So the Cyprus crises is “solved,” for values of “solved” that means “everyone but bankers and Eurocrats get screwed.”
The European cradle-to-grave welfare state is unsustainable. It’s only a matter of how many trillions will be destroyed before the world is willing to face that fact.
Cyprus crisis is a miniature version of the Greek crisis, and the Greek crisis is a miniature version of Europe’s crisis. The scale and details differ, but the underlying problem is mind-numbingly familiar: People spending too much of other people’s money with too little accountability. Cyprus bank bailouts are unsustainable in the same way that Greek government bailouts are unsustainable in the same way that the European cradle-to-grave welfare state is unsustainable.
How could it have been avoided? The same way any of the multitudes of financial crises that have rocked Europe in last several years could have been avoided: Don’t spend money you don’t have. That solution is both blindingly obvious and completely unacceptable to the Eurocratic elite (as well as our own liberal ruling class). After all, the bloated welfare state is where they get theirs. Nothing can be allowed to come between the permanent ruling class and their perks. Nothing.
Some current Cyprus news:
Once Greece hit the skids in 2010, it was inevitable that Cyprus would follow. Already by 2011 the government was effectively prevented from selling bonds by a junk credit rating. It resorted to a €2.5 billion ($3.2 billion) loan from the Russian government, due in 2016. The killer, though, was the pact reached in October 2011 to reduce the value of Greek government bonds by 70 percent. That produced a loss to the Cyprus banks of more than €4 billion—the same in proportion to the economy’s size as a $4 trillion loss in the U.S. President Demetris Christofias, seemingly not realizing the severity of the blow, agreed to the haircut without seeking offsetting aid for Cypriot banks. He eventually sought a bailout, but, befitting a left-wing politician who earned a doctorate in history in the Soviet Union, dragged his heels on cutting government spending while inveighing against the “troika” of the European Union, the European Central Bank, and the International Monetary Fund. Losses mounted.
Update: REJECTED!
Imagine a basketball being swatted back into Angela Merkel’s face…
A few updates on yesterday’s Cyprus bank deposit seizure story.
The EU creditor states have at a single stroke violated the principle that insured EU bank deposits of up $100,000 will be guaranteed come what may, and in doing so they have more or less thrown Portugal under a bus.
They have demonstrated that the rhetoric of EMU solidarity is just hot air, that they will not force their own taxpayers to share a single cent of clean-up costs for the great joint venture of monetary union – in which northern banks, insurers, pension funds, and indeed governments, were complicit.
Their refusal to pay is entirely understandable in one sense – and if I were a German taxpayer, I would not care to swallow these losses either – but then the leaders of these creditor countries can hardly expect the world to believe that they will in fact do whatever it takes to hold EMU together. Quite obviously, they will not.
The sooner this is made clear, the better. The sooner they take the proper course of withdrawing from EMU and organise the break-up the euro in the least disruptive way, the sooner Europe can recover.
Chances are pretty low that you haven’t heard that the EU has decided to seize portions of people’s bank accounts in Cyprus as a condition of a bank bailout:
When Cyprus’s banks reopen on Tuesday morning, every depositor will have some of his or her money seized. Accounts under 100,000 euros will have 6.75% of the funds seized. Accounts over 100,000 euros will have 9.9% seized. And then the Eurozone’s emergency lending facility and the International Monetary Fund will inject 10 billion euros into the banks to allow them to keep operating.
It’s hard to express in words just how bad an idea this is. Europe has truly crossed the Rubicon.
“The establishment of the principle that a government can, and at times of economic strain must, help itself to your savings, and that this is a legitimate tool of statecraft, ought to provoke riots.”
I’ll go further: riots are not enough.
If I were one of the people having my wealth confiscated, the proper response to such actions would be join an angry mob hanging the still-twitching bodies of the people who proposed and passed such a measure over the nearest lightpost.
Think it can’t happen here? Remember, liberals have already floated the idea of seizing your 401K.
The Eurocrats in Brussels have already decided that they would prefer to seize people savings rather than let the Euro fail, or admit that the European cradle-to-grave welfare state is unsustainable. “The dream of political union matters more to Europe’s governing caste than the well-being of the people they represent.”
I didn’t post anything yesterday because I was trying to figure out how much money I should put into gold and silver to get ahead of the European bank runs I half anticipated. Indeed, in this case such bank runs would etirely rational But they haven’t started outside Cyprus itself.
Yet.
In order to divert attention away from the economic, moral, and political bankruptcy of Europe’s cradle-to-grave welfare state, some liberals, relying on figures from the Out of Our Ass Institute of Statistics, are tying to claim that Greece’s excessive spending comes from a “bloated defense budget.”
Try again. Greece only spends 5.5% of it’s budget on defense:
Either Europe (and the United States) must reform their runaway, bloated welfare states, or their welfare states will bankrupt their nations.
Feeling less suicidal than usual, Greek voters have opted for the conservative (for Greece) New Democracy party in parliamentary elections, beating out the radical-left Syriza, which insisted Europe keep shoveling money into the black hole that is the Greek budget, but rejected even the fake austerity the Eurocrats demanded. New Democracy leader Antonis Samaras has his work cut out for him, convincing the Eurocrats that yes, this time, they really are implementing austerity. This time for sure!
Look for this to help forestall the inevitable “grexit” for, oh, maybe three months. Which is when I bet Greece will find out it can’t pay it’s bills again after the latest infusion of cash, the money Europe kicked in will have strangely disappeared without seeming to have been spent on any fundamental government services, and insiders will have managed to transfer another few months of funds into their out-of-country banks accounts in advance of the next crisis…
So Greeks head off to the polls this weekend to (theoretically) choose whether to muddle along with a “right” (for Greece) government that will actually attempt to carry out something vaguely resembling austerity, or for Alexis Tsipras’ far-left Syriza party, who intends to re-enact Clevon Little’s scene from Blazing Saddles: “Drop the austerity demands, or I’ll drop out of the Euro and refuse to let Germany bail us out anymore!” “Do what he says, do what he says, that Greek’s crazy!” It’s anybody’s guess whether Greece will opt to keep the farce going for another few months, or finally set the whole house of cards tumbling down.
My guess is that there are still enough insiders who can benefits from dumping PIIGS bonds onto various sets of European taxpayers, so I expect that, one way or another, the Eurocrats will find a way to keep the charade up for another two or three months.
In light of that, here’s a roundup of Euro debt news:
Have a happy weekend!
How about a nice slice of EuroDoom to ease you into the weekend?
With all the post-primary news, the European Debt Crises news has been chugging along for a while now. let’s look at some, shall we?
It’s a winner-take-all world. Countries that do well have to do a few things extremely well. Germany makes the world’s best machine tools, some of the best heavy engineering equipment, not to mention autos. German manufacturing dominates innumerable key niches. The Spanish don’t do anything well. They haven’t done anything well since the Spanish Empire outsourced its manufacturing to Flanders in the 16th century.
As a journalist told me yesterday, he worries whether the money in his pocket will be worth anything a year from now. Others worry about Germany’s increasingly negative image among recession-hit southern and eastern Europeans. Americans will understand this feeling well: you pay and pay to help others, only to have them turn on you in hatred and wrath, accusing you of horrible hidden motives and denouncing your selfishness.
Are the Greeks already printing Drachmas? So says a completely unverified tweet from a random Twitter user. Really, what better source could you possibly ask for?
The Internet is alive with buzz on Greece exiting the Euro (see #grexit for a sip from the firehose). Sadly, there seems to be no buzz at all on reigning in the cradle-to-grave European welfare state that caused the crises in the first place.
More Grext/European debt crises news:
“Growth” to social democrats means growth in government’s size and reach, not growth in the real economy. This approach directly contributed to our current predicament; and more of the same will only exacerbate it.
Though markets have calmed a bit, the desperate search for a lever that will actually steer Europe away from the looming wall of a EuroCrash continues. Meanwhile, certain repeating motifs are detected:
Europe now has the lowest growth of any region in the world. We have already wasted years in trying to control this sickness in the euro, and we are saving the cancer and killing the patient. We have blighted countless lives and lost countless jobs by kidding ourselves that the answer to the crisis might be “more Europe”. And all for what? To salvage the prestige of the European Project, and to spare the egos of those who were wrong and muddle-headed enough to campaign for the euro.
Johnson is right about the cancer, but slightly wrong about the cause: The European cradle-to-grave welfare state is the cancer; the Euro just made it slightly more malignant.
But with two separate commentator’s calling the Euro a Doomsday Machine, I feel a new meme coming on:
Not to mention much better chances of being linked by Jonah Goldberg and James Lileks…
Greece, Spain, Ireland, Portugal and Italy (and California). In each case, the promise of more bailouts and a steady flow of cheap money only produced more reckless behavior, excessive levels of government spending and record levels of debt.
Johan Norberg, a senior fellow at the Cato Institute, summarizes the results: “From 1997 to 2007, government expenditures increased by around 6 percent annually in Spain, Portugal and Greece, while population remained mostly stable. Spending increased by 4 percent a year in Italy — even while the economy shrank.”
Consequently, “Between 2000 and 2010, Portugal increased its public debt as a share of GDP from 49 percent to 93 percent, France from 57 percent to 82 percent, Italy from 109 percent to 118 percent, and Greece from 103 percent to 145 percent,” reports Norberg.
The European crisis is as much a crisis of politics as economics. The current paralysis of the Greek political system demonstrates the point very clearly. EU policy has actively contributed to this crisis by effectively sealing off discussion of the political problems thrown up by austerity.
Budgetary policy is at the core of traditional democratic politics in Europe but the management of the euro zone is increasingly being effected not through democratic institutions but via a centralised and depoliticised form of technocratic fiat. The “stability” narrative has triumphed over the need for legitimacy as the crisis in Europe has deepened.
Ivan Krastev, the eminent political scientist, argues that we have now arrived at a point where national governments have politics but are no longer in control of policy, including budgetary policy, which is moving via the fiscal treaty and other measures to the EU level.
On the other side of this divide the European Union has policies but no politics, since decisions are increasingly being made by technocratic managers rather than directly elected representatives of the European public. The euro zone crisis has thus amplified an existing problem – the absence of both a European citizenry and a transparent European level political process.