Very Exceptional Cases – Fiat Euro! 07/2013

Ireland is an exceptional case. France is an exceptional case. Bad news is here to stay. And we might even question the EU funds.

We are all exceptional in one way or another and it makes the world beautiful. And in Europe, there is even a little bit more of exceptionality. Otherwise, you wouldn’t be able to explain why EU leaders declare almost every single situation exceptional and allow for circumventing the rules. Take Irish, for instance. They would like to make use of their EU Council presidency to pass part of the bank rescue costs from the shoulders of their locals onto those of European taxpayers’. They are on the right track. Just a few days ago they managed (via a relatively complex operation) to change maturity of their 30 billion bank rescue debt from short to long, with deferred payments of principal, lower interest and ambiguous future on top of that. The Irish finance minister even proclaimed that “thanks to the inflation, the debt will become more easily manageable in the decades to come.” At least he is not pulling our leg. Saving banks, Central Bank of Ireland and ECB keep tossing this debt backwards and forwards, with ECB being the ultimate looser. The Irish central bank Governor called the situation “very exceptional case.”

Another exceptional case is France. The government officially (and very surprisingly) admitted that the 3% deficit requirement won’t be met this year. As of this year, the Fiscal Compact comes into force, aiming to finally get all the ducks in a row in the fiscally irresponsible countries after years of ignoring the Stability and Growth Pact, or Sixpack. But the rules are difficult to enforce when the culprit and the judge is the same person. France does not have to worry about penalties. There is said to be an exception from rules when the country is hit by an unexpected economic slump. Just a pity that hardly any economic slump  is actually expected. Last year, such a “rare exception” was made for Spain, Greece and Portugal. We can only guess what a signal such circumventing of rules by the second largest economy in the European Union sends to the problematic states, or on the contrary, to the states that are at least showing some effort.

The “unexpected economic slump” excuse will be most probably used by several countries, as the Euro-Area GDP decline in the fourth quarter of 2012 was in fact even worse than expected, -0.6%. More and more often, we can hear that austerity is to blame. Why, then, are the most successful countries those which actually saved? That’s the question. (Most countries use the word “austerity” as a synonym for tax increases).

Meanwhile, the Eurosystem slowly accumulates bad loans. Last time, we mentioned 300 billion. A study by Ernst & Young gives a considerably more pessimistic figure. More than 900 billion, which is 7.6% of the total loan portfolio in the Eurozone. Every 13th loan in the Eurozone is currently not properly serviced. Yet there’s ECB. And the U.S. Federal Reserve, thanks to which the money starts flowing out, even through drains and hydrants. Some billions of which flowed also to the European banks. Even the former chief economist of the ECB, Jurgen Stark, lost his confidence in the central banks’ independence.

Bad news is still not about to leave Europe. Traditionally, Greece is the most unfortunate one. They just celebrated a primary budget surplus a few weeks ago, which they only managed to achieve thanks to two quasi-bankruptcies. Icy shower came in February, when they discovered that the January tax revenues were about 16% less than planned in the budget. A rise in, perhaps, all the taxes that you can think of had to show up somewhere. The unemployment rate in the meantime broke the 27% limit, a worsening of 0.4 percentage points compared to the previous month. Even more frightening numbers came from the construction industry. On a year to year basis, the number of new building permits fell exactly by two thirds. And you cannot say that there was a building boom in Greece the year before. Under such conditions, Greeks turn to any solutions of their bad life situation. They cut down trees in the rural areas and snatch metals in the cities. Capturing the stolen iron became the number one priority of the Greek police. Even more frightening is the news that members of the increasingly popular neo-Nazi Golden Dawn party controlled nurses’ documents in a state hospital.

We left the Report on the EU budget till the very end. The media were full of it, but the hassle about a few billions in cost is almost insignificant compared to the hundreds of billions that flow over the top to rescue the euro. Politically, it’s a little different coffee. The current deal is a victory for Mr Cameron , which so upset Mr Hollande that he even did not come to the final negotiations. We can see some savings in the budget for the first time in the history, but little enough is as good as a feast.

If you have taken pride in the fact that our (Slovak) smart politicians had negotiated the second best net position in the new EU budget, take some more because optimism makes you live longer. Those who prefer a sober approach, please read this article. Even the Dutch Court of Auditors grumbles about the EU funds. Reportedly, only four member states passed the bills on how they used the EU funds.

Many European politicians would like to see a weaker euro. And el presidente Hugo Chavez showed them how to achieve that. Venezuelan Bolivar was devalued by 32% last Friday and, therefore, Venezuelans suddenly became poorer by a third. We only hope that it will not rebound to him. Most of the population had to leave their prayers for his recovery and took the shops by storm.

I wish you that your values may remain firm

(translated by Jakub Pivoluska)