Europe’s extremism gambit

I’ve spoken previously that apart from the economic and social fallout from the European financial crisis, the other major issue I see is the loss of political capital on both sides of the economic divide.

Obvious examples are Catalonia where the economic crisis has opened long festering wounds, and Italy where the failing economy has the potential to re-introduce political uncertainty. The most extreme case, however, is surely Greece where Golden Dawn continues to rise in popularity at the expense of other parties, and there is certainly more to come as the Greek parliament votes on an additional €13.5bn in cuts against an increasingly farcical outlook. Greece now faces another three days of anti-austerity strikes which is again counter-productive to all involved.

What we’ve also seen is what appears to be a loss of political will in creditor nations to support further emergency action by the ECB. This has forced Mario Draghi to front national parliaments to explain his reserve bank’s operations. The trust in the bank will certainly be tested in the coming week given what could be a major error in procedure in regards to Spain:

The European Central Bank has launched an internal investigation into whether it broke its own rules and lent money to Spanish banks on terms far more generous than those offered to Irish banks.

The ECB inquiry relates to the collateral received in exchange for nearly €17 billion worth of loans.

Spanish banks are reported to have offered collateral that the ECB accepted as being more credit-worthy than it actually was and so offered the Spanish banks a preferential discount – effectively a cheaper loan.

An ECB spokeswoman confirmed the collateral examination following a report in German newspaper Welt am Sonntag yesterday, which revealed the Spanish banks should have received the same discount as Irish banks.

The newspaper said that if they had been, the affected banks could have had to produce up to €16.6bn more in collateral.

Up until now, the northern creditors of Europe have been able to state to their citizens that, although liabilities are amassing, no realisable losses have occurred. Greece and Spain, and in some regard Italy, therefore present significant political problems for creditor nations as it becomes obvious to their citizens that real losses are inevitable. With an election year ahead in Germany this sets up an environment of a different kind; one in which the major issue is the loss of political will to do anything at all. From El Confidential (via translate):

The president of the Liberal Democratic Party of Germany (FDP), Philipp Rösler, partner in the coalition government headed by Angela Merkel, the Spanish government has warned that his group would vote against any sovereign bailout bill if the chancellor dare raise a proposal of this nature before the Bundestag. The German Parliament is then closed and bolted to Spain because the FDP has 93 seats that are key to settling a new financial assistance program in any country of the European periphery.


The role of occasional companion Merkel is broadly discussed in the framework of German policy and accommodated Euroscepticism has earned a strong loss of influence in their country. However, Rösler admonitions have served to sharpen the ear of Rajoy, who has gotten the message and is primed to rule out publicly in Parliament to address the possibility of a new assistance program for the remainder of the year. Chief of Executive considers that the rescue should never be an end but a means to ensure the financing of the Spanish economy and debt restructuring, which perhaps can be achieved without shaming Merkel in Germany.

Which brings me back to Greece, where I have previously stated that for political reasons I suspect they will be granted more time and just enough additional money to continue to enact the same failing plan.

Angela Merkel made the comment over the weekend that the euro crisis has at least another 5 years to run. Given that the current plan obviously isn’t generating economic growth, the number of countries under threat continues to grow, and the ECB’s emergency programs are barely making a dent in the economic retrenchment across the zone, it seems highly optimistic, bordering on delusional, to suggest that this is in anyway realistic.

It might be political palatable to Germans for Europe’s leaders to sit on their hand over the next 12 months, but that certainly isn’t the case for southern Europe.


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  1. As I keep saying the economic elites keep plugging 1s and 0s out if thin air while the people on the ground burn. Bring out the tanks.

    • The collapse of the Austro-Hungarian empire and a general willingness by European countries to head off to war, because up until then war had generally meant terrotorial gain (at a relatively low cost).

      • I’d suggest there was some inertia amongst the related (literally) heads of state of Germany (& Habsburg/Austro Hungarian empire), UK and Russia who left it all too late to stop mobilisation…..

        Habsburgs were pretty much skint by then, tired of running an empire with restless natives
        and they were more than happy to announce end of empire and start of the Austrian Republic, leaving the Hungarians to flounder round in the Balkans, be subjected to the Triannon treaty….. which they still complain about to this day

        One of the primary objectives of the EEC now EU was to stop France and Germany ever going to war again after three wars in 75 years…..

        Interesting, one hears a lot more criticism of the EU from outside the EU (vs inside), except if a political leader is of a nationalist right wing persuasion. Within the EU the long term benefits of social and labour mobility, Euro (where used), plus unified market and customs union from UK through to Turkey are much appreciated by its citizens and business people.

        PS An excellent “primer” is AJP Taylor’s “History of the Habsburgs”

  2. Google Translate sucks, big time.

    The paragraph following the quote above says that now Rajoy’s strategy is a bit of “wait and see”, while Merkel and Draghi try to overcome their own obstacles.

    But if people are already whingeing about the difference between the Spanish and Irish loans, I’d say Rajoy may have to wait a lot, and perhaps will not like what he sees.

  3. Germany’s self interest is to give Greece enough to keep them in the EMZ.

    A “successful” Greek exit would be a disaster for German banks and manufacturing as other countries followed suit and the Euro rose as the weaker countries adopted their own currencies. Why would Germany risk it?

    When the Greeks, Spanish and Portugese are desperate enough and willing to offer tax holidays, establishment incentives like cheap land and accept Work Choices style individual contracts of employment, German businesses will buy up assets at huge discounts and grow them, creating growth in employment.

    German mercantilism is winning the day so far.

    • “German mercantilism is winning the day so far.”

      I don’t think the German people feel this way.

      They are paying for a debt party they didn’t get to go too. That’s not winning and the Germans are not happy about it.

      The next elections in Germany are in September or October next year. Angela Merkel will be in for a difficult time.

      If she looses to someone who does not support the bail outs, Europe is in for some very interesting times.

  4. It’s all very scary. At the end of Merkels predicted 5 years to go will not be a Europe coming out of crisis and recession but a Europe revolutionised. One way or another. Either the governments get a clue or new governments will be elected. And given that the people have no sensible parties to vote for in desperation they are voting for extreme nationalist parties.
    Either a peaceful ballet box revolution with some new parties and real economics rather than chicago school fairyland or a bloody revolution and war across europe.

      • I’m not sure I follow?

        Hitler took power in a situation depressingly similar to this now. A country with an economey crippled trying to pay vast foreign debts (the Euro is functionally a foreign currency for everyone).
        I could easily see history repeating in Greece or any number of countries.

        Stalin floated to the bloody top of a revolution. Also a possibility. In that case a feudal economy with most resources devoted to a small elite pushed it’s lower classes too far.

        Probably a divided and potentially warring europe either way.

        It is also possible that we could have a relatively bloodless transition to a new feudal europe but with a more educated poor it seems unlikely that they will continue to take it forever.

        Any attempt to actually fix the European economy would mean real losses for the very rich and banks etc. Theoretically possible but the rich also fight back and they have the power. Why else would most of europe shoot itself in the foot with increasing austerity?

        • “I could easily see history repeating in Greece or any number of countries”


          I know history, but was too lazy to spell it out myself here. Well done.