Crisis Goes to School

The wrong age. One, or two packages for Greece? Don’t steal jobs from the Netherlands!

The fifth anniversary of Lehman Brothers’ bankruptcy falls this Sunday.  Media consider it to be the beginning of the crisis. But since it is 6 years old, we can send it to school without any doubts.  Northern Rock bank fell already in September 2007. And the world financial system had already suffered serious problems two months before that, as Bear Stearns admitted losses worth billions and the biggest French bank BNP Paribas reported liquidity problems. At that time, ECB poured 155 billion euros into the system within two days in August.

What does the situation look like after six years? Greece has received two bailouts and the third one is coming. Or maybe it is the fourth one? ECB governing council member Luc Coen said that Greece will need help twice. The country has been successful in narrowing the primary budget deficit, but there are issues emerging in all spheres. For instance, the main pension fund has increased its arrears by two thirds to 8 billion euros since 2010. The pension system is facing serious problems and the future retirees might have only a minimum monthly pension of 400 euros. Doesn’t it remind you of something?

The Union seeks any possibilities how to pass more funds to the country without making (not only) German voters even more upset. One of such possibilities considered at the moment is to allow the spending of the forfeited structural funds from the 2000-2006 period of approximately 1.14 billion euros.

Cyprus is threatened by the Greek scenario. Moody’s agency has warned that the country is endangered by major restructuring of its debts, or – as one might say – bankruptcy. Cyprus’ public debt is expected to reach a staggering 140 per cent of GDP by 2016.

Attention has been drawn to the hottest applicant for the ESM support, Slovenia. Next Friday, finance ministers of the member states are going to discuss the situation in this little country, whose state banks lack capital of 7.5 billion euros, which equals 21% of  the country’s GDP.

In France, the government has published an unofficial budget proposal for the year 2014. The projected deficit reaches 4.1% for 2013 and 3.6% for 2014. The initial deficit ceilings proposed by the Commission were 3.7% and 2.9%. Also the growth estimate for 2014 has dropped. Similarly to France, Portugal has announced a 4.5% deficit for 2014 instead of the projected 4% one. And the fact is that 2014 is still a few months away.

The French response has appeared in the form of 1-billion-euro bigger budget cuts and there’s even a discussion about lowering corporate tax rates from 33.3% to 30%.

In this situation, the Head of the European Commission, Jose Manuel Barroso, gave what probably was his last assessment of the Union. In contrast to the previous ones, he didn’t outline any big vision of the future and his speech can be summarized as: „We have survived and that’s the biggest success.” Well, he has survived and he can look forward to a Brussels’ pension in a villa of some quiet Portuguese cove. But this is not the end for the rest of us.

Some plans made by Brussels have suffered losses during the last weeks and months. A legal opinion of the European Council has classified the current set up of the Financial Transaction Tax as not compatible with the current EU treaties, which means a problem for its proponents. The OMT program of the bond purchases by the ECB is again under fire from German economists. The open appeal of 136 of them considers the program unlawful and economically amiss.  The commissioners’ seats are also in danger. There are currently 28 of them and Brussels will have to make a creative contest of thinking up the position name for the 29th one. Cameron and Merkel have drawn up plans to reduce the number of commissioners to between six and twelve. The basis of the reform should be prepared in 2014.

Even Brussels retreats in some cases. Not only the independent researchers, but also the European ones claim that technical crops used as biofuel significantly hike food prices up. No wonder since rapeseed plants occupy more than 10% of Slovak agricultural area, while vegetables occupy less than 0.5 % due to European regulations.

Not to mention that it’s questionable from the point of view of CO2 production as well. The new proposal limits the share of biofuels in transport to 6%, so the target of having 10% of transport energy coming from renewable sources will have to be reached by faster expansion of electric cars.

Also, the general principles of the EU are under fire, particularly the mobility rights. Dutch politicians’ criticism of the Eastern European migrants’ inflow to their labour market is getting louder. Unlike Germans, they consider people willing to work a burden.

We have a European fund intended to rescue state budgets and maybe we will have a European military fund. Spain, Portugal and Italy have proposed to establish a defence fund, which should be the response to the European economic problems. Isn’t it curious that all kinds of mutual packages are mostly promoted by the countries with the emptiest pockets?

You can’t think this up, it’s France! French millionaire tax, which seizes three thirds of the earnings of high income individuals (and already expelled some of those from the country), will be applied for only two years. Some of the rich ones fight it alone. The football federation has claimed that an exemption from the tax for the football players is within reach. Ignore the industrialists and let them flee to the other side of the world. Who needs production when we want to rescue French football!

There will be other games played in our country as of Monday – the receipt lottery. So set up everything and get ready to strike the crisis back with a crushing hit.

Translated by Michal Kollár