Europe Must Separate Politics and Economics if the Euro Is to Survive Long-term

Expectations are low that there will be noticeable progress in Greece’s talks with its lenders at Thursday’s meeting of the Eurogroup of finance ministers in Luxembourg, despite the 10-minute phone call between European Commission President Jean-Claude Juncker and Greek Prime Minister Alexis Tsipras last night. A European official told journalists that he expects the discussion regarding Greece at Thursday’s Eurogroup to be brief because creditors want new proposals from Athens. The Greek government insists it has already made suggestions sufficient to meet agreed fiscal targets. And this morning Austrian Chancellor Werner Faymann went to Athens to hold talks with Prime Minister Tsipras. But, no progress was made. After the meeting, Tsipras said : “The margins for new cuts in pensions have been exhausted. We can’t understand the obsession of the lenders with pension cuts. If we don’t have an honorable compromise and an economically viable solution, we will take the responsibility to say a big no to the continuation of a catastrophic policy.” So, it appears that neither side is considering submitting new proposals at Thursday’s Eurogroup meeting. Greek Finance Minister Yanis Varoufakis visited the offices of the Organization for Economic Cooperation and Development in Paris today and said he doesn't think a deal will be reached tomorrow at the Eurogroup : “I don’t think so. Now it is up to political leaders to arrive at an accord.” Austrian Chancellor Faymann said he coordinated his visit with Juncker and was hopeful that a solution could be found, even though he admitted it would be a difficult task. German Finance Minister Wolfgang Schäuble told the finance committee in Germany’s lower house : “I can’t see a solution lying before me but I see that if we are convinced we want one, we have a good chance.” Schäuble said that while he remains hopeful Greece and its creditors will reach an agreement by June 30, the German government is also preparing for failure. According to two lawmakers who attended the meeting and then spoke to Bloomberg : “We can’t offer further compromises. It’s the Greek people ordinary citizens, who will have the biggest problems if there’s a default, with no agreement or solution.” ~~~~~ In addition, the Bank of Greece warns that failure to reach an agreement with the creditors will result in a default, Greece will then be forced out of the Eurozone, and, most likely, out of the European Union. The warning came in the Bank of Greece’s Monetary Policy report for 2014 and 2015, which stressed the need to reach an agreement. The report notes that : “a manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. An exit from the Eurozone would only compound the already adverse environment, as the ensuing acute exchange rate crisis would send inflation soaring, reduction of income, proliferation of unemployment and the collapse of everything which the Greek economy has been achieved since joining the EU, particularly during the Euro period. From an equal partner of core European countries, Greece will become a poor country in Southern Europe Southern Europe,” the Greek Central Bank added. ~~~~~ Jose Manuel Barroso, a former European Commission president, today told CNN that the Tsipras government is "highly radicalized" and the Greek people are paying the price. But. in Greece last night, social security minister Dimitris Stratoulis said the cuts being demanded of Greece in pensions amount to €1.8 billion -- the equivalent of a 20% drop in earnings for pensioners. Stratoulis, a Syriza hardliner, added : "They are also demanding €1.8 billion in revenues from increasing VAT. These measures are measures of annihilation and will lead to the enslavement of the Greek people. They are unacceptable and therefore to be rejected. There are no high pensions. Pensions have already been cut by 50%, a new reduction would leader to even greater recession.” ~~~~~ At least one expert voice is speaking out for a different end to the Greek crisis. Hans Werner-Sinn, President of Germany’s Ifo Institute for Economic Research has long said that Europe must let Greece exit the Eurozone and go bankrupt because that would be the best for both. Werner-Sinn says : "Greece is insolvent… and we are delaying the process of declaring insolvency, which would be illegal if it was a private company....It is time for a big (debt) haircut and more radical measures to help Greece." Werner-Sinn, who has spoken in favor of a Greek exit from the Eurozone in the past, said it was difficult to see how Greece could resolve its problems while remaining in the single currency bloc, but added that any exit - "Grexit" - did not have to be permanent. The German economist says that it would be more risky for Europe to keep Greece in the Eurozone than let a Grexit happen. But getting out of the Eurozone would be beneficial for the debt-ridden country as well, according to Werner-Sinn : “I would say, in the end, a Greek exit is also desirable, because if one accompanies this exit with the help of the European community, with the promise to keep the gate open for Greece to return at a later point in time, this may well be a chance to regain the competitiveness of the country by devaluation.” This morning, Werner-Sinn said the Euro was created to produce prosperity and employment. If that is not the case for Greece - and perhaps other countries - why would the Eurozone want to hold on to them and keep them from leaving. The answer, according to Werner-Sinn, seems to be that the Euro was a political goal rather than an economic goal. ~~~~~ Dear readers, when politics and economics clash, economics always wins, but the road can be long and painful for all concenned.it is inconceivable that Greece's creditors -- the European Central Bank, the European Commission and the IMF - cannot at least imagine the suffering their "bailout" solution has caused the Greek people. Normally, Greece and the IMF would have solved its problems by devaluing its currency, re-negotiating its public and private debts, and deciding on reform programs suited to its economy. But because Greece is a member of the Eurozone, the first two elements were not available. Some private debts were written down (the so-called "haircut" imposed on bond holders) but the much larger public debts were not touched. Nor was there a devaluation, for Greece was tied to the Euro. So all the burden was placed on the reform program, which imposed deep austerity on the Greek people, in return for which the country got some short-term loans. If this continues, Greece will spend the next 40 to 50 years repaying the EC, ECB and IMF -- while its people are devastated by an economy with no money left over for infrastructure, growth or social services. Perhaps the Eurozone is so focused on its political goals that these facts are blurred. But, the IMF knows this. So, somehow, the IMF should find the strength to stand with Greece against the Eurozone. It is not Greece's job to hold the Eurozone together as a political unit. The Euro will survive - and the Eurozone with it - only if politicians can be made to see that political goals cannot defy economic reality. Tsipras and the IMF, for all their faults, know this. The European Central Bank and the Eurozone must also learn this axiom if they are to save the Euro long-term.