Monday 30 January 2012

Has Angela Merkel gone stark raving mad?

The normally sure-footed German Chancellor may be exhibiting signs of a disease common to politicians who’ve been in office for some time. This disease is called different things in different languages, but the root cause is a loss of touch with reality after years in political power.

On Friday, a German policy paper was released which advocated the appointment of a “European commissioner” for Greece, who’s job would be to monitor spending, and implement a policy whereby any income in Greece would first be used for debt service, with anything remaining to be used for normal operational expenditure.

This proposal, redolent of new economic order proposed by force of arms not so long ago by another German, has stirred up outrage not only outside Germany, but even within it. Members of her own Christian Democratic party spoke out against it, as did political leaders across the political spectrum. Martin Schulz, President of the European Parliament, stated that the idea of yet further austerity in Greece was absurd, as the current recession was driven by Troika policies. Merkel was forced to backtrack upon arriving in Brussels this afternoon, but it’s clear that the fiesta is not over.  

A second proposal was also apparently leaked over the weekend, which maintained that Angela Merkel would appear together with Nicolas Sarkozy at the latter’s campaign rallies for the French presidential elections. As reported by The Guardian:

Hermann Gröhe, general secretary of Merkel's Christian Democratic Union (CDU), confirmed at the weekend that she would "actively support Nicolas Sarkozy with joint appearances in the election campaign in the spring".

It is hard to think of a worse proposal, although there have certainly been a record number coming out of Berlin lately. There will be two likely winners from such an event: on the right, Marie Le Pen. On the left, Francois Hollande.

These two proposals, as ridiculous as they appear, are unfortunately a sign of weakness on the part of Germany’s Chancellor. She knows that domestically there is absolutely no appetite for a second Greek bail-out, despite the commitments she and her Minister of Finance have made at various European summits. Her only option is to “bash” Greece in hopes of saving it. This is an old tactic: it dates back to early 2010.

Furthermore, it’s also clear that if Francois Hollande wins in April/May 2012, the famed Merkozy engine that’s been running the Eurozone’s fiscal policy probably runs off the tracks, all protestations by Hollande to the contrary. Given these problems, as well as slowing European and German growth, I can imagine that Berlin is clutching at straws.

Yet on the Greek side, the crisis is deepening. I sincerely doubt that political leaders will be able to make any further austerity commitments before a national election. Yet these are now being demanded by the Troika, despite past IMF comments that "further austerity should be avoided." 

Furthermore, any election held will likely result in a coalition government with widespread, violent resistance by the opposition, leading to yet more policy paralysis. And in the meantime, the real economy is worsening, with real unemployment far above 20%, record company closures and emigration, declining consumer spending and further recession.

Worsening the sense of the impossible is the fact that neither the government nor the Troika is doing a very good job of communicating either the policy objectives of the reform programme, nor the actual implementation record of these goals. Look for a “balanced scorecard” for Greece, and you will look for a long time without result. The only source of monitoring is seen on the Ministry of Finance website, but this concerns only the financial situation, and is barely communicated adequately. What is surprising is just how badly decision-makers in European capitals appear to be, judging by comments made in the past 24 hours.

As a result, the Greek crisis train continues to choo-choo along the tracks, entertaining hedge funds, bankers and journalists everywhere. So long as Greece is the apparent source of the crisis, it is hoped that Spain and Italy can refinance unscathed. Something tells me that this happy scenario will not last too much longer. 

© Philip Ammerman, 2012
Navigator Consulting Group

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