Category Archives: Euro
Fresh money troubles for Italy as outdated vending machines spit out 90% of new ‘anti-forgery’ €5 notes
In the grip of its longest recession and battling problems from soaring youth unemployment to bank credit stagnation, the eurozone has more than enough to worry about as it is.
But now there are reports of a fresh and rather more basic challenge to the single currency: in Italy, people are having trouble using its newest note to make some payments.
Brought into circulation on 2 May, the new €5 note was praised for its enhanced security features, which the European Central Bank (ECB) said would help combat forgery. The other denominations in the Europa series of notes will be introduced over the next few years.
However, in Italy, the new note is reportedly being rejected by many vending machines whose software is not up-to-date enough to recognise it. An experiment carried out in 10 cities by the daily newspaper La Repubblica found that, in 90% of cases, the notes were returned to the customer. The goods affected included tickets for local transport and car parks, cigarettes and petrol.
The ECB said it was aware that there were some problems with the transition period, but said the figures quoted in La Repubblica should be taken “with great care”. The change had been announced in November, it added, and it had worked since then with banknote equipment manufacturers to prepare the ground.
Introducing the second-generation note earlier this year, the ECB explained that it bore the portrait of Europa, a figure from Greek mythology, and was more durable due to a different coating. The old €5 note will continue for a while to circulate alongside its successor before eventually being withdrawn.
Eurozone crisis as it happened: Italian PM warns EU could ‘implode’ without action on growth and jobs
Enrico Letta says Europe must end its timidity on issues such as youth unemployment, or voters will ‘make it implode’Graeme WeardenNick Fletcher
Two flawed analogies are trotted out: comparing the eurozone to Argentina’s 1990s dollar-pegging, and the EU to the US
A true giant of modern thought, Ludwig Wittgenstein believed that all problems in philosophy arise from the misguided use of language. Although this opinion, put forward in his early writings, seems far-fetched nowadays, Wittgenstein had a point.
Since the start of the sovereign debt crisis, two false analogies have prevailed in the public dialogue regarding Europe: the first draws parallels between the present situation in the eurozone periphery with the crisis in Argentina in 2001, while the second, especially popular in the British press, compares the European unification process with the federalisation of the United States of America.
Starting with the first analogy, it is almost impossible to follow the debate on the euro crisis for a week without bumping into an article that likens Greece and the rest of the European south to Argentina. The most recent example I saw, is by Thomas Catan and Marcus Walker, published in the Wall Street Journal, on 19 May: “Like countries that joined the eurozone, Argentina in the 1990s gave up control over its own currency, fixing it 1-to-1 to the US dollar… Like euro members today, Argentina had to grin and bear it until wages and prices fell far enough for the country to become competitive again,” reads the article. The authors claim that Argentina should be “a cautionary tale” for leaders in Europe, because Argentineans, like Greeks or Spaniards, supported the peso’s peg to the dollar, until they suddenly stopped.
The analogy is outrageous. Argentina, like dozens of countries before and after it, had opted to peg its currency to another, namely the dollar. In fact, this is not unusual in international economics. The 17 members of the eurozone, on the other hand, have chosen to denounce their own currencies and “irrevocably” adopt another. I sometimes wonder how the hell people cannot see the difference here: the drachma, the lira, the deutsche mark, simply do not exist today. Hence, no one can unpeg them from the euro or the dollar. Let me put it another way: Argentina devalued its own currency; Greece will have to introduce another one. The new currency will not be the drachma of the 1990s. It will just have the same name as the drachma.
True, no decision in politics is truly irrevocable. So the Cypriots or the Greeks, for example, could choose to ignore the logistical chaos of abandoning the euro and print a new currency. But will the new currency, which will be issued by effectively bankrupt states, have any exchange value whatsoever? Will the Russians accept it in exchange for oil, and the Americans in exchange for medicines? Especially Greece, which, unlike Argentina, is not a net exporter of raw materials (or any materials for that matter), will have no means to support the new currency. Greeks can print as much as they like of it, but will they be able to buy electrical appliances, cars or even foods produced abroad with it? The answer is no. Sure, they will be holding real money in their hands, but they will still be “poor”, probably much poorer than they are now.
There is another, even more obvious difference between the eurozone and Argentina. The government of Buenos Aires chose to unpeg its currency from the currency of a foreign nation. In the case of eurozone, the single currency is the most crucial part of an immensely complicated structure of unified decision-making we came to call the European Union. Like the euro, the EU is also a unique construct in modern history and all analogies drawn between it and other cases of economic crises are unfounded. The EU is based on the premise of an “ever closer union”. Sure, you can slow down the whole process and even bring it to a halt, as the British government demands. But if you put it in reverse gear by dissolving the euro, this will trigger a chain reaction of “renationalising” that will bring the EU to an end. And that is only the best-case scenario. In fact, the most likely scenario is that the chaos that would ensue immediately after the dissolution of the euro would lead to the sudden death of the EU. It doesn’t take a genius to understand that the economic, political and geostrategic stakes are immensely higher for the eurozone member states than they were for Argentina in 2001. I am not arguing that such an eventuality is impossible, but it will be like nothing we have seen before, just as the EU is like nothing we have seen before.
And that brings us to my second point. The term “United States of Europe,” which is so often used in the British press, mistakenly likens the EU to the USA and implies that Brussels is (or soon will be) the capital of a federal state. Nothing could be further from the truth. In every single federal state in the world, the central government is responsible for “high politics”, most notably defence, foreign policy and budget. Local governments, in turn, are relatively free to decide on “low politics” issues, like schools, healthcare, etc. What happens in the EU is exactly the opposite. Its member states are close allies (most are members of Nato anyway), but they do not have a common defence policy. There is some degree of coordination in foreign affairs, but rarely unanimity, let alone central planning. And the central budget of the EU is just 1% of the region’s total GDP. The nation states collect taxes and decide where and how they will spend most of their money. The fiscal pact, which was voluntarily signed between sovereign EU governments, just puts a limit on how much they are allowed to spend.
Unlike federal states, the EU is responsible for the micromanagement in “low politics” fields. It is obviously annoying for some of us to have Brussels decide on trivial things, but it is also the only way for a single market to function. Someone needs to draw and enforce the rules for competition, trade, patents, recognition of professional qualifications, etc. Otherwise, the free movement of goods, capital, services and people that makes the EU by far the largest market in the world would be impossible. In fact, it is the member states and the representatives of national governments who decide most of these rules, in the Council of Ministers’ meetings. The EU commission largely suggests directives to member states, implements their decisions and acts as the guardian of the treaties as national governments have agreed. Even for the eurozone member states, the most powerful decision-making body is not the commission, but the Eurogroup, which comprises of the finance ministers of member states.
In other words, both the EU and the eurozone are unique structures. Analogies with the US, Argentina or other places in the world, are erroneous and only confuse the issue. So please, colleagues, just stop it, if for no other reason than that Wittgenstein would be furious with you.
Move to ensure olive oil is served in non-refillable bottles condemned as weirdest decision since curvy cucumber ruling
EU bureaucrats have been ridiculed for shifting their focus from fighting the eurozone’s debt crisis to impose strict rules on how restaurants serve olive oil.
From 1 January eateries will be banned from serving oil to diners in small glass jugs or dipping bowls and forced instead to use pre-sealed, non-refillable bottles that must be disposed of when empty.
The European commission said the move was designed to improve hygiene and reassure diners that olive oil in restaurants had not been diluted.
But critics say the rules are a sop to Europe’s olive oil producers, and will only add to the frustration felt by many towards a bloated bureaucracy regarded as out of touch with ordinary people.
The commission said its proposal was supported by 15 of 27 EU-member governments, including the continent’s main olive oil producers – Italy, Greece, Spain and Portugal – which are among the countries worst affected by the euro crisis.
Germany opposed the plans in a private vote; Britain, which regularly cites perceived meddling from Brussels as the reason for its strained relationship with Europe, abstained.
The German newspaper Süddeutsche Zeitung described the move as the “weirdest decision since the legendary curvy cucumber regulation”, referring to now-defunct EU rules on the shape of fruit and vegetables sold in supermarkets.
The regulations are based on those in force in Portugal since 2005 and are part of an EU initiative to help olive oil producers hit by rising operating costs and falling profits in recent years.
Even Francophile Conservatives now want Britain to go it alone. But it’s not the euro that’s holding us back: it’s the government
According to Greek mythology, Cerberus was the many-headed hound that stood at the gates of Hades, the underworld. Feeding the hound of hell was a thankless task. He always wanted more. Hence the expression “a sop to Cerberus”, meaning a futile gift of a morsel that only leaves the hound baying for more.
I am not suggesting for one moment that Ukip or the Tory party are dogs. But the expression “a sop to Cerberus” – much favoured by my classics master in days gone by – does keep coming to mind, with our beleaguered prime minister in the increasingly frustrating position of delivering the sops.
Mythical history does not relate whether there are also pigeons at the gates of Hades. But if there are, my old friend Lord Lawson has certainly thrown a cat among them with his Ukip-style call for us to leave the European Union altogether – he who himself lives a fair proportion of the year in la belle France.
Lawson likes the way of life in France. So do many of us, who seize every opportunity to relish it – unlike, it seems from recent opinion polls, the French themselves, who are not as content as we thought.
It was admiration for the standards of the French and other European health systems that prompted New Labour to devote a fair proportion of the budget to modernising our own NHS. Further back, envy of what was perceived as superior economic performance was one of the main reasons why our nation applied to join what was then the Common Market.
Whether they vote Conservative, Labour or otherwise, the British people are fundamentally conservative. In the 1975 referendum they always seemed likely to vote to stay in, rather than take a leap outside. And, whatever the opinion polls show now, I suspect that if this new proposed referendum ever takes place, there will once again be a vote for staying in. But what a lot of time would be wasted meanwhile!
As older readers will know, I have always regarded the EU, for all its irritations, as what the authors of 1066 and All That would have described as a Good Thing. But the eurozone was a step too far, and it is to the credit of John Major that we “opted out” and to the credit of Gordon Brown that Tony Blair’s pressure to join was resisted.
The ultimate irony was the spectacle last week of David Cameron, in his capacity as this year’s chairman of the G8, representing the EU in early discussions with President Obama about a proposed free trade area with the US, while back home his MPs and even ministers were calling for our complete withdrawal from the EU.
As the president reminded Cameron, it is in the UK’s best interests to remain in the EU. He could have added that membership of the EU and exemption from the eurozone gives us the best combination.
Freedom from the constraints of the single currency has enabled us to secure a devaluation that, according to the latest estimates from the Office for Budget Responsibility, produced a gain in net trade (exports minus imports) equivalent to 2% of GDP between the fourth quarter of 2007 and the fourth quarter of 2010. Recent figures have not been so good, but have been distorted by the vagaries of production of North Sea oil. The governor of the Bank of England, Sir Mervyn King, pointed out last week that since 2007 and the devaluation, the trade deficit (excluding North Sea oil) has averaged 1.5% of GDP compared with 3% before.
Such exchange rate adjustments have not been available to the suffering southern states of the eurozone vis-a-vis super-competitive Germany. Nor, for that matter, have they been available to France. Moreover, the weaker eurozone economies have been further debilitated by austerity programmes that derive partly from the Teutonic belief that suffering does lesser economies good and partly from the way the bond markets panicked until Mario Draghi, president of the European Central Bank, promised to do “whatever it takes” to keep the show on the road.
The bond markets have now woken up to the deficiencies of the austerity model. The fundamental flaws of the way the policy operates in the eurozone are well explained in the latest weekly comment from Russell Jones and John Llewellyn of Llewellyn Consulting. Coming from analysts who, unusually for this country, have been broadly friendly towards the eurozone project, their questioning of the long-term sustainability of the eurozone, on account of the asymmetrical way the rules operate, ought to be taken seriously in Berlin and Frankfurt.
What makes the British economic situation so frustrating is that we are not subject to the deflationary bias of the eurozone: George Osborne and his pals have simply imposed one of their own, inventing imaginary threats from the bond markets.
The cuts in social security have been especially severe for the poorest in our society. Yet, as the Child Poverty Action Group points out, the poorest spend a larger proportion of their income than other groups, and the cuts have multiplier effects that hardly encourage that elusive recovery. The cuts are not only damaging in themselves: they are what Tim Nicholls of CPAG calls a “fiscal hindrance” to economic recovery.
What a convenient diversion from the damage caused by the chancellor’s economic strategy all this nonsense about leaving the EU is.
French president calls for more European unity, including budget and harmonised tax system
François Hollande has called for a united “economic government” in the eurozone, with its own full-time president, budget and harmonised tax system.
Hollande, who marks his first year in office as the most unpopular president in modern French history, said a more politically integrated EU would be key to his next years in office as he tries to dig France out of its slump and convince the public that he can still influence Brussels.
The move came as he attempted to use a set-piece press conference to stem growing pessimism in France which has fallen back into recession and is facing record unemployment, a stagnant economy, industrial decline and a population increasingly struggling to make ends meet.
Hollande said the notion of the 17-country eurozone integrating more would end the sluggishness threatening Europe’s future. But the proposal was likely to be dismissed outright in Germany. “If Europe does not advance, it will fall or even be wiped off the world map,” Hollande said. “My duty is to bring Europe out of its lethargy, to reduce people’s disenchantment with it.”
But commentators and polls showed the French public fears France’s clout in Europe has weakened, despite Hollande promising when he was elected to be the crusader for a new economic approach and the end of one-size-fits-all austerity.
Hollande has been pressed by the political class, and even in his own camp, to step up his programme of reform in France.
Brussels has given Paris two more years to bring its budget deficit below the EU limit, but in return it is demanding serious reform of the French welfare state and high public spending. Hollande stressed he would continue with what he has euphemistically called “budgetary seriousness” – but not austerity – reducing state spending but without swinging the axe on public services. Hollande said he would protect the French welfare state but it had to be transformed in order to survive.
The main plank of this will be the highly controversial reform of France’s generous pensions system, which is heavily in debt and borrowing from the markets to pay pensioners. In a departure for the left, he said: “When we live longer we must work a little bit longer.” This will set the tone for summer months of pensions wrangling with unions which will begin next month. If a major pensions reform goes ahead it will be the first time the French left has seriously tackled the explosive issue of pensions in France. Each time the right has attempted changes, there have been massive street protests, sometimes forcing the government to backtrack.
He vowed that he would keep his promise to reverse the relentless rise of unemployment by the end of the year, despite economists and the majority of the public believing this is impossible. Joblessness, at 10% and 3.2 million, is at its highest since records began in 1996.
Output from the eurozone economy has now been in decline for six successive quarters, according to official figures
France slid into recession in the first three months of 2013, as the economic malaise that has crippled the crisis-hit peripheral countries of Greece, Portugal and Spain spread to the heart of the eurozone.
A flurry of official figures released on Wednesday showed that output from the eurozone economy as a whole has now been in decline for six successive quarters. Nine of its 17 member countries are in recession, with the steepest quarterly decline – 1.3% – seen in Cyprus, which received the first tranche of a €10bn (£8.45bn) bailout package earlier this week.
The grim data will ramp up the pressure on eurozone politicians to ease the pace of tax rises and spending cuts. But with Angela Merkel facing re-election in September, there is little chance of a radical shift. The German chancellor has so far resisted any easing of austerity measures.
“The best we can hope for in the foreseeable future is a slight slowdown in the pace of austerity, when what we actually need is a grand reversal of strategy,” said Sony Kapoor, director of think-tank Re-Define. Germany managed to avoid a recession, but scraped growth of just 0.1%. Simon Derrick, chief currency strategist at BNY Mellon, said, “it’s easy to get caught up in the drama of the individual crises in the eurozone, but behind it all it’s important not to forget that it does very real damage to economic performance. What you’re seeing now is exactly that.”
France double dip
Almost exactly a year after François Hollande’s inauguration as president, it emerged on Wednesday that France has slipped back into recession and economists said there would be more bad news to come for the Hollande government. “The economy will remain under pressure in the coming quarters from rising unemployment, tight credit and higher taxation,” said Petr Zemcik, director of economic research at Moody’s Analytics.
Finance minister Pierre Moscovici was forced to deny that his forecast of a sickly 0.1% economic growth for 2013 as a whole was too optimistic, after Wednesday’s data showed a 0.2% decline in GDP in the first quarter. “I’m sticking to the figures,” he said.
Germany scraping growth
Although Europe’s largest economy avoided recession, scraping growth of 0.1% in the first quarter, it was a weaker-than-expected reading and underlined the fact that the downturn in the eurozone is affecting its traditionally powerful core countries as well as the crisis-hit periphery .
Guy Foster, head of portfolio strategy at investment manager Brewin Dolphin, said the strength of the euro against the yen in recent months, as the Bank of Japan implements a massive quantitative easing programme, has not helped the export-dependent German economy.
“Germany is suffering a perfect storm. Weaker growth in China weighs on demand, while the depreciation of the yen is making supply more competitive.”
Neville Hill, economist at Credit Suisse, said, “German GDP only rose by 0.1% quarter on quarter in Q1 after a material 0.7%q/q fall in the fourth quarter last year. Averaging out the two quarters, this is a poor performance for a competitive economy that is not facing any fiscal headwinds and suggests that weakness has spread to all European countries”
Spain down 0.5%
Wednesday’s figures confirmed there has been no let-up for the Spanish economy, which continues to suffer the after-effects of a catastrophic property bust, and the resulting financial crisis, which prompted Madrid to ask its eurozone partners for a bailout of its banks.
The Spanish economy contracted by 0.5% in the first quarter of this year, and is now a full 2% smaller than 12 months ago.
Italy down 0.5%
Prime minister Enrico Letta recently warned that his country was “dying from fiscal consolidation”, and Wednesday’s figures suggested the economy remains in intensive care.
GDP declined by another 0.5% in the first quarter of 2013, according yesterday’s figures, slipping to a level 2.3% lower than a year earlier.
Voters in Italy’s recent general election appeared to reject the harsh austerity measures imposed by the technocratic government of Mario Monti, and Letta has emerged as the leader of a cross-party anti-austerity coalition.
Greece five-year recession
Financial turmoil in Greece may have faded from the headlines in recent months as Cyprus became the latest eurozone member to receive a bailout; but according to figures released in Athens , the economy is still contracting at an annual rate of 5.3% (no quarterly figures comparable with other countries’ have yet been published).
That’s marginally slower than the 5.7% pace of decline in the final quarter of 2012, but suggests the economy remains deep in the doldrums, more than five years after it first slipped into recession.
Netherlands €46bn spending cuts
The Netherlands is another core eurozone economy feeling the chill winds of the crisis. The latest figures show that it has been contracting for three successive quarters, as the government of Mark Rutte battles to implement a €46bn (£38bn) package of public spending cuts, and households struggle to cope with the impact of a property bust. Dutch GDP declined by 0.1% in the first quarter of 2013.Portugal:
Like Greece, bailed-out Portugal remains deep in the red, though the pace of contraction did ease in the first quarter of 2013, with GDP declining by 0.3%, down from 1.8% in the final three months of 2012. However, with the Portuguese economy almost 4% smaller than a year ago, there is still little sign of a light at the end of the tunnel.
This isn’t a uniquely French problem – EU nations of various political hues are in trouble because of a fixation on austerity
Today’s BBC headline fairly trumpets the news: “French economy returns to recession”. Funny how we Brits seem happy if our trans-Manche neighbours are doing a wee bit worse than we are. Especially if you can add that it is the fault of their government for being, well, a bit too left of centre.
True, the French have just entered double-dip recession, while we have just escaped. But in fact, in recent years the French and British economies have performed pretty much similarly in terms of GDP “growth” (or lack of).
The real European news today should, though, focus not so much on France, and certainly not alone, but on the dire state of the eurozone and broader EU economies. And this has no correlation with the formal political orientation of the government (centre-left, centre-right or whatever).
There is now a group of 10 EU states, not including France or the UK, who have experienced an annual fall in GDP for each of the past four quarters. This “Austerity A10 Club” includes the usual southern Europe list of Greece, Spain, Italy, Cyprus and Portugal. But it also includes two central European countries – the Czech Republic and Hungary – and the northern bloc of Belgium, Finland and the Netherlands – the land of Jeroen Dijsselbloem, Dutch finance minister and chair of the Eurogroup finance ministers, fresh from the Cyprus bailout “triumph”.
Italy’s GDP has now fallen 4.8% in just two years. Its annual GDP is back to the level of the year 2000. Greece has lost a staggering 31% of GDP, compared with its peak in 2008. These are catastrophic declines that have greatly worsened in the past two years.
And even Germany and Poland – which until recently have done reasonably well – each managed last-quarter growth of just 0.1%.
The problem that unites of all of these countries and the UK is not the political colour of the government but the macroeconomic policy that has been followed. It is particularly harsh for the eurozone countries which cannot rely on a central bank to ward off the bond vigilantes, and who are subject to the Bundesbank’s destructive (and increasingly self-destructive) policies of focusing on the risk of inflation just as the eurozone slides into deflation.
The deficit and debt/GDP ratio fetishes that unite the UK government, Ukip, the European Central Bank and the European commission are part of the economics of the poorhouse, where co-ordinated austerity is seen as a “solution”, even while unemployment reaches mass levels unknown in Europe’s modern history. Let’s remember why Keynes wrote his General Theory of Employment, Interest and Money: in sum, employment must come first, the rest follows.
The problem for social democratic parties across Europe is that – scared in many cases of being viewed as anti-European – they have accepted the iron logic of the Bundesbank’s dogma, and are unable to offer an alternative of generating internal European demand.
This means hitting hardest the working class and other not-so-well-off voters in their countries, who turn either inwards on themselves (depression, suicide etc) or to other political forces, mainly rightwing populism.
The only solution for Europe’s social democratic parties is to say: no, time to change course. To make alliances with Greens and other new democratic forces. The European economic orthodoxy has to be challenged in unison by the centre-left parties if they are to survive and stand for any positive policies.
The EU from the outset was a balance between the interests of capital (common market) and labour (social protection). While that balance was maintained, most people across Europe were content with the EU, for all its faults. But the Troika (the ECB, the EC and the International Monetary Fund) is destroying that balance, leaving the EU simply as a neoliberal vehicle.