Europe — A Catastrophe in Progress
By Peter Mills.
Greece is in trouble, with justified strikes and riots by the ordinary citizens in protest against the eye-watering poverty decreed by the Greek government for generations to come as the nation’s price for joining the European Union.
It is extremely likely – indeed, 100% inevitable – that despite all the government-enforced cutbacks on services, pensions etc. etc. Greece will have to default on paying off its international debts and the interest these accrue.
This has caused utter panic amongst the European Leader’s Club, whose united brains have been monumentally unequal to the task of finding any workable solution to the plain and obvious fact that any economic patchwork of separate member states will not rise towards the level of the best-run and most affluent members, but will sink towards the level of the poorest and more badly run countries.
This fact, indeed, is why any country applying to join the Eurozone economy is required to first prove that it meets certain minimum economic conditions and requirements. What a shame that the European leaders failed to factor-in to their calculations the normal human tendency to lie, boast, falsify the account books and juggle figures in order to get a leg-up onto the sumptuous European banqueting table. As a result of this European naivety – or sheer incompetence if one does not wish to be kind – the poorer and more badly-managed countries of Europe have sat down to dine in a restaurant where they are unable to pay their share of the bill.
The result is that other diners at the same European table are obliged to pay more than their share of the bill in order to cover the cost of the banquet, which is turning out to be far less appetising than the beautifully illustrated invitation originally promised. Indeed, some of the diners are beginning to choke as they witness the ominous increases in their own share of the bill with the serving of each course, increases which make their own membership of the European diner’s club an increasingly unappetising proposition.
In October 2011, the European Leaders Club declared a substantial increase in the EFSF, the grandly-named European Financial and Stability Facility, or to give it a less fancy title, the emergency bail-out fund. The best way to understand the EFSF is to think of it as a plate placed on the table onto which diners with more money than those who have falsified their membership accounts are required to throw their loose
change and some IOUs in the hope that the amount raised will cover at least some of the unpaid portion of the bill.
This, of course, also serves to badly embarrass those countries at the banqueting table who might also happen to have “bent the truth” a little regarding the health of their finances, or to have got into difficulties since joining Europe. As the plate is passed round the table and countries like France, Germany and Britain pull out their wallets and drop cash into the collection (yes, although we are not in the Eurozone, we still have to pay money one way or another towards the settlement of the bill), there will be other diners who open their own wallets and nothing pops out except a few well-fed moths.
The best-fed moth at the moment is Silvio Berlusconi, prime minister of Italy. Under the devious and decidedly shady Berlusconi, a bosom buddy of Tony Blair (like attracts like!) Italy, mirroring its most famous modern statesman Benito Mussolini, arrived at the banqueting table with a pompous, overbearing, overstated and gaudily dazzling splendour, eager to play the part of the wealthy gourmet whose presence at the table would automatically raise the quality of the banquet. Unfortunately, when the bill was presented to the diners, the Italian wallet was found to have nothing left in it but cobwebs.
With her amazing insight into science-fiction, Chancellor Angela Merkel of Germany has stated: “Italy has great economic strength,” adding by way of a reality check; “Italy does also have a very high level of debt…” If this remark by one of the European Union’s leading lights is analysed, it translates into ordinary human terms as; “Italy’s household income is trying to catch up with Italy’s household expenses!”
The total debt of the Italian government is one of the highest in Europe, standing currently at 118% of the country’s gross domestic product. Reduced again to simple human terms, this is equivalent to you earning £100 a week at work, but having to pay train fairs of £118 a week to commute to and from work. This is not what any normally sane person would classify as “…great economic strength”.
It is now looking increasingly likely that, as the plate for the collection is passed around the table and the chink of coin on china fills the air, when it reaches Italy the Italian government, instead of contributing, will need to pour the contents gathered on the plate into its own wallet just to metaphorically live another day! In Eurospeak, or possibly Merkelspeak, this means it is becoming increasingly acknowledged that the major recipient of the unimaginable one trillion extra Euros ordered by the European Leaders Club to be paid into the bailout fund will be fed into Italy like a black hole devouring solar systems. Any residue will go to Greece.
Far from displaying Angela Merkel’s appellation of “great economic strength”, the price Italy must now pay for borrowing has reached record levels, resulting in stock markets at the end of last week failing to rally at the good news that the European Union is adding in a single stroke one trillion Euros to its own aggregate debt. The 6.06% which Italy is now obliged to pay to borrow money over 10 years is the highest rate of any European country since the creation of the ill-fated Euro twelve years ago.
Unsurprisingly, last week the Italian government failed to meet its borrowing target, having hoped to sell up to 8.5 billion Euros worth of international bonds (government IOUs) and only managing to sell 7.9 billion, even at the new record interest rate. This reflects a growing apprehension amongst buyers that the Italian economy will not survive long enough to honour the full amount of its IOUs and will – like Greece – be compelled to default on its debt repayments. Once more reduced to normal human terms, this is equivalent to a house owner whose business is going bust being refused an additional mortgage by a building society that has examined his books, because the house is not worth as much as the money the man seeks to borrow.
In a very real sense, Italy’s financial problem is different from that of Greece, or indeed that of Ireland, Spain, Portugal and other countries. The big difference is that the debts of Italy are not the debts incurred by the Italian people, such as by exorbitant mortgages in ridiculously high housing prices or by extravagant benefits systems. The economic crisis in Italy can be laid squarely at the feet of its politicians, including its current prime minister.
Over the years and continuing today, the Italian government has permitted the rise of vested interests in business, weak investment in internal development, appallingly bad financial regulation and lethargic industrial growth to flourish. The annual economic growth rate of Italy since 1996 has averaged a very meagre 0.75%, a far lower rate than it has to pay on its debts. This means that the debts incurred by the Italian government are inevitably growing faster than their ability to repay them.
This has also meant that the ordinary people of Italy have been “short changed” by their government – the cost of public services and the benefits system is significantly less than the amount of money paid into government coffers by taxation. However, despite internally earning more from taxing the people than it spends in looking after them, because the economy is weak due to government incompetence, bad regulation and corruption, the government has needed to borrow copiously in a vicious spiral of inflation since at least 1992 and must now keep on borrowing even more just to pay the instalments on its debts.
It is obvious to everyone that a financial situation in which a country’s debt is growing like a snowball rolling downhill must, sooner or later, explode. Greece is already in the process of exploding. In Italy, the fuse is spluttering away.
The European Leaders Club is becoming anxious to force Italy to take the same drastic cuts in expenditure which have already sparked off nationwide strikes and riots in Greece. However, even if Europe forces Italy to do this, the experience with Greece is showing the ineptness of this plan. Such radical cuts in government spending are resulting in runaway unemployment in Greece (on September 6th the Greek finance minister announced that 150,000 public sector jobs alone were being cut).
Such explosions of unemployment serve only to increase the borrowing of the government instead of reducing it! In effect, the radical cuts of government spending in Greece show that this European-imposed policy is actually equivalent to pouring on petrol in order to douse a fire. Ireland, Spain and Portugal are next in the growing queue of European countries lining up for a shattering national bankruptcy.
It is unlikely that the European Union can survive its own self-inflicted financial implosion. Some writers (such as Dominic Sandbrook in the Daily Mail of Saturday October 29th) have even suggested that the final triumph of the European Union will be another great European war even worse than those of 1918 and 1939.
In Britain, we are still being told by our ruling politicians that our increasingly costly membership of the European state is highly beneficial and that to resign from Europe would be a national calamity, and that the collapse of country after country in Europe will be halted by the wisdom of the German Chancellor. And we still believe this? So did Neville Chamberlain!
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