After the fall - by Richard... Thursday, February 23, 2012

After the fall - by Richard... Thursday, February 23, 2012

What have we missed? That was the question we were putting yesterday – although it seems long ago in the distant past, so fast are events moving.

The answer now comes, embedded in a leader in Deutsche Welle, which reiterates the obvious – that Greece is bankrupt and that the bailout is going to fail. But, crucially, it then says: "This may happen by the fall, by which time Spain and Italy have hopefully restabilized".

In other words, while the focus is on Greece, the real action is on the Spanish and Italian fronts (and, presumably, Portugal). The aim is to stabilise their economies and erect the famous "firewalls" to prevent "contagion". Once the protective measures are in place, the Greek economy will be allowed to crash and burn – but only then. At the moment, it is too early.

Up front, the pretence is there – that these measures are being put in place to save the Greeks. But the fact is that the bailout has nothing to do with the Greeks, per se, and everything to do with protecting the eurozone, and the banking system. Put it any way you wish – Greece is the sacrificial lamb. When its time comes, it will be slaughtered.

Significantly, this is being dealt with by DW as an economic issue, and a separate report has Hans-Werner Sinn, head of the Ifo-Institute for Economic Research, telling us that: "The plan to radically revive the Greek economy with the euro is an illusion". By way of balance, we are also told that the "troika" denies that it is buying time.

Therein lies the real illusion – the picture of the gallant "colleagues" battling away to save Greece, their struggles becoming an all-absorbing soap opera. In the real world, Greece is being positioned for a fall. The only thing not decided is the exact timing, although the autumn is pencilled in, when everybody is refreshed after the summer break. Here, the Americans describing autumn as "the fall" is rather appropriate.

Nevertheless, the plans for Greece are not as brutal as they may appear. The general view is that its economy cannot prosper without growth and, to achieve that, it must be restructured. That, it is felt, will not happen until the plug is pulled. Then, with Greece out of the euozone, the talk is of a Marshall Plan type of package that will put the country back on its feet.

So far, so good, but the economic calculus ignores the human side and the prospect of a long hot summer of riots in Athens and elsewhere. And what may be planned as a managed retrenchment by "colleagues" may be seen from the outside as a headlong, disorderly retreat.

In politics, impressions are everything. Politics themselves are an illusion – the art of managing expectations, and it is here that most damage may be done. If the Greek collapse is seen as a disaster, the knock-on effect throughout Europe may be severe, especially in terms of the European Union's credibility.

So far, the commission seems to have played a reasonably successful hand in diverting attention from itself. With Merkel in the frame, we hear little of Olli Rehn, and not a lot about van Rompuy, even though these two are also major players. And the current wave of Germanophobia, as Helen noted, also serves to keep attention off the malign role of the commission.

What we can then expect in the autumn, as Greece is finally allowed to sink under the waves, is the announcement of a grand rescue package – an EU rescue package, demonstrating the solidarity of the "colleagues" and the strength of the project.

In the meantime, the game is to keep us focused on the soap opera, and the endless guessing game. This will allow the arch manipulators to bide their time and spin the publicity to a gullible media and largely indifferent public, bored and baffled in equal measure by the ongoing drama.

After the fall, we will be presented with the images of "Europe" be coming to the rescue. And as long as that sticks, the illusion of power will be maintained and – the "colleagues" hope – the revolution will be deferred yet again.

COMMENT: "LES GRANDES LIGNES" THREAD

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Les grandes lignes - by Richard...

The Financial Times is now reporting on a scrap between the IMF, the US administration and – once again – Germany. There also seems to be a divergence of opinion between Germany and the Netherlands.

The German government, we are told, is set to resist increasing the size of the €500 billion European Stability Mechanism, the so-called "firewall", held as a back-up fund to shore up ailing economies in the case of a crisis, so preventing the dreaded "contagion".

Elsewhere, we see ZeroHedge reporting on "negative salaries" for some Greeks, making them worse off than "the run-of-the-mill slave". This is, we also learn, on top of another phenomenon - "negative gold".

Such detail and much more is complicating the reporting of the current crisis. Relying on market signals, though, will only take us so far. The market has its own agenda and a very narrow perspective. As Kenneth S Rogoff, a professor of economics at Harvard, says: "I am amazed by the short-term psychology in the market".

Getting bogged down in detail, and the baffling torrent of jargon, simply obscures les grandes lignes. It is this bigger picture that we must keep in focus, the one that is telling us, with increasing clarity, that Merkel is protecting her domestic position , fearful of a backlash "within her own centre-right coalition, and from public opinion".

The Guardian is telling us that several MPs from Merkel's conservatives and her junior partner, the Free Democrats (FDP) are planned to oppose the bailout package, when it comes in front of theBundestag next week. On present calculations, she is unlikely to win a vote on the deal without the humiliation of relying on her socialist and green opponents .

This, of course, is not a sign of strength, but one of weakness, turning the conventional narrative on its head. As we have seen on earlier occasions, Germany is not calling the shots, the leader of a homogenous grouping comprising the so-called "troika" and the member states.

Rather, we are seeing evidence of what could only be inferred – that there are serious stresses within the different groups of players, and between the groups themselves. Merkel is having to respond to differing and conflicting international players, while squaring them with the demands from her own electorate. And, as the circle gets wider, calling in parliamentarians and cabinets from all the eurozone member states, the discord is going to get greater.

One of the most recent of the stresses to break out into the wider public sphere is the tussle with the IMF which, under pressure from Washington – the fund's biggest provider – is trying to reduce its exposure, dumping as much risk as possible in the laps of the Europeans.

Without needing to go into the details, that itself betrays another strand of nervousness, reinforcing the almost universal view that the Greek deal is going to go belly-up – not if, but when.

Yet to get its fair share of publicity is the bond deal with private bondholders taking the so-called "haircut" of 70 percent, reducing the Greek debt by €100 billion. The shenanigans over this deal, we are told, are going to poison the bond market, with untold consequences.

Such detail on economic issues, however, must not obscure the bigger picture – that Greece is going to default. This, incidentally, is now the view of Fitch Ratings, which is saying that it is "highly likely in the near term".

When that happens, it will initially be an economic event, but it will also become a major political event, which will then dominate proceedings (as do they do now, although less obviously), with huge ramifications.

Here, one wishes that our own politicians (and media) were more on the ball. The economic "contagion" is going to be matched by some pretty heavy political fallout – in Greece initially, but then spreading to Germany and rippling out from there.

Economics apart, the resultant fallout is going to redefine European politics, in a way that we can only guess at. At the end of a decade or so, we are going to see a Germany more and more detached from the EU. At the moment, against the combined might of the "colleagues", Merkel drew back from Armageddon, but that is not always going to be the case. German obedience can no longer be taken for granted.

Thus, while the economic events may for the time being dominate, puzzle and frustrate, we must never lose sight of those political grandes lignes. They, not the bean counters, decide the fates of nations.

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Fakegate breaks cover - by Richard... Wednesday, February 22, 2012

It seems the Gleick story is breaking cover in the British press. However, he is getting rather gentle treatment - more gentle than he deserves.

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And for the anally retentive - by Richard...

… all those people who got so terrible sniffy about this blog, when we started warning of a revolution. But now the Failygraph is coming to the same conclusion, are we now permitted to discuss such things?

The interesting thing is that we are self-evidently in a pre-revolutionary situation but, despite thelong-standing violence, there is no real evidence of an incipient revolution.

As we remarked recently, the equipment and tactics for dealing with street disorder are such that it is difficult for a crowd to prevail. Thus, we concluded, talk of an uprising may be premature, and even without substance. More to the point, possibly, there is no ideology which can motivate and unify the opposition.

However, since the great Failygraph has spoken, I suppose we must defer to their greater wisdom, although one does wonder (above). If this is what the EU is bringing us to, why is it that the paper wants us to stay in? What is this great "compromise" that it has in mind?

COMMENT: "WHAT HAVE WE MISSED" THREAD

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Silence is not golden - by Richard...

When even the notoriously europhilic Independent newspaper comes up with such headlines, alongside the Guardian, which is similarly pessimistic, one has to conclude that the game has entered a new phase.

It certainly makes a contrast from the widely promulgated remarks of the preposterous Osborne, here in the Metro (below), which can only be for public consumption. Not even that arrogant fool can believe what he is saying, so one assumes that he is going through the motions of supporting the "colleagues".

Elsewhere, we get little relief either, not even from Ambrose. A day late, he has been overtaken by events and is offering very little that hasn't already been said, or could have worked out for ourselves.

But there is no point in pretending that this is capable of rational (i.e., predictive) analysis, or that we can get insight from secret documents or these high-level, magical anonymous sauces. We are breaking into new territory here – uncharted waters.

Perhaps one should rehearse what is meant by "unprecedented". It actually means what it says … without precedent. Strange though it might sound, this then means that there is little to be gained from looking to earlier examples for guidance – there aren't any.

Ambrose makes a big deal about the electoral arithmetic of the coming Greek election, when it seems certain that the left wing/Communist alliance will sweep the board – possibly leading to repudiation of the bailout conditions.

That, though, is not until April and, before that, a number of eurozone member states must seek parliamentary ratification of the bailout deal, the biggest of them all being Germany. So far, theBundestag seems to have been kept out of the loop and, in the ordinary course of events, one might expect it to roll over and do Merkel's bidding.

But these are not ordinary times and, while Merkel is currently riding high in the polls, things could change very quickly. Thus, 27 Feburary, when the issue is pencilled in to go to the German parliament, could be another of those turning points.

As interesting is the role of the French, and in particular Sarkozy, who has been quiet of later. From the time when the "Merkozy" were dominating the news, and the odd couple seemed poised to move in with each other, they have been invisible as a pair over the last instalment of the crisis.

Unseen or not, the two will undoubtedly be talking, and the motor of integration has not yet stalled, and when it drops out of the limelight, then is the time to be alert. This dimension cannot be ignored – silence, in this case, is not golden.