Britannia Radio

18 February 2012 2:09 PM

Un-European: Irish butcher chopped by anti-goose liver campaigners

This is going to be a Brussels village comment, but still it can illustrate the cultural gap between the British and the Continentals that will never be bridged.

In the Mail today is a report that the Irish butcher Jack O'Shea, who has been running the top-quality butcher's shop in the top-quality food hall of Selfridges department store in London, has been forced out because he was caught selling foie gras at his counter.

Got that? He set up a butcher's shop in a department store catering for the fashionable international people in London and then is sacked for selling foie gras.

As almost any Continental would tell you: in a reasonable world, he should be sacked for not selling foie gras.

At which point I declare an interest and say that I know Jack O'Shea. Long before he was the Selfridge's butcher in Oxford Street he was the Irish butcher in Brussels.

When I moved to Brussels in 2004, many of the women in the EU Raj -- by which I mean,

wives of diplomats, eurocrats, the whole lot of non-Belgians who live in the EU bubble -- recommended to me straight away that I use 'the Irish butcher.' They all went to his shop. (Or, let's be realistic here, sent their cooks to his shop.)

So I got to know Jack -- real name, Cathal, but he decided to trade under the name of his uncle Jack, since he realised his Irish name would be difficult for the Europeans. His family have been rearing and dealing beef in County Tipperary for 200 years.

Not that getting to meet Jack was easy: getting to the top of the queue that would form outside his shop, especially towards the weekend, in a quiet street behind the Commission headquarters could take some time.

Germans would be waiting for his grass-fed organic Irish beef, French customers would be waiting for the blissful pork, and anybody from the British Isles would be waiting for the heavenly smoked bacon. Then there was the selection of British and Irish cheese, and the New World wines, and you can see why there was a queue of the EU entertainment-account upper classes outside the Irish Butcher in Brussels.

I do not know the details of what has happened at Selfridge's. All I know is that if I tell the wife of the retired ambassador one of the most important EU countries what has happened, she will be slack-jawed in disbelief. Her better-than-Ferraro-Rocher embassy parties -- 'You are spoiling us, ambassador' -- depended on meat from Jack O'Shea.

Still, apparently both Harrods and Fortnum & Mason's sell foie gras. Memo to their managment: grab Jack O'Shea and his organic grass-fed beef while you can. Before the food hall at Galleries Lafayette in Paris does.

When the Greeks default, the first thing you do is book that holiday

This is my column from today's Irish Daily Mail --

You know it’s coming. Greece is going to default on its debt and pull out of the single currency. On some Friday at 5 pm -- and it is going to have to be on a Friday evening, so the banks and every account in them can be frozen until Monday morning – the Athens government will announce that they are pulling their country out of the single currency and re-establishing the drachma.

But what happens next, what happens when the Greeks wake up on the Monday to find they no longer have euros but only drachmas?

Listen to the eurozone true believers and you will imagine that all that waits for Greece outside the euro is what used to wait for anyone outside the one, holy, catholic and apostolic church: an eternity at best in limbo, at worst in hell. They forecast a run on the banks, a flight of capital, border controls to stop the terrified people of Greece trying to shift cash out of the country, and a crippling legacy of international business contracts and debts which must be repaid – if ever they can be repaid – in euros. Then eternity in international limbo.

Better listen to someone in less of a euro-religious frenzy. Try Raoul Ruparel, the euro expert at the Open Europe think tank. He says Greece pulling out of the euro would be ‘a messy affair.’ Then he can list a load of mess, but in the end, ‘the new currency would devalue quickly making the economy competitive again and providing the prospect of an export-led economic recovery – an impossible hope within the eurozone.’

That’s more like it. Though I’m not going to say the true believers are entirely wrong. Yes, there will be a run on the banks once the Greeks suspect that the Friday 5 pm announcement is really going to come.

Or rather, a run on what’s left in the banks. People with money in Greece figured out many months ago that their country is bound to drop out of the euro. They have already shifted their multi-millions out of Greek banks. Much of the money went into Switzerland.

Indeed, the flood of Greek euros gushing into Zurich banks is suspected to be one of the reasons the Swiss National Bank last year had to take fierce steps to stop the rocketing value of the Swiss franc.

This is good news. It means that much of the big money of Greece is already abroad and safe from devaluation – and therefore ready to come back into Greece for investment once things under the new drachma calm down

And investment not least in the Greek tourist industry. Because the first result of the Greeks dropping out of the euro and into a new, cheaper drachma is that Greece will offer the cheapest holidays in Europe.

At the moment, any eurozone tourist arriving at the Athens airport is arriving with euros, a.k.a. the German currency, in his pocket. He will have to pay for hotels and meals in German currency.

Imagine instead he could take this German currency to the exchange bureau at Athens airport and buy some new cheap drachmas with it: holiday lotto win.

My advice is that the moment you hear Greece has dropped out of the euro, book your ticket to a Greek island. The Greek tourist industry will boom once the country is out of the euro.

Moreover, to return to that knock the euro true believers are warning Greek banks will take if the country goes back to the drachma, the banks are about to be made more or less bust anyway by the so-called controlled default which the eurozone is still trying to negotiate with investors.

The truth is that Greek banks, what’s left of them, are to be flattened this month or next month when the eurozone bosses finally negotiate a ‘controlled default’ of privately-held Greek sovereign debt.

The reason is that Greek banks hold vast billions of this debt. The eurozone countries are supposed to find another €23bn in these debt negotiations just to recapitalise the Greek banks after the hit of a ‘private sector involvement’ bond swap. Otherwise known as an agreed 70 percent default.

When Greece leaves the euro, or just before, it will whack the remaining 30 percent off its debt. Then it will be starting its new life with its new currency without debt. Already Greece has its finances enough in order that its revenues now pretty nearly cover its outgoings, except for the cost of financing the sovereign debt. Walk away from that debt, and, wee-hee! Free at last.

But how will the country then finance itself? By doing what it should have done in the first place. It can go straight to the International Monetary Fund in Washington and deal with their experts in debt write-offs and devaluation. Getting involved with the other two troika members, the EU and the ECB, as senior to the IMF introduced politics and the goals of the ‘European project’ into Greek’s mess.

Of course, there are practical problems to solve. First, there is the question of printing new currency. Swedish economist Gabriel Stein covered this in a 2009 report for Lombard Street Research: ‘There will probably have to be a period in which euros and the new currency circulate together, but the experience of the switch to euro notes and coins’ – and we all remember that – ‘has shown that this parallel circulation period can be fairly limited – probably no more than a fortnight.’

Euro banknotes have a code which shows which eurozone member has issued them. The code letter for Greece is Y. We can assume that during that change-over weekend a fixed exchange rate will be announced between the euro and the new drachma. So the Greek government can use ‘its’ Y-currency as drachmas until new notes are printed.

Then there is the matter of contracts and other liabilities denominated in euros. As Mr Stein points out: ‘In the run-up to EMU, this was dealt with by legislating that all liabilities denominated in the legacy currencies’ – meaning, for example, the punt – ‘would as of a certain date be deemed to be denominated in euros at a pre-announced exchange rate.’ All that would have to happen is that this process be reversed.

As for bank deposits, the Greek government could pass a law saying that all deposits by Greeks in local banks will be deemed to be in the new currency. Foreigners holding accounts could be given a choice whether to keep their deposits in euros or switch them to the new currency.

As for why foreigner would want to let his account be switched to new drachmas – which of course would be devalued against the euro, that would be the point of dropping out of the single currency – he probably wouldn’t. Which is why most foreigners with Greek bank accounts must have already shifted out their money.

Mr Stein suggests one way to deal with the danger of a run on deposits collapsing the banks: offer depositors an interest rate so high in the short term that it could compensate for the devaluation risk (Mr Ruparel suggests the banks would be nationalised, and he may be right). Or the banks could attract deposits from elsewhere, borrowing on the inter-bank market.

And after that it gets technical, but just remember that devaluation is a decision made throughout financial history by many different countries.

It’s not fatal. It’s just business. The risks can be contained, and are survivable.

But if Greece stays in the euro the pain will be more years long and deep and real economic health cannot return.

For Greece, it is well worth the suffering to be free again, free to rebuild its businesses and employment, free to attract every foreign investor to its newly cheap commercial property and newly low cost labour -- and every one of us to its beaches and tavernas.

14 February 2012 12:58 PM

Beijing to Berlin: 'Do we look stupid?'

Hat-tip to Eurointelligence for spotting what must be the quote of the day: a Reuters account today tells of requests by Angela Merkel for the Chinese Investment Corporation to buy more European bonds.

But Lou Jiwei, the head of the CIC, gave the German Chancellor the same answer other long-term Chinese investors gave her when she visited Beijing earlier this month: No.

Xia Bin, a central bank adviser, then echoed Lou's line on the chances of the Chinese buying any European sovereign debt: 'We may be poor, but we aren't stupid.'

13 February 2012 2:24 PM

Economic vivisection: what the Germans are doing to the Greeks

Following on from my last post, have a look at this just in from damn-near-right-every-time Charles Dumas at Lombard Street Research:

'The correct "haircut" for Greek creditors if the country stays in the euro is 100 percent. Greece's "leaders" know they will be dumped when Greece exits EMU [economic and monetary union]. Thank God for elections!'

'The Greek debt problem is now beyond solution within the euro. If it does not leave the euro, on the optimistic assumption that the euro does not destroy Greek democracy, its debt write-off will eventually be 100 percent anyhow, with continuing subsidies needed.'

Dumas gives lots of punchy analysis, example: 'As recently as December, Greek government

ministers and various international and European officials were saying the 2011 deficit would be 9 percent of GDP, already an upward revision from the 7.5 percent target that was set as part of the deal under which Greece got foreign financial help. Slippage in the deficit on this scale, expecially from 9 percent to more than 11 percent in little over a month, means none of the estimates produced by the various participants can or should be taken seriously.'

Note, Dumas is talking not only about estimates made by Greek officials, but estimates from the euro-bosses, the people who are trying to force all the countries signing this new intergovernmental treaty to hand over control of their budgets to them. Yes, give your financial future to this same load of proven Continental incompetents...

Then Dumas gets to this: 'Last year's Greek recession and worsening deficit took place in a relatively healthy world and European growth context. This year and next the outlook is much less favourable.'

'Germany's GDP fell in 2011 Q4, and is likely to be down again in 2012 Q1. The rest of Europe is engaged in fierce budgetary deflation and likely to do worse than Germany. Greeece, meanwhile, is embarking on another round of austerity measures, because its official foreign creditors' -- think Germans --'believe it did not carry out its commitments last time.'

'Maybe not -- but the austerity it did adopt was enough to send GDP down more than 5 percent in real terms, and nearly that in nominal terms...the tax base is shrinking too fast, and massive wage cuts will slash demand, income and spending further.'

'The debt may be cut by private-investor "voluntary' write-downs. But after that it will mount again without any prospect of peaking and then falling back...Austerity is making the deficit worse, and the debt ratio to GDP a lot worse, not better.'

In short, all the suffering through which the Greek people have been put by German demands has been for nothing.

The German-forced austerity has had -- and will have -- no more beneficial outcome for the Greeks than brain electrodes have for monkeys caught in lab experiments.

Germany's nasty little game to push the Greeks until they break

Here is an edited version of my column in today's Irish Daily Mail --

At this point in the eurozone crisis, the only question to ask is, ‘What are the Germans playing at now?’ The Irish had better figure it out, because after the Germans get finished playing it with desperate, suffering Greece, they are going to be playing it with Portugal and Ireland. And it looks like a nasty little game.

So far the clues point this way: the Germans may want to trigger a disorderly default in Greece so that Greece falls out of the eurozone – and out of the domestic political problems of Angela Merkel.

Apparently the Germans imagine that their banks are now strong enough to withstand a Greek default (I’d say the Greeks have a word for that, and it’s hubris, but German hubris is not the issue today). Therefore, the thinking goes, Merkel can now stop the bail-out loans – which clearly are never going to be repaid -- and thereby force the Greeks out of the single currency. Her taxpayers will then stop complaining that she is pouring their money into a country full of Mediterranean losers.

Here are the facts. At last week’s meeting of the eurogroup in Brussels, the euro finance ministers were scheduled to sign off on the second bailout loan to Athens, worth €130bn. But the eurogroup, controlled by the Germans, announced they would delay any agreement until at least next Wednesday. They said they would stall the pay-out because they want the Greeks to agree to another €325m in cuts.

They also said they would stall the payments because they want the Athens government to have its political party leaders sign promises that, no matter what the voters say in the upcoming elections, they will enforce the austerity policies to which the present government has agreed.

I will come back to the austerity and that demand for voter-proof political promises in a moment. First look at the €325m demand.

Chancellor Merkel has said on several occasions in the past two years that Germany and the eurozone will do ‘whatever it takes’ to keep Greece in the single currency. So you have to ask yourself if €325m is so significant a sum that these euro-bosses would risk Greece going into uncontrolled default next month and crashing out of the euro – Greece has €14.5bn in debt repayments due on March 20 -- rather than just wave the latest bailout loan through? No, it’s not.

In terms of any Western country’s finances, €325m is petty cash. There are private individuals walking around the streets of most capital cities in the world who could write a personal cheque for €325m.

The €325m is not a reason. It’s an excuse.

It’s an excuse to put more pressure on the Greeks by way of more humiliation. In other words, the Germans want to find out how far they can push the Greeks before the Greeks snap and walk out of the euro – leaving Mrs Merkel saying ‘more in sorrow than in anger’ that ‘we did all we could to help, but they decided to leave.’ (Is this German manoeuvre what the shrinks call ‘passive aggression?’ I think so.)

However it is unlikely the Greeks will snap this week. Last night the Greek parliament was due to agree to all the increased austerity as demanded by the eurogroup. As I write this, the vote has not yet taken place, but unless the Greek parliamentary whips are incompetent, the government will get the cuts through.

But will the leaders of the Greek political parties actually humiliate themselves – and their electorate – by signing public promises to stick to the bail-out deal no matter how the vote swings in the upcoming elections?

That would be the real achievement for the Germans, because their aim is to drain democracy out of EU affairs. Why? Because too many electorates refuse to see things the Berlin way.

In short, what the Germans are demanding is the end of politics in Greece. There will be only one policy on offer, whatever combination of political parties forms the next so-called government in Athens: it will be the Berlin policy.

The Irish should not be surprised. Ireland saw the end of politics when the Government capitulated to Brussels and forced the electorate to vote twice on the Lisbon Treaty (also in the way the Fine Gael and Labour blustering on renegotiating our bailout changed right into the Brussels line once the general election was over and they were in Government.)

This is why the new German-directed intergovernmental treaty demands that the laws implementing austerity must be put ‘into national legal systems through binding and permanent provisions.’

The treaty is framed to force all countries ratifying it to invent laws which are beyond the touch of any national parliament ever to be elected. This ‘permanent’ law is to be law beyond the reach of voters. It is to be law the next parliament elected in Ireland, and the one after that, and the one after that, can’t ever touch.

That’s what the Germans intend shall govern all the countries of the EU now: German-designed law beyond the reach of any national ballot box.

And that is why they intend to humiliate the Greek political party leaders this week by forcing them to sign public pledges to ensure just that. And if they don’t – well, it is now easy enough to open the trap door and let the Greeks fall out of the eurozone and perhaps out of the EU altogether.

Still, some people persist in believing the German propaganda that all this – the austerity, the troika demands on Greece, the surrender of national sovereignty to EU institutions – is necessary to ‘save’ Greece, to keep it from declaring bankruptcy and leaving the euro. (I will leave aside for the moment the fact that leaving the euro is exactly what Greece should have done at the start of this series of disasters two and a half years ago.)

But that propaganda is not true, and as evidence I give you remarks by Mohamed El-Erian, chief executive of Pimco, which runs the largest bond fund in the world. Dr El-Erian, former IMF, former advisor to the US Treasury and plenty more, was interviewed on BBC Radio 4 Today programme on Saturday. He described the policy being followed for Greece these last two years by the troika as ‘active inertia. They are active, every three months, yet another set of discussions, more drama, but it’s inertia. They basically have not abandoned an approach that has proved to be totally ineffective.’

‘What is being pursued right now is more of the same, and it will not succeed.'

‘I think that Greece has no long term option but to ask itself how do we restore growth? It leads you to the uncomfortable conclusion that Greece will have to take a sabbatical from the eurozone.’

Or in less diplomatic language, leave the eurozone.

‘It will have to go through a major debt reduction,’ that is, default.

Then it must have ‘a major devaluation to make it more competitive’ which Greece can only do once it is out of the euro and back in the drachma. ‘Then it can regain the path to sustained growth.’

Which is where we come back to the Germans and the game they are playing with Greece. Dr El-Erian said that though Greece leaving the euro is what must be done, ‘No one wants to go down in history for being responsible for this, not Greek politicians, Mrs Merkel doesn’t want it, no one in the EU wants it, no one in the IMF wants it. So because no one wants to go down as responsible for this historic decision, it doesn’t get taken, Greece continues to be stuck in this active inertia, and things get worse.’

In other words, the Germans and EU powers running Greece now know the answer is to get the country out of the eurozone. But for political reasons no one, least of all Mrs Merkel, will say so.

So this dishonest game is being played of putting so much pressure on Greece, of heaping so much humiliation on the politicians and the people, that at some point they will break and say ‘Enough, we are getting out.’

Unfortunately, this dishonest manoeuvre means that the German-led EU is piling tens of billions more in un-repayable debt on Greek shoulders as they wait for the country to reach breaking point.

Exactly the way the German-led EU has piled billions in un-repayable debt on Ireland's shoulders. As I said at the start, this game won’t stop in Athens.