20 July 2011 3:12 PM
How the EU has infiltrated the IMF
Yesterday the Washington-based International Monetary Fund released an official statement from Antonio Borges, the director of its European department, about the rolling crisis in the eurozone.
Now, background: given the purpose and methods of the IMF, it was a surprise when it became entangled last year with the EU and its bail-outs. The Brussels-directed 'rescues' excluded the possibility of debt-crushed eurozone countries such as Greece being allowed to default. Yet the IMF's way of operating usually includes as a first step a default on the struggling country's sovereign debt. But the EU sucked the IMF into the eurozone problems as a junior partner anyway.
You can reckon the IMF only agreed to this because at the time Dominic Strauss-Kahn was running the fund and he wanted to paint himself as the saviour of the eurozone -- that would be his selling pitch for the French presidential election.
Terrifric, he's gone, but now unfortunately Christine Lagarde, another French euro-cult technocrat is in charge. Despite her appointment, some of us had hopes that the most powerful of the IMF's 187 members would insist the fund pull back on involvement in the eurozone: they have realised by now that what is supposed to be liquidity provided by 187 different nationalities of taxpayer, all to be repaid, is in fact billions poured down a deep, deep hole, little of which will ever be recovered.
So yesterday's announcement from Director Borges of the IMF's European department was a surprise. Instead of saying --as one would expect any IMF expert to say -- that it's time for the weak eurozone countries to get out of the poisonous currency union and default on their debts, the director said: 'To put the crisis behind, we need more Europe not less.' He went on about expanding the bail-out fund into a vehicle for buying government bonds and to recapitalise banks.
What?
I couldn't understand how that perfect European Commission propaganda line come out of the IMF headquarters in Washington. So I checked out what path Borges took to the IMF: the 2010 annual report of European Corporate Governance Forum -- a creature of and advisor to the European Commission -- lists the Portuguese Borges as a member. He also worked on the whole economic and monetary union project.
Eurozone crisis: markets in turmoil, eurocrats in denial. Or in Tuscany. Or in...
This is my column from today's Irish Daily Mail.
In among his figures are these: Italy, perhaps on the brink of sovereign debt default, has close to two trillion euros in debt outstanding. But the entire euro system – that is, the European Central Bank plus the 17 central banks sharing the euro – has a combined balance sheet of only 1.9 trillion euros.
OMG.
Consider those figures, then look at how the Italian two-trill compares with the entire GDP of Germany, the Netherlands, Finland and Austria. The total sum is about €3.5 trillion. So, according to Prof Johnson, you will see ‘Europe does not have enough fiscal firepower to handle an Italian crisis.’
Tom Stevenson, an investment director at Fidelity International, wrote this in the Daily Telegraph on Saturday: ‘Italy has become a proxy for hedge funds betting on a break-up of the eurozone. The markets are trying to force the issue, weary at the politicians’ failure to tackle the long-running sore at the heart of the European crisis.’
Which is why the next few days in the markets may be dramatic. The pretence that any of the PIIGs countries can be saved from default by piling more debt and austerity on these struggling economies and calling it a ‘bail-out’ is over. It is no longer a question of whether Greece and other eurozone countries will default on their debt, but when, and which banks are going to get hit worst by the losses.
And yet a sovereign default – which would be the starting pistol for a eurozone break-up -- was not included as part of the European Banking Authority stress tests which were released on Friday after the markets closed. We will see when the markets open this morning just what investors think of that EU attempt to fudge the threat of default.
More, we will see what financial analysts found over the weekend in the statistics released on individual banks, especially in relation to asset disclosure. Stand by for market attacks on any country with banks whose assets the analysts have decided look dodgy.
Instead of political and technical leadership, we just get more meetings. Last week it was the eurozone finance ministers, followed by the EU finance ministers, and this Thursday an ‘emergency’ summit of the heads of state and government of the EU. It is supposed to agree to save Greece (again) but this time with private investors taking some of the pain and lower interest rates and longer pay-back times for the Athens government.
Note to EU leadership: Greece was yesterday’s crisis, and if you think today’s crisis, which is to say, the going-over-a-cliff vast economies of Italy and Spain, are going to be saved from default by the tweaks made to the deal for the small economy of Greece, you are wrong again.
Yet the leadership insist this meeting will be an ‘emergency’ summit that will stop the Greek problem leading to contagion across the rest of the eurozone. ‘Emergency?’ The fact that the EU leaders were not in Brussels over the weekend, signing up to the agreement before the markets were ready to open today, shows they haven’t grasped how quickly events may move this week. They have no sense of urgency.
So this week the markets could rip up a big chunk of what’s left of the eurozone project. I don’t know if they will, but I do know that this idea the EU leaders and eurocrats are putting around that the ‘permanent’ solution to Greece and the rest can wait until September, after the holidays, is absurd. Do they imagine that investors with billions in eurozone assets are going to put their decisions on hold until President Sarkozy and Carla get back from the South of France?
‘What’s happened over the last few weeks is that the timeline for that has been compressed. The markets have been clamouring for clarity that has not been forthcoming, and in situations where there’s uncertainty people tend to reach their own conclusions and the markets get very volatile.’
‘I’ve been saying for a while that they [the peripheral countries] haven’t got until the end of the calendar year, but that they’ve probably got the summer. But now I think they’ve probably got some of the summer. You wouldn’t want to see the current situation perpetuated across August and into September.’
And yet that is just what we will see, no matter what sort of ‘solution’ is signed by the EU leaders on Thursday. This thing will drag on through August and into September. Then what the EU leadership will come up with as a permanent solution will be to turn the EU into a fiscal transfer union. They will claim the crisis is so severe that fiscal union is the only solution.
Put aside for the moment that that would mean the surrender of what is left of the financial and economic independence – in other words, the national sovereignty -- of the members of the eurozone.
In other words, it would mean rule of this country, in a phrase from the Greek economist Yanis Varoufakis, by ‘a junta of foreign officials.’
That would be repulsive enough, even if a new centralised EU fiscal regime showed some economic skill. But just consider how badly-judged every decision by the EU leadership has been, not just since the beginning of the eurozone financial crisis, but since the beginning of the eurozone itself. In particular, Italy and Greece should never have been admitted. There can be no reason to expect that once Brussels has control of a unified fiscal zone its economic judgement will be any better.
So this fiscal union which will be proposed for the eurozone would mean more than just government of this country by a foreign junta. It would mean government of this country by a Brussels regime which lacked technical expertise and political leadership: it would be not just a junta, but a bungling junta. No wonder the markets want out.
Grab any history of the French Revolution you might like -- Simon Schama's 'Citizens' is always handy -- and consider any one of the tens of thousands of slaughters being celebrated in France today.
Here, just as an example, is an account of the day the revolution hit the prison at Bicetre in Paris. It was common criminals and beggars held at Bicetre -- not political prisoners or rich men or anyone of power under the old regime. That made no difference to the butchers of the revolution. Egalité meant anyone could be slaughtered, no matter how poor or helpless they were:
"Forty-three of the 162 persons killed at Bicetre were under 18, including 13 age 15, three age 14, two age 13 and one 12-year-old."
At the same time at another Paris prison, Salpetriere, "over 40 prostitutes were killed after being, in all likelihood, subjected to physical humiliation at the hands of their killers."
What sort of humiliation did the heirs of today's Republique hand out to women? Here is the account of what happened to the blameless Princesse de Lamballe, whose only crime was loyalty to the Queen. The princess was imprisoned at La Force, when suddenly she was "confronted by another of the improvised courts that would be judge, jury and executioner" -- and that is as good a definition of a mob as I've ever heard. She was "required to swear an oath of loyalty to Liberty and Equality and one of hatred to the King, Queen and monarchy, she accepted the first but refused the latter."
So, "a door was opened off the interrogation room, where she saw men waiting with axes and pikes. Pushed into an alley she was hacked to death in minutes. Her clothes were stripped from her body to join the immense pile that would later be sold at public auction, and her head was struck off and stuck on a pike."
"Some accounts, including that of Mercier [a well-known French writer at the time of the Revolution], insist on the obscene mutilation and display of her genitals..."
The French were keen on such mutilation. When the Swiss Guards -- the most courageous and honourable of men in the revolution -- were overwhelmed by revolutionary mobs while standing by their duty to the king at the Tuileries palace: "They were given neither shelter nor quarter. Hunted down, they were mercilessly butchered: stabbed, sabered, stoned and clubbed. Mutilators hacked off limbs and scissored out genitals and stuffed them in gaping mouths or fed them to the dogs."
Meanwhile today here in Brussels, the military band has been marching up and down in the park outside my apartment, practising the Belgian anthem for their National Day next Thursday. In the park is a large white marble monument to King Leopold II, the 19th century monarch who tried to rip out the Flemish culture and architecture of Brussels and make it French.
A Belgian lawyer once described Leopold to me, with no more than a shrug, as "our Hitler."
Too easy a comment. On this day at least, I'd say Leopold was rather more French than German.
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