, and neither are some here. There is a huge sea change happening and we won’t need occupy anything, it will just happen whether you want it or not.
Good post DD…now back to weeding the garden and a few laughs at the folly of mankind, a truly endangered species.
It’s A Beautiful Day..White Bird
http://youtu.be/1Cin0QzuEss
It’s somewhat amusing that Merkel and Hollande assume that they are in charge of the decisions made by another sovereign nation. Their arrogance mirrors that of the USA. Hoping that the Greek people exercise their sovereign right to determine their own destiny and embrace the Argentine/Icelandic model to deal with the debt slavery to which the Banksters are subjecting them.
I really don’t see how they can save the situation now. Merkel has no political capital left for more bailouts, the Greeks just voted in anti bailout parties and will continue to do so, and a bank run may be startng up as we speak. The anti bailout parties will trash the bailout agreements, causing a default, OR the bank run will cause a collapse of the Greek financial system, also causing a default. So either way it looks very likely now Greece will exit the Euro. With potentially devastating consequences for the EU as contagion spreads to already weak Spain, Portugal, Italy, Ireland. It is getting ugly fast.
The ECB will turn the screws on Greece and Greece will go to IOU’s – vouchers – like California did, and as in California those vouchers will trade at a discount – beginning the devaluation. I suspect Greece fully back in the Drachma in a year as the ECB/Germany try to extend the transition so as to make it smoother and as they try to squeeze a bit more money out of Greece for the German/EU banks..