Tuesday, 31 January 2012
EU leaders continue their dance around the holy euro totem pole
The European Union leaders continue their dance around the holy euro totem pole, despite the fact that this ritual has lost touch with reality already long ago.
Now the 25 out of 27 EU states have agreed to a more or less meaningless German-inspired fiscal compact for stricter budget discipline. At the same time European politicians are once again discussing a new bailout for Greece, even if everybody understands that the result will be no different than in the past:
Europe's politicians continue to battle reality. Everyone knows that Greece cannot repay its massive pile of debts, now at more than €350 billion ($459 billion). But instead of effectively reducing the financial burden, European politicians intend to approve new loans for the government in Athens and go on fighting debt with new debt. "If the country wants to remain in the euro zone, we should support it," says Austrian Chancellor Werner Faymann.
But throwing money to a bankrupt economy is not going to help anyone:
The Greek economy is not productive enough to generate growth. Aside from olive oil, textiles and a few chemicals, there are hardly any Greek products suitable for export. On the contrary, Greece is dependent on food imports to feed its population.
"Greece has been living beyond its means for years," an unpublished study by the German Institute for Economic Research (DIW) concludes. "The consumption of goods has exceeded economic output by far."
Especially devastating is the assessment that the DIW experts make about the condition of an industry that is generally seen as a potential engine for growth: tourism. According to the DIW study, the Greek tourism industry concentrates on the summer months, with almost nothing happening throughout the rest of the year. There is almost no tourism in the cities, which translates into low overall capacity utilization and high costs for hotel operators. By contrast, capacity utilization in the hotel sector is much more uniform in other Mediterranean countries.
According to the study, a key cause of the problem is the relatively poor price/performance ratio. In Mediterranean tourism, Greece has to compete with non-euro countries like Croatia, Tunisia, Morocco, Bulgaria and Turkey, which can offer their services at significantly lower prices. The per-hour wage in the hospitality industry was recently measured at €11.39 in Greece, as compared with only €8.49 in Portugal, €4 in Turkey and as little as €1.55 in Bulgaria. The study arrives at grim conclusions, noting that the drastic austerity programs will not only remain ineffective, but will also stigmatize the country as "Europe's problem child" for a long time to come.
Read the entire Der Spiegel article here
As much as one would like to see the euro prosper, Dr Doom´s assessment is looking more and more likely:
"The euro zone is a slow-motion train wreck," said economist Nouriel Roubini, nicknamed Dr Doom after he predicted the U.S. subprime crisis.
Roubini sees Greece leaving the euro within a year, possibly followed by Portugal. He told delegates there is a 50 percent chance of the bloc breaking up completely in the next 3-5 years.
(image by wikipedia)