Italian Diary

The first Saturday of Spring.  It is like the four walls of your home fell down, and the entire world can now be your living room.  Everything is rapidly changing (not me).  I went to wash my car as a traditional rite of passing from the old to the new season.  It was very dirty, with the crumbs of a lukewarm winter.  They were all sucked up by the gas station’s old vacuum cleaner, like my thoughts of snow and ice.  I bought a Parma sandwich and went to sit by the water – read an article – an interview – about Roger Waters.  What a boor.  Yes, Roger, you are the greatest, whatever you want to hear.  I imagine him sucked up by the vacuum cleaner, like one of the winter crumbs.  Spring!

Tommy Lee Jones is the symbol of melancholy.  This actor, who blossomed in middle age (U.S. Marshals, Men in Black, No Country for Old Men), is not the usual action hero.  His character does his job, but he does not seem  sure of what he is doing.  Or better, he has a purpose, but feels that there is probably a better way to do what he is doing.  Tommy Lee is missing something, but does not know what it is.  He is very emphatetic, but still knows that people are out to get him.  I think he is a consummate actor – projecting melancholy all around.

George Orwell, pseudonimo di Eric Arthur Blair (Motihari, 25 giugno 1903 – Londra, 21 gennaio 1950), è stato uno scrittore e giornalista britannico.  Conosciuto come opinionista politico e culturale, ma anche noto romanziere, Orwell è uno dei saggisti di lingua inglese più diffusamente apprezzati del XX secolo. Probabilmente è meglio noto per due romanzi scritti verso la fine della sua vita, negli anni quaranta; l’allegoria politica de La fattoria degli animali e 1984, che descrive una così vivida distopia totalitaria dall’aver dato luogo alla nascita dell’aggettivo “orwelliano”, oggi diffusamente utilizzato per descrivere meccanismi totalitari di controllo del pensiero.

Orwell condusse sempre la sua attività letteraria in parallelo con quella di giornalista e attivista politico. Era e rimase sempre d’ispirazione marxista ma la presa di coscienza, anche in seguito a tragiche esperienze personali, delle contraddizioni e degli orrori del comunismo realizzato in Unione Sovietica sotto Stalin lo portarono a essere antisovietico e antistalinista, scontrandosi così con una consistente parte di sinistra europea. Nel 1946 Orwell scriveva di sé: “Ogni riga di ogni lavoro serio che ho scritto dal 1936 a questa parte è stata scritta, direttamente o indirettamente, contro il totalitarismo e a favore del socialismo democratico, per come lo vedo io.”

George Orwell has been a tremendous influence on my thoughts and political interest.  When I was 14, I read “Animal Farm.”  At 16, I read “1984″, on an Italian beach during long, lazy days under the sun.  Both books distanced me from all forms of collectivist orthodoxies, no matter how popular they were at the time.  It dawned on me that communism was unavoidably going to slide into totalitarianism.  Within the nature of communism, with all its declared best intents, was the brutal boot of authority.  While capitalism contains deep flaws, it allowed for individual freedoms unsurpassed by other economic systems.  Most of the capitalist economies are in fact democracies.  1984, with its dark, hopeless vision of the future, showed the natural end of a communist superstate. 

“People simply disappeared, always during the night. Your name was removed from the registers, every record of everything you had ever done was wiped out, your one-time existence was denied and then forgotten. You were abolished, annihilated: vaporized was the usual word.” 1984, chapter 1.

Yesterday Italy was eliminated from the World Cup.  The match against Slovakia was the worst match our team has ever played.  The Azzurri, World Champions, could not pass the ball.  They were afraid of Slovakia like it was some sort of Eastern European Brazil. The heroes of 2006 – Cannavaro, Gattuso, Camoranesi – where shadows of their former selves.

I remember seeing the 2006 World Champions in their Via del Corso triumph, on the way to the Circus Maximus.  Cannavaro was holding the World Cup, showing it to the unbelieving crowd.  Lippi was smiling and smoking a cigar, the picture of the happiest coach in the world.  My son was on my shoulders, as happy as he could be.  My parents a few steps behind me.  I felt joyous and carefree and, like the Azzurri, on top of the world. No matter how badly it ended yesterday, nothing will ever replace these feelings.  Grazie Azzurri!

Responsabilità (ant. risponsabilità) s. f. [der. di responsabile, sull’esempio del fr.responsabilité, che a sua volta è dall’ingl. responsibility]. – 1. a. Il fatto, la condizione e la situazione di essere responsabile: assumersi, prendersi la r. delle proprie azioni.

If you reach a position of leadership, you have to make a choice.  The choice is about how you will relate to your people, who may be your former peers.  Your relationship with your people will fundamentally impact your effectiveness as a leader.

Once you gain formal power over others, an invisible barrier is instantly created between you and them.  Things cannot be the same and will not be the same. You may be a newly promoted front-line manager, or an entrepreneur hiring your first employees.  You may be managing a fast food restaurant, or a politician who just won a Congressional seat for the first time.  In all of these cases, your new role changes the way you relate to others, whether we like it or not.

Some new leaders pretend that nothing has changed.  They will say to their people “I am on your side”,  ”I will stick up for you with the executives” and make other dubious promises.  This behavior is fraught with danger: as soon as you have to make a decision that does not benefit everyone, you will be branded as a hypocrite and a traitor.  You may lose the trust of the entire group, who will no longer believe your “I am one of you” statements.

There are also the new leaders who suddenly think they have God-given authority over their people, whom they consider inferior beings.  They affect aristocratic behaviors.  They stop talking to their former peers other than giving orders, or profusely use condescending words and sarcasm.  When confronted with this foolish behavior, they say that “a leader does not need to be loved.”

As a new leader, you have to face your new role with courage.  You have to be aware that now people will see you differently, especially if they were former peers.  You are no longer “one of them”.  You are now responsible for your people, in more ways than you were responsible for your peers.  You need to enable your people to succeed.  You need to care for them deeply, more than you care for your career.

I wish I had a better source for a quote, but this one is from “Gladiator”…really.  One Roman Senator says to another: “you may not be a man of the people, but you can be a man for the people.”  There is a lot of wisdom in this quote.  As a leader, reject the easy hypocrisy of thinking your people see you as one of them.  Instead,  embrace the great responsibility and purpose that comes with the role.  Use your power, however small, to be FOR the people.

Calcio –  3. a. Gioco di origine inglese (ingl. football), popolarissimo soprattutto in Europa e nell’America Merid.: la partita, diretta da un arbitro, si svolge in due tempi di 45 minuti su un campo erboso rettangolare di m 100-110 × 64-75, con una porta (o rete) su ciascuno dei lati minori, ed è disputata fra due squadre di 11 giocatori ciascuna, che si contendono un pallone cercando di farlo entrare nella porta avversaria, nel qual caso ottengono un punto di vantaggio, detto rete o gol (ingl. goal). Per regolamento, solo il portiere può toccare il pallone con le mani, gli altri giocatori debbono colpirlo esclusivamente con il piede o con la testa. Per ogni fallo di gioco, l’arbitro assegna una punizione (c. di punizione, c. di rigore) in favore della squadra avversaria.

Calcio, or football, or soccer for our U.S. friends.  The World Cup is about to start once again, this time in South Africa.  Like every four years, it will draw billions of people and make them behave just a bit differently from normal.  Baffled spouses will notice their husbands going into particularly deep “caves” of self-absorption.  Folks (like me) who don’t closely follow national leagues, suddenly become obsessed with the game and attempt to watch every game possible as if it were the last.  Nationalism returns and grips even the most globalized, post-patriotic individuals in a frenzy of rising hope and devastating loss, as the tournament goes on mercilessly.

In America and in Brazil, “soccer” is often called “the beautiful game”, although I never heard anyone in Italy call it that way.  That is because for those who live it closely, it is far from being a beautiful game. Football resembles the ups and downs of life.  It is difficult to say that a life is completely beautiful. You can say it is full, it has its beautiful peaks, and its dark moments of despair.  It can have its ugly moments, and its glorious, bright interludes one will never forget.  Football is that way:

1) You have your chances in life, and you want to achieve something and be successful at it.  In football, all players will get a chance to touch the ball, pass it well, have the chance to score – although very few will.

2) Life is about responsibility and protection of others.  The goalkeeper helps to avoid trouble and guards the goalpost like a father protects his family.  The defense of a team is its heart.  Italy won the 2006 World Cup because it had the best ever defense of any team, ever.

3) Life is not fair, even though there are authorities trying to even the odds.  In football, the referee attempts to inject a minimum of governance to the casual movements of the players and the ball on the pitch.  However, there is no video review and there are usually several wrong calls in every match, many changing the course of the game.  Thierry Henry, France’s glory, scored a crucial goal after a handball so obvious that even my dog noticed.  Ireland was eliminated and will not play in this World Cup. Nothing can be done.

4) Life gives you your glorious moments, like graduation, having a child, success on the job, having the girl of your dreams say “yes” to your dinner invitation…these are the “gooooals” of football, sometimes well prepared but often the result of fortuitous bounces off a defender or the goalkeeper.  Virtus et fortuna, ability and luck, in life as in football.

5) Life shows you good and bad people winning, and good and bad people losing.  Football does the same.  Is Mourinho a bad influence on football?  Maybe, but his super team, Inter Milan, won everything that could be won so far this year – the Italian Championship, the Italian Cup, and the European Champions League.  Diego Maradona was a fantastic player but not a fantastic human being, by far. Like in life, wouldn’t it be simple if only the good guys eventually won?

Look, I like other sports.  Basketball is fun.  American football is colorful and exciting.  Baseball can go from complete boredom to dizzying action in one split second.  Car racing is just…cool.  But, there is no game that mirrors the ins and outs of life itself like football.  It is played by the very rich and the poorest of the poor alike, by kids with the latest equipment, or those with barely a rag on.  It is played in squalid Brazilian shantytowns and polished European “pitches.”  In dusty African villages (with a ball made of rags) and in pristine American suburbs, by immaculately uniformed kids – closely watched by clueless parents only vaguely familiar with the game.  In cold, snowy fields in Russia, with a ball hard as a rock, and in the hellish heat of North Africa, with the very same passion.  You will find that the ardent desire for the game is the very same yearning for life that we all share.

peschièra s. f. [variante settentr. di pescaia]. – 1. a. Bacino dove si tengono o si allevano pesci marini o d’acqua dolce: per lo più in muratura, scavato nel terreno e alimentato da acqua corrente; era già in uso presso i Romani, e continuò a esserlo più tardi nelle ville signorili, servendo sia per l’allevamento dei pesci sia per ornamento.

I just came back from a quick weekend in Peschiera del Garda.  Peschiera is a charming town on lake Garda, not far from Verona.  It is not fancy Sirmione, and for some it is only a convenient gateway to the Gardaland theme parks.  I have family there, and have been several times before, but it had been several years.  Peschiera, like most of northeastern Italy, feels like home to me: the gentle handiwork of its people over the ages has produced a beautiful landscape and a balanced way of life.

It did not hurt to have the first really summer-like day of the year to sweeten the experience.  Late afternoon, I walked through the massive fortified gate of Porta Verona, and the old town just opened up with its colors, people and sounds, asking nothing in exchange.  On top of one of the ancient buildings there was a bell, with two eagles on each side, with their beak touching the bell.  I wanted to wait and see if the eagles would actually hit the bell to sound the hour.  But the Peschiera street took my attention.  It was six in the evening and the passeggiata was in full swing.  The well groomed and dressed Italians were enjoying their evening walk, meeting their friends and spending their Euros.  They mixed effortlessly with the flipflops-and-shorts German tourists strolling by, in the unlikely harmony of casualness and decked-out elegance of Italian summers.

The harmony extended to nature, with the Mincio river flowing out of lake Garda while revelers ate at the riverside restaurants and pizzerias.  It extended to the beautiful buildings changing shade and color as the sun went down.  The harmony was there even in the design of cars and scooters and new buildings slowly sprouting outside the old walls.  But it did best show with the people performing their involuntary street theatre.  There were relatives and friends saying buonasera to each other and stopping for a short chat with smiles on their faces.  Restaurant owners stood out their locales talking  business with their competitor next door.  The few babies were fussed over endlessly even by complete strangers.  At the marina, the boats came back to dock after a day out on the lake, the people on them and on the pier showing the silent cooperation that is the same the world over.

That afternoon the expectation was building for the big soccer game, the Champions League final between Inter Milan and Bayern Munich.  Many conversations turned on the match: where to watch it,  whether to eat before or during it, the controversial coach of Inter Milan, and stuffing it to the  Germans (I bet in Munich they were talking about stuffing it to the Italians).  I watched the game over dinner at  an outdoor restaurant, eating grilled bass with some lemon and potatoes, at a long table with family and friends.  There was harmony in that too: the family, the friends, the food, the sweet warm air and the emotions of the game flowing through effortlessly.  Inter Milan won with manic precision, showing once more why soccer is called the beautiful game.

The emotions of the Peschiera weekend still linger as I write this.  They feel like the sweet memories of my childhood Italian summers.  Someone in Peschiera told me how nice it was to be there, and why we weren’t living there.  I mumbled something about a career and curiosity to live around the world.

I republish here a very interesting and accessible article from STRATFOR. It is about what could happen in practice if either Greece – or Germany! – would exit the eurozone.

Published on STRATFOR (http://www.stratfor.com)

Home > Germany, Greece and Exiting the Eurozone

Germany, Greece and Exiting the Eurozone

Created May 18 2010 – 07:05

[1]

By Marko Papic, Robert Reinfrank and Peter Zeihan

Rumors of the imminent collapse of the eurozone continue to swirl despite the Europeans’ best efforts to hold the currency union together. Some accounts in the financial world have even suggested that Germany’s frustration with the crisis could cause Berlin to quit the eurozone — as soon as this past weekend, according to some — while at the most recent gathering of European leaders French President Nicolas Sarkozy apparently threatened to bolt the bloc if Berlin did not help Greece. Meanwhile, many in Germany — including Chancellor Angela Merkel herself at one point — have called for the creation of a mechanism by which Greece — or the eurozone’s other over-indebted, uncompetitive economies — could be kicked out of the eurozone in the future should they not mend their “irresponsible” spending habits.

Rumors, hints, threats, suggestions and information “from well-placed sources” all seem to point to the hot topic in Europe at the moment, namely, the reconstitution of the eurozone whether by a German exit or a Greek expulsion. We turn to this topic with the question of whether such an option even exists.

The Geography of the European Monetary Union

As we consider the future of the euro, it is important to remember that the economic underpinnings of paper money are not nearly as important as the political underpinnings. Paper currencies in use throughout the world today hold no value without the underlying political decision to make them the legal tender of commercial activity. This means a government must be willing and capable enough to enforce the currency as a legal form of debt settlement, and refusal to accept paper currency is, within limitations, punishable by law.

The trouble with the euro is that it attempts to overlay a monetary dynamic on a geography that does not necessarily lend itself to a single economic or political “space.” The eurozone has a single central bank, the European Central Bank (ECB), and therefore has only one monetary policy, regardless of whether one is located in Northern or Southern Europe. Herein lies the fundamental geographic problem of the euro.

Europe is the second-smallest continent on the planet but has the second-largest number of states packed into its territory. This is not a coincidence. Europe’s multitude of peninsulas, large islands and mountain chains create the geographic conditions that often allow even the weakest political authority to persist. Thus, the Montenegrins have held out against the Ottomans, just as the Irish have against the English.

Despite this patchwork of political authorities, the Continent’s plentiful navigable rivers, large bays and serrated coastlines enable the easy movement of goods and ideas across Europe. This encourages the accumulation of capital due to the low costs of transport while simultaneously encouraging the rapid spread of technological advances, which has allowed the various European states to become astonishingly rich: Five of the top 10 world economies hail from the Continent despite their relatively small populations.

Europe’s network of rivers and seas are not integrated via a single dominant river or sea network, however, meaning capital generation occurs in small, sequestered economic centers. To this day, and despite significant political and economic integration, there is no European New York. In Europe’s case, the Danube has Vienna, the Po has Milan, the Baltic Sea has Stockholm, the Rhineland has both Amsterdam and Frankfurt and the Thames has London. This system of multiple capital centers is then overlaid on Europe’s states, which jealously guard control over their capital and, by extension, their banking systems.

Despite a multitude of different centers of economic — and by extension, political — power, some states, due to geography, are unable to access any capital centers of their own. Much of the Club Med states are geographically disadvantaged. Aside from the Po Valley of northern Italy — and to an extent the Rhone — southern Europe lacks a single river useful for commerce. Consequently, Northern Europe is more urban, industrial and technocratic while Southern Europe tends to be more rural, agricultural and capital-poor.

Introducing the Euro

Given the barrage of economic volatility and challenges the eurozone has confronted in recent quarters and the challenges presented by housing such divergent geography and history under one monetary roof, it is easy to forget why the eurozone was originally formed.

The Cold War made the European Union possible. For centuries, Europe was home to feuding empires and states. After World War II, it became the home of devastated peoples whose security was the responsibility of the United States. Through the Bretton Woods agreement, the United States crafted an economic grouping that regenerated Western Europe’s economic fortunes under a security rubric that Washington firmly controlled. Freed of security competition, the Europeans not only were free to pursue economic growth, they also enjoyed nearly unlimited access to the American market to fuel that growth. Economic integration within Europe to maximize these opportunities made perfect sense. The United States encouraged the economic and political integration because it gave a political underpinning to a security alliance it imposed on Europe, i.e., NATO. Thus, the European Economic Community — the predecessor to today’s European Union — was born.

When the United States abandoned the gold standard in 1971 (for reasons largely unconnected to things European), Washington essentially abrogated the Bretton Woods currency pegs that went with it. One result was a European panic. Floating currencies raised the inevitability of currency competition among the European states, the exact sort of competition that contributed to the Great Depression 40 years earlier. Almost immediately, the need to limit that competition sharpened, first with currency coordination efforts still concentrating on the U.S. dollar and then from 1979 on with efforts focused on the deutschmark. The specter of a unified Germany in 1989 further invigorated economic integration. The euro was in large part an attempt to give Berlin the necessary incentives so that it would not depart the EU project.

But to get Berlin on board with the idea of sharing its currency with the rest of Europe, the eurozone was modeled after the Bundesbank and its deutschmark. To join the eurozone, a country must abide by rigorous “convergence criteria” designed to synchronize the economy of the acceding country with Germany’s economy. The criteria include a budget deficit of less than 3 percent of gross domestic product (GDP); government debt levels of less than 60 percent of GDP; annual inflation no higher than 1.5 percentage points above the average of the lowest three members’ annual inflation; and a two-year trial period during which the acceding country’s national currency must float within a plus-or-minus 15 percent currency band against the euro.

As cracks have begun to show in both the political and economic support for the eurozone, however, it is clear that the convergence criteria failed to overcome divergent geography and history. Greece’s violations of the Growth and Stability Pact are clearly the most egregious, but essentially all eurozone members — including France and Germany, which helped draft the rules — have contravened the rules from the very beginning.

Mechanics of a Euro Exit

The EU treaties as presently constituted contractually obligate every EU member state — except Denmark and the United Kingdom, which negotiated opt-outs — to become a eurozone member state at some point. Forcible expulsion or self-imposed exit is technically illegal, or at best would require the approval of all 27 member states (never mind the question about why a troubled eurozone member would approve its own expulsion). Even if it could be managed, surely there are current and soon-to-be eurozone members that would be wary of establishing such a precedent, especially when their fiscal situation could soon be similar to Athens’ situation.

One creative option making the rounds would allow the European Union to technically expel members without breaking the treaties. It would involve setting up a new European Union without the offending state (say, Greece) and establishing within the new institutions a new eurozone as well. Such manipulations would not necessarily destroy the existing European Union; its major members would “simply” recreate the institutions without the member they do not much care for.

Though creative, the proposed solution it is still rife with problems. In such a reduced eurozone, Germany would hold undisputed power, something the rest of Europe might not exactly embrace. If France and the Benelux countries reconstituted the eurozone with Berlin, Germany’s economy would go from constituting 26.8 percent of eurozone version 1.0’s overall output to 45.6 percent of eurozone version 2.0’s overall output. Even states that would be expressly excluded would be able to get in a devastating parting shot: The southern European economies could simply default on any debt held by entities within the countries of the new eurozone.

With these political issues and complications in mind, we turn to the two scenarios of eurozone reconstitution that have garnered the most attention in the media.

Scenario 1: Germany Reinstitutes the Deutschmark

The option of leaving the eurozone for Germany boils down to the potential liabilities that Berlin would be on the hook for if Portugal, Spain, Italy and Ireland followed Greece down the default path. As Germany prepares itself to vote on its 123 billion euro contribution to the 750 billion euro financial aid mechanism for the eurozone — which sits on top of the 23 billion euros it already approved for Athens alone — the question of whether “it is all worth it” must be on top of every German policymaker’s mind.

This is especially the case as political opposition to the bailout mounts among German voters and Merkel’s coalition partners and political allies. In the latest polls, 47 percent of Germans favor adopting the deutschmark. Furthermore, Merkel’s governing coalition lost a crucial state-level election May 9 in a sign of mounting dissatisfaction with her Christian Democratic Union and its coalition ally, the Free Democratic Party. Even though the governing coalition managed to push through the Greek bailout, there are now serious doubts that Merkel will be able to do the same with the eurozone-wide mechanism May 21.

Germany would therefore not be leaving the eurozone to save its economy or extricate itself from its own debts, but rather to avoid the financial burden of supporting the Club Med economies and their ability to service their 3 trillion euro mountain of debt. At some point, Germany may decide to cut its losses — potentially as much as 500 billion euros, which is the approximate exposure of German banks to Club Med debt — and decide that further bailouts are just throwing money into a bottomless pit. Furthermore, while Germany could always simply rely on the ECB to break all of its rules and begin the policy of purchasing the debt of troubled eurozone governments with newly created money (“quantitative easing”), that in itself would also constitute a bailout. The rest of the eurozone, including Germany, would be paying for it through the weakening of the euro.

Were this moment to dawn on Germany it would have to mean that the situation had deteriorated significantly. As STRATFOR has recently argued [2], the eurozone provides Germany with considerable economic benefits. Its neighbors are unable to undercut German exports with currency depreciation, and German exports have in turn gained in terms of overall eurozone exports on both the global and eurozone markets. Since euro adoption, unit labor costs in Club Med have increased relative to Germany’s by approximately 25 percent, further entrenching Germany’s competitive edge.

Before Germany could again use the deutschmark, Germany would first have to reinstate its central bank (the Bundesbank), withdraw its reserves from the ECB, print its own currency and then re-denominate the country’s assets and liabilities in deutschmarks. While it would not necessarily be a smooth or easy process, Germany could reintroduce its national currency with far more ease than other eurozone members could.

The deutschmark had a well-established reputation for being a store of value, as the renowned Bundesbank directed Germany’s monetary policy. If Germany were to reintroduce its national currency, it is highly unlikely that Europeans would believe that Germany had forgotten how to run a central bank — Germany’s institutional memory would return quickly, re-establishing the credibility of both the Bundesbank and, by extension, the deutschmark.

As Germany would be replacing a weaker and weakening currency with a stronger and more stable one, if market participants did not simply welcome the exchange, they would be substantially less resistant to the change than what could be expected in other eurozone countries. Germany would therefore not necessarily have to resort to militant crackdowns on capital flows to halt capital trying to escape conversion.

Germany would probably also be able to re-denominate all its debts in the deutschmark via bond swaps. Market participants would accept this exchange because they would probably have far more faith in a deutschmark backed by Germany than in a euro backed by the remaining eurozone member states.

Reinstituting the deutschmark would still be an imperfect process, however, and there would likely be some collateral damage, particularly to Germany’s financial sector. German banks own much of the debt issued by Club Med, which would likely default on repayment in the event Germany parted with the euro. If it reached the point that Germany was going to break with the eurozone, those losses would likely pale in comparison to the costs — be they economic or political — of remaining within the eurozone and financially supporting its continued existence.

Scenario 2: Greece Leaves the Euro

If Athens were able to control its monetary policy, it would ostensibly be able to “solve” the two major problems currently plaguing the Greek economy.

First, Athens could ease its financing problems substantially. The Greek central bank could print money and purchase government debt, bypassing the credit markets. Second, reintroducing its currency would allow Athens to then devalue it, which would stimulate external demand for Greek exports and spur economic growth. This would obviate the need to undergo painful “internal devaluation” via austerity measures that the Greeks have been forced to impose as a condition for their bailout by the International Monetary Fund (IMF) and the EU.

If Athens were to reinstitute its national currency with the goal of being able to control monetary policy, however, the government would first have to get its national currency circulating (a necessary condition for devaluation).

The first practical problem is that no one is going to want this new currency, principally because it would be clear that the government would only be reintroducing it to devalue it. Unlike during the Eurozone accession process — where participation was motivated by the actual and perceived benefits of adopting a strong/stable currency and receiving lower interest rates, new funds and the ability to transact in many more places — “de-euroizing” offers no such incentives for market participants:

• The drachma would not be a store of value, given that the objective in reintroducing it is to reduce its value.
• The drachma would likely only be accepted within Greece, and even there it would not be accepted everywhere — a condition likely to persist for some time.
• Reinstituting the drachma unilaterally would likely see Greece cast out of the eurozone, and therefore also the European Union as per rules explained above.

The government would essentially be asking investors and its own population to sign a social contract that the government clearly intends to abrogate in the future, if not immediately once it is able to. Therefore, the only way to get the currency circulating would be by force.

The goal would not be to convert every euro-denominated asset into drachmas but rather to get a sufficiently large chunk of the assets so that the government could jumpstart the drachma’s circulation. To be done effectively, the government would want to minimize the amount of money that could escape conversion by either being withdrawn or transferred into asset classes easy to conceal from discovery and appropriation. This would require capital controls and shutting down banks and likely also physical force to prevent even more chaos on the streets of Athens than seen at present. Once the money was locked down, the government would then forcibly convert banks’ holdings by literally replacing banks’ holdings with a similar amount in the national currency. Greeks could then only withdraw their funds in newly issued drachmas that the government gave the banks to service those requests. At the same time, all government spending/payments would be made in the national currency, boosting circulation. The government also would have to show willingness to prosecute anyone using euros on the black market, lest the newly instituted drachma become completely worthless.

Since nobody save the government would want to do this, at the first hint that the government would be moving in this direction, the first thing the Greeks will want to do is withdraw all funds from any institution where their wealth would be at risk. Similarly, the first thing that investors would do — and remember that Greece is as capital-poor as Germany is capital-rich — is cut all exposure. This would require that the forcible conversion be coordinated and definitive, and most important, it would need to be as unexpected as possible.

Realistically, the only way to make this transition without completely unhinging the Greek economy and shredding Greece’s social fabric would be to coordinate with organizations that could provide assistance and oversight. If the IMF, ECB or eurozone member states were to coordinate the transition period and perhaps provide some backing for the national currency’s value during that transition period, the chances of a less-than-completely-disruptive transition would increase.

It is difficult to imagine circumstances under which such support would not dwarf the 110 billion euro bailout already on the table. For if Europe’s populations are so resistant to the Greek bailout now, what would they think about their governments assuming even more risk by propping up a former eurozone country’s entire financial system so that the country could escape its debt responsibilities to the rest of the eurozone?

The European Dilemma

Europe therefore finds itself being tied in a Gordian knot. On one hand, the Continent’s geography presents a number of incongruities that cannot be overcome without a Herculean (and politically unpalatable) effort on the part of Southern Europe and (equally unpopular) accommodation on the part of Northern Europe. On the other hand, the cost of exit from the eurozone — particularly at a time of global financial calamity, when the move would be in danger of precipitating an even greater crisis — is daunting to say the least.

The resulting conundrum is one in which reconstitution of the eurozone may make sense at some point down the line. But the interlinked web of economic, political, legal and institutional relationships makes this nearly impossible. The cost of exit is prohibitively high, regardless of whether it makes sense.

• Economics/Trade
• Politics
• Marko Papic, Robert Reinfrank and Peter Zeihan
• Germany
• Greece
• Geopolitical Weekly
• EU
• Eurozone

Source URL: http://www.stratfor.com/weekly/20100517_germany_greece_and_exiting_eurozone

automòbile agg. e s. f. [dal fr. automobile ‹otomobìl›, comp. di auto-1 e dell’agg. lat. mobĭlis«che si muove»]. – 2. s. f. Autoveicolo a quattro ruote con motore generalmente a scoppio, adibito al trasporto di un numero limitato di persone su strade ordinarie (detto, nelle classificazioni ufficiali, autovettura): andare, viaggiare in a.; fam., farsi l’a., acquistarla per la prima volta. Con accezioni particolari: a. da corsa (o da competizione), destinata esclusivam. a competizioni sportive; a. elettrica, spinta da uno o più motori elettrici; a.sportiva, generalm. a due posti, molto veloce; a. di piazza, autopubblica. ◆ Dim.automobilina (spec. con riferimento ad automobili giocattolo), automobilétta; spreg.automobilùccia; accr. scherz. automobilóne m., automobilóna; pegg. automobilàccia. TAV.

The automobile, or macchina in colloquial Italian, is a perennial obsession of mine.  I am not alone: both my original and adoptive countrymen are mostly in love with the thing.  Now the Chinese are getting the bug: hundreds of millions aspire to be obsessed like their Western counterparts.

I was eleven years old, when our old Alfa Romeo started to show its age.

I became actively involved in choosing its replacement, and in doing so, memorized everything about the then-current car offerings.   Quattroruote, the Italian monthly car buff magazine, became my bible.  I could tell you the engine size of every single model on sale in Italy in the mid seventies.  I would look at the most mundane cars on the street as if they were supermodels.

In our family trips, we always ended up packing too much and the trunk (boot) was not big enough.  We had to bring suitcases with us in the passenger compartment. We hated it. Trunk size was a crucial criteria in choosing a car.  Station wagons were few and expensive, so hatchbacks became a likely choice.  But the hatchback we’d buy could not be a small Fiat 127 or even a VW Golf.  It had to be bigger, to fit the entire family.  This criterion put some real gems on our list:

1) The Renault 16, probably the ugliest car ever designed.  The AMC Pacer may have been worse but it was not for sale in Italy.

.

2) The Lancia Beta.  Unfortunately, it started to rust already in the dealer’s lot.  Only the first Alfasud models rusted more quickly: some people still claim to have spotted rust in its catalog pictures.

3) The VW Passat.  The second ugliest car in the market.  It did not rust, but maybe it should have…it was so ugly, it deserved to rust.

4) The Rover 3500.  It was never in the running as it was far too expensive.  It was extremely unreliable.  Yet it was the best looking of the lot.

5) The Citroen DS.  It was outdated by then, soon to be replaced by the space-age CX.  I wish we had bought it though…what an instant classic.

We ended up keeping the old Alfa Romeo for another eight years.  It worked well, did not rust, was not likely to be stolen, and had become a real classic by the early eighties.  I also kept my passion for cars to this day.  I no longer quite know the engine size of every car on the market, but remain hooked by macchine.  Still, my heart beats faster when an Italian car from the 70s shows up unexpected, parked on a side street, or miraculously ambling by, driven by some crazy enthusiast.

Two articles I found very interesting to understand the current troubles in the Euro-zone.  One is by Paul Krugman – he points out the key problem with the single currency.  The second article, from Le Monde, is a sobering reminder that for all the speculative activity, the markets are actually doing their job. Patrick Artus gives us a sophisticated yet accessible analysis of the situation.

The Euro Trap, by Paul Krugman.

Not that long ago, European economists used to mock their American counterparts for having questioned the wisdom of Europe’s march to monetary union. “On the whole,” declared an article published just this past January, “the euro has, thus far, gone much better than many U.S. economists had predicted.”

Oops. The article summarized the euro-skeptics’ views as having been: “It can’t happen, it’s a bad idea, it won’t last.” Well, it did happen, but right now it does seem to have been a bad idea for exactly the reasons the skeptics cited. And as for whether it will last — suddenly, that’s looking like an open question.

To understand the euro-mess — and its lessons for the rest of us — you need to see past the headlines. Right now everyone is focused on public debt, which can make it seem as if this is a simple story of governments that couldn’t control their spending. But that’s only part of the story for Greece, much less for Portugal, and not at all the story for Spain.

The fact is that three years ago none of the countries now in or near crisis seemed to be in deep fiscal trouble. Even Greece’s 2007 budget deficit was no higher, as a share of G.D.P., than the deficits the United States ran in the mid-1980s (morning in America!), while Spain actually ran a surplus. And all of the countries were attracting large inflows of foreign capital, largely because markets believed that membership in the euro zone made Greek, Portuguese and Spanish bonds safe investments.

Then came the global financial crisis. Those inflows of capital dried up; revenues plunged and deficits soared; and membership in the euro, which had encouraged markets to love the crisis countries not wisely but too well, turned into a trap.

What’s the nature of the trap? During the years of easy money, wages and prices in the crisis countries rose much faster than in the rest of Europe. Now that the money is no longer rolling in, those countries need to get costs back in line.

But that’s a much harder thing to do now than it was when each European nation had its own currency. Back then, costs could be brought in line by adjusting exchange rates — e.g., Greece could cut its wages relative to German wages simply by reducing the value of the drachma in terms of Deutsche marks. Now that Greece and Germany share the same currency, however, the only way to reduce Greek relative costs is through some combination of German inflation and Greek deflation. And since Germany won’t accept inflation, deflation it is.

The problem is that deflation — falling wages and prices — is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment. And it also aggravates debt problems, both public and private, because incomes fall while the debt burden doesn’t.

Hence the crisis. Greece’s fiscal woes would be serious but probably manageable if the Greek economy’s prospects for the next few years looked even moderately favorable. But they don’t. Earlier this week, when it downgraded Greek debt, Standard & Poor’s suggested that the euro value of Greek G.D.P. may not return to its 2008 level until 2017, meaning that Greece has no hope of growing out of its troubles.

All this is exactly what the euro-skeptics feared. Giving up the ability to adjust exchange rates, they warned, would invite future crises. And it has.

So what will happen to the euro? Until recently, most analysts, myself included, considered a euro breakup basically impossible, since any government that even hinted that it was considering leaving the euro would be inviting a catastrophic run on its banks. But if the crisis countries are forced into default, they’ll probably face severe bank runs anyway, forcing them into emergency measures like temporary restrictions on bank withdrawals. This would open the door to euro exit.

So is the euro itself in danger? In a word, yes. If European leaders don’t start acting much more forcefully, providing Greece with enough help to avoid the worst, a chain reaction that starts with a Greek default and ends up wreaking much wider havoc looks all too possible.

Meanwhile, what are the lessons for the rest of us?

The deficit hawks are already trying to appropriate the European crisis, presenting it as an object lesson in the evils of government red ink. What the crisis really demonstrates, however, is the dangers of putting yourself in a policy straitjacket. When they joined the euro, the governments of Greece, Portugal and Spain denied themselves the ability to do some bad things, like printing too much money; but they also denied themselves the ability to respond flexibly to events.

And when crisis strikes, governments need to be able to act. That’s what the architects of the euro forgot — and the rest of us need to remember.

———

Le Monde – Article paru dans l’édition du 16.05.10

L’annonce, le 10 mai, d’un plan d’aide géant de 750 milliards d’euros afin d’éviter que la crise grecque ne s’étende à l’Espagne, au Portugal, voire à l’Italie, avait été saluée par les marchés financiers. Mais, vendredi 14 mai, les Bourses replongeaient et l’euro tombait à son plus bas niveau depuis octobre 2008. Dans un entretien au Monde, Patrick Artus, directeur des études économiques de Natixis, et professeur à l’Ecole polytechnique, décrypte l’inquiétude des investisseurs devant l’ampleur des déficits et leur scepticisme face aux plans d’austérité destinés à les résorber. Il propose des pistes pour éviter le chaos.

Comment expliquer le revirement des marchés financiers ?

Le sentiment des marchés est, pour une fois, raisonnable. Les investisseurs ont commencé par analyser le court terme. Ils ont salué l’efficacité du plan et, surtout, les mesures exceptionnelles immédiatement mises en place, comme l’achat de dettes publiques par la Banque centrale européenne (BCE). Ces achats, qui soutiennent le marché de la dette, permettent aux Etats d’emprunter à des taux d’intérêt satisfaisants. Selon nos calculs, la BCE a acheté 30 milliards d’euros d’obligations entre lundi et mercredi, essentiellement grecques et portugaises.

Puis, les marchés ont réfléchi. Ils ont compris qu’on avait créé un mécanisme susceptible de dégrader la situation financière de la zone euro. Si l’Espagne devait connaître à son tour une crise du financement, l’intervention de la BCE ne suffirait pas à stabiliser les marchés. Il faudrait que la France et l’Allemagne s’endettent, pour financer le pays. Leurs notes de crédit seraient dégradées, leurs coûts de financement augmentés. On connaîtrait une véritable crise de la zone euro. La contribution potentielle de la France au plan atteint 80 milliards d’euros, soit l’équivalent de 4 points de PIB.

C’est donc la capacité de l’Espagne à s’en sortir qui va déterminer la suite des événements ?

C’est la clé de tout. On a tort de considérer l’Italie comme un problème. Avec un déficit public de 5 % du PIB, elle est loin des 11 % de l’Espagne ! Si Madrid continue à financer ses déficits sans difficulté, cela ira. Mais les marchés en doutent.

Quel est votre avis ?

Personne n’a encore dit que réduire les dépenses publiques de 1 pointde PIB ne réduit pas le déficit public de 1 point de PIB. Il faut prendre en compte l’effet négatif sur la croissance. Baisser les dépenses publiques, réduire les salaires des fonctionnaires, augmenter la TVA, tout cela entraîne une moindre consommation, donc une baisse du PIB. Moins de PIB signifie moins d’impôts. Dès lors, l’Espagne, en diminuant ses dépenses de 1 point de PIB, peut espérer diminuer son déficit de seulement 0,5 point de PIB. Sans autre facteur de soutien de l’économie, elle atteindra difficilement son objectif de ramener son déficit à 5 % du PIB l’an prochain. Il devrait se situer autour de 8 %.

Le pire serait donc à venir ?

Il arrivera un moment où l’on se rendra compte que les déficits seront supérieurs à ce qui a été annoncé. Ce ne sera pas une mauvaise nouvelle si les marchés réagissent intelligemment en se félicitant du moindre impact des plans d’austérité sur la croissance. Mais s’ils le prennent mal, et arrêtent de prêter à l’Espagne, on entrera dans une crise plus grave, qui n’épargnera aucun pays.

Que faut-il faire pour éviter d’en arriver là ?

Les politiques pourraient s’en mêler et dénoncer le caractère déraisonnable des efforts demandés en termes de réduction des déficits publics. On exige toujours plus des gouvernements, en ne leur donnant pour choix que de tuer leur économie ou de manquer leurs objectifs. Il n’est pas trop tard pour réagir. Pas trop tard pour que l’Allemagne et la Commission européenne comprennent que ces exigences sont contre-productives. Il faut revenir sur les rythmes de réduction des déficits. Sinon, il existe une autre voie, c’est que l’euro continue à se déprécier.

Sa baisse ne serait donc pas une mauvaise chose…

Tous les pays qui ont réduit avec succès leurs déficits dans les années 1990 – Canada, Irlande, Danemark ou Finlande – ont profité de mesures qui ont stimulé leurs économies (taux d’intérêt bas et taux de change déprécié). En laissant aller leur monnaie, les gouvernements ont permis un boom des exportations. Le fameux miracle suédois repose sur la dépréciation de la couronne. Cette piste doit être explorée.

Comment “organiser” la baisse de l’euro ?

En créant, par exemple, de la monnaie, selon le principe du quantitative easing, bien connu de la Banque d’Angleterre et de la banque centrale chinoise. Quand plus de monnaie est offerte, celle-ci se déprécie. Une telle politique peut se combiner avec des achats de dollars.

Est-il pensable de voir la BCE, réputée pour son orthodoxie, se lancer dans une politique délibérée de monnaie faible à la chinoise ?

Oui tout à fait, car son président, Jean-Claude Trichet, est un homme fin doté d’un réel sens politique. N’a-t-on pas vu, en peu de temps, l’Europe prendre des décisions jusqu’ici inconcevables, comme d’oublier le pacte de stabilité après la chute de la banque américaine Lehman Brothers ou la clause de no bail out (“pas de renflouement”), qui supposait de ne sauver aucun Etat en difficulté ? La BCE ne s’est-elle pas résolue à acheter des dettes publiques ? La politique de change est du ressort du Conseil européen, et les chefs d’Etat pourraient tout à fait donner l’ordre à la BCE de procéder à des interventions de change. Il faudrait convaincre l’Allemagne. Si on ne fait rien, si l’euro se maintient à 1,20 ou 1,25 dollar, et si la croissance n’est que de 1,5 % jusqu’en 2012, nos déficits se réduiront de moitié seulement par rapport à l’objectif.

En quelques semaines, la crise grecque s’est muée en crise de la zone euro. Des erreurs ont-elles été commises ? Aurait-on dû restructurer la dette de la Grèce ?

Peut-être est-ce une option qu’il faudra envisager, mais on ne restructure jamais la dette d’un pays à chaud ! Si on avait annoncé un défaut de paiement de la Grèce, toute la zone euro aurait été attaquée. Cette crise montre qu’il n’est pas possible d’instaurer une monnaie unique sans solidarité entre les pays. La zone euro a besoin de plus de solidarité et de moins de souveraineté budgétaire. Bruxelles a raison en voulant instaurer un droit de regard entre Etats sur leurs budgets, assorti d’un droit de veto en cas de dérive. Du jour où les Etats sont obligés de s’entraider, c’est nécessaire. C’est aussi la meilleure façon de réduire les déficits de façon préventive.

La chancelière allemande a-t-elle trop tardé à valider le plan d’aide ?

Les Allemands ont une vision constitutionnaliste et légaliste. Il était impensable pour eux d’enfreindre les principes fondateurs de l’Union européenne. Mme Merkel a fini par se ranger au principe de réalité.

La solution pour un pays en difficulté n’est-elle pas de quitter la zone euro ?

Un pays qui choisirait cette voie mourrait dans l’instant. L’Espagne se finance à 3,80 % d’intérêts à dix ans. Ce taux grimperait à 20 % si elle reprenait sa monnaie.

La France n’est pas l’Espagne, mais doit aussi réduire son déficit. Le plan Fillon suffira-t-il ?

Selon nos calculs, il faudrait qu’en deux ans la France réduise son déficit de 96 milliards d’euros. Le gouvernement assure que la croissance apportera 20 milliards d’euros, mais il se fonde sur une prévision optimiste de 2,5 %. S’il faut trouver 96 milliards de réduction de nos déficits structurels, ce sera compliqué. Cela représente deux siècles de bouclier fiscal ! On peut toujours, comme en Grèce, décider de ne plus payer les retraites ni les fonctionnaires. Ce n’est pas efficace. La seule façon de faire, c’est de procéder à une grande réforme fiscale, en alignant la taxation des revenus du capital sur celle du travail. Cela pourrait rapporter 100 milliards d’euros, sans dégât économique puisque ces revenus sont épargnés.

Propos recueillis par Anne Michel

Article paru dans l’édition du 16.05.10