Tweet
Greek Prime Minister Antonis Samaras begged his minders in the Eurozone for more time to institute austerity policies, asking German Chancellor Angela Merkel for “time to breathe.” That may not be forthcoming. The troika (the EU, IMF and European Central Bank) will write a report in the coming month that will determine whether they continue granting Greece tranches of the bailout agreed to earlier in the year. Germany and France have basically agreed that the reform targets must be met. And it does not look like they will grant an additional two years to Greece to meet those targets. The chances of a Greek exit from the Eurozone have definitely gone up; if they are denied future bailout funds, I don’t see how it could go any other way.
But in some respects, the focus on Greece is a bit of a sideshow. The European economy is due to bottom out regardless of Greece’s position. Manufacturing continues to contract, and gross domestic product has either flatlined or gone negative in most countries in the currency union. A recession is expected for the third quarter of the year, with a greater contraction – around -0.5%, compared to -0.2% for the second quarter. Worse, capital flight out of Europe continues at a disturbing pace.
Insurance giant AIG startled markets last week when it signaled its waning faith in the euro by moving tens of millions of dollars worth out of the currency zone, reducing its holdings in banks in Germany, France, Spain and Italy.
The news came on the heels of a similarly unsettling announcement by International Airlines Group, the parent company of British Airways, which said Aug. 3 that it had reduced its exposure to Spain and formed a committee to prepare for the worst-case scenario of Spain exiting the euro zone.
The one-two punch is the latest in a series of efforts by corporations, central banks and individuals to move money out of crisis-stricken euro-zone countries as the debt crisis envelops an ever-larger part of the continent.
Such currency moves are bets on the future of national economies. The recent capital flight, analyst say, is a vote of no confidence in the euro that some worry could snowball into a series of silent bank runs. If institutions and consumers lose faith in the euro, a massive flight could lead to economic collapse.
Perhaps Germany and its partners derive some psychic benefit from punishing Greece. But they are hardly the problem at this point. The whole of Europe is sick and slipping into an economic hole from which they will be hard-pressed to extricate themselves.
7 Comments
Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About FDL News Desk
Meanwhile, our two political parties of “hear no evil, see no evil” about European austerity will continue to push deficit reduction and slashing social programs, despite all evidence to the contrary that it helps a nation’s economy.
Capital flight will continue around the world. Rich people have a dilemma and soon due to greed, avarice, and invidious comparison there will be no portfolio that can sustain growth. Where are the trillions of dollars the Corporations are sitting on? What happened to the dire consequences for Greece if the May deadline was not met? Another war won’t keep us out of recession will it?
Pay no attention to the man behind the curtain.
Grammar nitpick of the day: to “bottom out” usually means to hit the lowest point. The article that phrase links to in the second paragraph indicates that things there are going to keep getting worse. The Europeans would probably be grateful if their economies were about to bottom out — though as we’ve seen here in the US, bottoming out is no guarantee that things will improve anytime soon.
I appreciate this article’s info. May I say a word against thinking of Greece as a “sideshow.” Their national fate will still be the bell-weather, as “austerity” continues to disprove itself and wreck their country to the bone. (Was just there: everybody is planting vegetables as in WWII.) The weapons-makers of France and Germany made Greece their #1 buyer of their exports, “helping” to get them financing while corrupt Greek politicians looked good with lots of (needless) guns against the Turks. Well, those banks knew Greece could never pay—and if they didn’t, the laws still dictate that BANKS take the hit (for not doing their honest homework). So this whole fiasco is a function of a class of people (banksters) literally above the laws, country by country. We all better pray that Greece becomes the first yet to really turn against the whole racket—for better or worse they will be the precedent.
They write the laws, comrade.
Don’t pray, organize.
“. . .Europe is sick and slipping into an economic hole. . .”
They’re not all slipping at the same rate though, which suggests the relatively stronger will redouble preying on the less fortunate to buy time. It’s one of the less savory things humans do on a regular basis.
If I recall correctly the EZ members are explicitly not allowed to expel one of their own. Yet there is no formal prohibition on voluntary secession by a member — but neither is there any procedure spelled out how to do so, and that may constitute an “informal” prohibition if there is such a thing.