None of the EU/US analogies for the debt crisis work, because they’re meant to hide, not illuminate.
The word ‘firewall’ has leapt (rather like flames do) from its specialist meaning among geeks to being the saviour of the human race over the last year. But ask people – laymen or specialists – what they think the word means today, and they will either answer “to protect against contagion” or “I’m not really sure”. Most media people see it as some kind of financial stem-cell breakthrough. A frightening proportion of them see it as the thing that came after the bazooka that never was….but they too often see it as a cure-all.
Just to be upfront here about the mixed-up, drivel-riddled nature of this rhetoric, I will summarise the current theory like this: ‘What you do is get some firepower leveraged into the bazooka, and when it’s too late for that, what you have to do is amputate the bad leg, and then borrow a firewall to stop the debtstream from bleeding onto others’. This is a metaphor recipe that’s been in the blender for an hour – but it still looks and smells like sh*t.
First up, the global world created by these clowns has made it impossible to firewall anything in the sovereign debt sector. They know this perfectly well – the Central Bankers, that is – but it is just possible one could sandbag enough banks in one earthly zone in order to stop the knock-on waves caused by the Krakatoa explosion. As you can see, we’ve now moved out of weapons and fire security into measures against the Tsunami aftermath of one explosion….albeit a big one. In my view, that latter analogy is much nearer the mark – but it’s still unrealistic.
We all saw Clark Kentaghi’s double-barrelled blast of dollars (sorry, back in the arms cache again) ‘designed to get lending to the EU economy going’ and we all know that this too is crap, because it was just more bank sandbagging. He’s firing double-barrelled sandbags at a tidal wave, and get the liquidity back on track and create a sandbank. It’s that straightforward.
But it’s too late: the Lehman moment was passed weeks ago. Today’s hot news is this: ECB lends €630bn to 800 banks, those banks then deposit €777 bn at the ECB. That’s more than last week, which was more than last month, which was more than ever before. It’s a new record. But call me wacky, it doesn’t lend itself to the interpretation that wild speculative business lending just got under way throughout the eurozone.Nope, that was 2005.
The politicians don’t trust the people, the Americans don’t trust the Europeans, the banks don’t trust each other, Brussels doesn’t trust the Greeks, and nobody trusts the Germans. Everything now is a thinly-disguised scramble for safety from something nasty falling out of the sky.
Secondly, the EU is, um, a free-trade zone. How do you firewall against economies already burning down to the foundations in at least five EU countries? And what good could that ever do if this Troika thingy insists on making the firewall out of petrol, so that scorched earth is all that remains?
It’s claptrap, the whole thing: cod-scientific and muddled mumbo-jumbo designed to mask an obvious operation going on to save the reputations and balance sheets of the few – but having the unfortunate downside of pauperising everyone else. It’s not meant to make sense: it’s meant to save worthless arses….and that never makes sense. It only ever makes matters worse.
If you find this too much of a generality, let’s take a quick peek at the EU member States in trouble.
Brussels has described the Portuguese austerity programme as ‘on track’. ‘The large fiscal correction in 2011 and the strong 2012 budget have bolstered the credibility of Portugal’s front-loaded fiscal consolidation strategy,’ say the folks in the Troikabunker. No mention at all of the economy: just some vague tripe about ‘headwinds’ in 2012….so let’s get real. The GDP will contract 3.5% in 2012 – at least. As we saw at this stage in Greece, the rate of meltdown is accelerating. During 2011, unemployment went from 10% to 13.6% – 1 in 8. In order to get rid of its debt of close to €300 bn, Portugal has received €52 bn from Brussels and €26 bn from the IMF’s Extended Fund Facility. Being deemed ‘on course’, a further €9.7 billion from the EU, and about €5.2 billion by the IMF, have been handed over.
That’s €93bn of public money in one year spent to service a €300bn debt problem spread over anything from six months to 20 years and more.
It doesn’t make any kind of economic sense for anyone except the banks. And it’s being done – along with everything – to save the banks….and the euro dream that became the long-predicted nightmare….and, ultimately but very clearly, the United States of America.
Mario Monti, that master of self-publicity, says all Italy needs now is some economic stimulation, and she’ll be out of the woods. Well that is, he was saying that until some new Italian economic data came out yesterday. Calling them atrocious is being hard on atrocities: EU car sales were down 4.6% in January; Italian sales plummeted 19.5%. There too, economic shrinkage accelerated in Q4 2011, but the eurocrats say that’s OK because ‘borrowing costs plunged more than two percentage points from a euro-era high of 7.26% on Nov. 25’. Put out more flags. Every day that brings more tax rises and spending cuts yanks the country further back in economic terms, and backwards in its ability to pay that debt.
Spain has asked for its austerity programme to be eased up, so they’re obviously doing really well. Spanish Economy Minister Luis de Guindos told reporters he thought his EU colleagues would “understand perfectly”. Brussels sent a one-word answer yesterday: ‘no’. It’s the same story: acceleration of GDP contraction in Q4 2011, rising unemployment – 115,000 in February alone, over 26% among those under 25 years old – and all budgets are over-budget: the 3% euro-zone deficit limit is expected to overshoot to 4.9% there in 2012: just so we’re clear, that’s over 60% out in the wrong direction. A Madrid spokesperson told me that Spain’s Prime Minister Mariano Rajoy “has no plans to discuss any easing of the programme at the forthcoming summit”, but the senora seemed happy to confirm that Spain had missed all its austerity targets for 2011. I suppose she’d have sounded a bit silly trying to do otherwise, really.
The UK strategy has precisely the same aim, except that in our case it makes more sense: our problem is dire but less urgent, and – by accident rather than design – our austerity has been more a rebalancing than counter-productive. But some of the things the Greeks are being asked to swallow, well…..
Let’s leave Greece for another post: I’m all Greeced out this morning. We’ve all (The Slog included) become obsessed with Greece to a point where the argument about time and date of default has become a pointless pissing contest along the same lines as the Climate Change debate. There are so many imponderables, unknowns, poison pills and impracticalities involved, so many different geopolitical agendas in play, and so many vested interests breaking or spraining the rules, it can only end in tears: the timing and volume of tears are the only things left. But if I may twist the allusion kaleidoscope just one more time, Greece-guessing is like a passenger on the Hindenburg watching his skin burn, and worrying about that nice new set of luggage he bought specially for the maiden voyage.
The eurozone is ablaze, and falling to earth rapidly. It cannot survive with a southern half to it: it was a barmy idea in the first place. We’re being told that a firewall is needed to contain Greek meltdown (pass the blender again) but it’s all bollocks: the plan looks to me like the Clubmeds themselves being detonated to create the tree-gap that ends a forest fire. They are, literally – just as with the Hindenburg – the victims of the most savage and cynical sabotage in economic history.
The Slog 