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The Eurozone: It can’t be saved, it needs to be scrapped

9-04-2013, 13:26


The head of SAXO Bank, Lars Christensen said in September last year, "the Eurozone does not need to be saved, it must be scrapped." It seems that the events on the small romantic island of Cyprus are finally consolidating this trend, which for lack of political will would be not so much administrative as cumulative and suicidal in character.

"All these officials are afraid to look the problem in the eye. The main problem is that there is one currency, but many completely different economies. Greece, with its uncompetitive economy, needs a weak currency. The German currency, obviously, should be stronger than the current euro. There is only one solution - to make more currencies. "

In fact, one of the major "sins" of building the Eurozone was the lack of any consideration of the specifics of the European economies. You could argue with Christensen, that the lack of competitiveness of Greece is largely determined by its current position within the Eurozone.

It is significant that before the beginning of the crisis in Cyprus, no one included it in the list of countries in a critical zone of financial and economic collapse. Today Cyprus is under a whole downpour from critics who accuse its business model of insolvency.

However, you should listen to the opinion of the Nobel Prize winner in Economics, Chris Pissaridis, who stressed that the emphasis had been on the development of service industries and tourism, as the optimum model for Cyprus, of which it had no experience in its historical tradition of industrial development. In turn, the magazine "The Economist" highlights the high level of qualifications of the Cypriots and the non-corruptible nature of the bureaucracy. However in the same way that Brussels ignored the characteristics of the economic development of Hungary, Slovakia, the Balkans and the Baltic states, Brussels imposed common standards and approaches on them, and that has now led to the stratification of the Eurozone and the European Union between the successful and the failed, the prosperous and the subsidized, the responsible and the irresponsible.

These days many say that Cyprus was put on a subsidized credit needle. And this is true. Because, through the actions of the "troika", a sector of the Cypriot economy, which provided 70% of national GDP, was broken. It is impossible to make up for these losses, even at the expense of Russian tourists and the Cypriot sunshine.

The authors and the main actors in the European political economy, diligently write prescriptions, which drive the disease deeper into the body. Christensen likens their activities to boys playing, who chase a can down the road, putting off the serious problems to the indefinite future. In order not to bear the burden of the Cypriot problems, Brussels and Berlin demanded austerity and belt-tightening from the Cypriots.

The curious situation is that the current "incompetence" of the Cyprus economic model came to light after it helped Brussels rescue the Greek government and banks from collapse, when the tax haven used its capital for buying Greek debt. This impulse of national and European solidarity proved costly for the smaller European brother. On this occasion, there was not a referendum. Everything was done in a "quadrangle" of the Cypriot government, central European authorities, Berlin and, of course, Athens themselves.

In talking about the ineffectiveness of the Cyprus economy there is another unlikely reason in that high levels of welfare of the population were guaranteed exclusively by local factors. For example, the average income of a Cypriot in annual terms amounted to 15.3 thousand dollars, but the purchasing power had been calculated at 32 thousand dollars a year. The Cypriot youth, even by European standards, are the most mobile. In the ranking of university education in the EU, young Cypriots are in sixth place, and are educated in the best universities in Europe. Today, many of them do not want to return home, and those who lose their jobs are going to leave Cyprus.

"European bureaucracy does a lot, but nothing changes. Instead, it only gets worse," says Christensen. In fact, the decisions taken at the European level tighten the pan-European crisis into an even tighter knot. Economists calculated that the recipe for austerity, in reducing the purchasing power of Europeans in the single Euro, would lead to a loss of GDP, exceeding the amount of the single Euro. All these measures were, according to "The Guardian", useful only if there was a growth in the number of trading partners, if low interest rates guaranteed economic growth, and if the EU were given more time to resuscitate its financial capabilities, especially in the social sphere. Finally, if the European macroeconomists were not guided by the fiscal deficit figures, but instead by indicators of structural deficits of the real sector of the economies of European countries.

Today in Cyprus, as well as in most of the Mediterranean countries, which ultimately undermined the confidence of the world financial and economic elites, there is no person more unpopular than the German Chancellor Angela Merkel. "I am extremely pleased that a solution has been found, and that Cyprus will avoid insolvency," Merkel said recently in Bavaria. But it was precisely this insolvency, the closeness of which will stretch the prospects for their country for years to come. The German Chancellor also stressed that the involvement of the private sector for the adjustment of rescue of the banking system in Cyprus is valid. Also she noted that taxpayers should not have to save the banks.

Reasonable questions arise. Is it not the taxpayers across Europe that are supporting the falling banks? Is not the taxpayer who is losing social benefits and government support in all critical issues, ranging from wages and ending in a flawed health care system? According to the Eurostat database, unemployment in Europe since the beginning of the year had reached a record high of 12%, which in absolute terms, totals 26 million people. These figures are in sharp contrast with the unemployment situation in the U.S., which in February fell to 7.7%, the lowest unemployment rate in the U.S. since 2008.

Mark Cliff, chief economist of ING Group, said that Europe was "trapped in a vicious circle, and the policy is clearly doomed to failure." We can already hear the opinion that the Eurozone must shrink to a narrow range of European countries: Germany, France, the Benelux countries and Austria.

Such perceptions actually reflect the true picture. If anyone thought that the Eurozone could be reduced to a walking universal banknote and that Europe could ignore its inherent diversities and identities, then this illusion is now shattered before our eyes. The single Eurozone could only be achieved by countries with a more or less uniform level of development of the banking and industrial sectors, with the same level of confidence in financial institutions in the South and the North and full freedom of movement of capital. Otherwise, the Euro is doomed to become a weakening currency over time, ensured only by the German economy and its political ambitions.

As for Russia, it is necessary beforehand to think about strategies for the future, as the crisis in Europe, of course, affects the entire area from the Baltic to the Pacific. It is necessary to think about the fact that Russian capital, now and possibly in the future, has its assets tainted by a "black mark." No matter how gray and criminally Russian capital may have been exported offshore, it is the capital which, to use today's terminology, was "plundered from the Russian people." It must belong to them and should not be used to stabilize the credit history of the European Union, of which Russia is not a part. However, we must agree with those who say that this impudence can sober up “shadow businesses,” and the authorities.

Here it is possible to suggest a few steps, which, however, would be ineffective if not executed as a batch. It is the creation of an authorized bank (s) for the adoption of capital deposited in a country in general, under an unconditional and anonymous financial amnesty. Such steps would be in the interests of both business and government, because otherwise, one side loses everything without the other side having to purchase anything.

Russian academic circles believe that the Cypriot option and everything to do with the presence of Russian money in tax havens should be carefully considered, and based on this analysis, immediate action be taken against the financial voluntarism of Berlin and Brussels.

But who will do the analyzing?

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