June 24, 2012
Why Stay in the EU?By Warren Beatty
If European monetary integration, the EU, the European Central Bank (ECB), and the euro are so unpopular, why are countries sticking with them? Could the reason be bailouts?
Let's look at the history. The European project began with the creation of the Common Market in 1957 and grew to a Single Market in 1992. The Maastricht Treaty established the European Union (EU) under its current name in 1993. The euro, the Eurozone single currency adopted by 17 EU member-nations, was adopted in 2002. The latest amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009.
Now the euro is a casualty of the ongoing European sovereign debt crisis. The European public is worried about joblessness, inflation, and public debt, and those fears are fueling much of Europe's uncertainty and negativity.
The euro crisis has hit the southern European nations of Greece, Italy, and Spain much harder than it has the northern nations of Great Britain, France, and Germany.
Germans are the strongest supporters of both European economic integration and the EU. Germans are perceived to be Europe's most hardworking people. Anti-German sentiment is, for now, largely seen only in Greece.
Greece is just the opposite of Germany, with Greeks seeing themselves as Europe's most hardworking people. Greeks are the most disparaging of European economic integration and the harshest critics of the EU. None of the EU country-members surveyed by Pew (Great Britain, France, Germany, Spain, Italy, Greece, Poland, and the Czech Republic) see Greece in a positive light.
Of the eight EU member-countries surveyed, a median of only 34 percent think that European economic integration has strengthened their respective countries' economies. The opinion in Greece (70 percent), France (63 percent), Britain (61 percent), Italy (61 percent), the Czech Republic (59 percent), and Spain (50 percent) is that the economic integration of Europe has actually weakened their economies. Only in Germany do most people (59%) say that their country has been well-served by the EU, the euro, and European financial integration.
Greece held an election last weekend but still doesn't have a government. The conservative, pro-bailout New Democracy party (led by Antonis Samaras) eked out a narrow victory by less than 3 percent in Greece's parliamentary elections, edging out the leftist SYRIZA party (led by Alexis Tsipras), which is strongly opposed to the austerity measures imposed by the EU as part of Greece's bailout. Greece is expected to ask for a third international bailout agreement as soon as a government is formed.
Spain's bank bailout could top €100 billion. Spain's economy minister, Cristobal Montoro, warned that Spain is now in a "critical" condition and pleaded with the ECB to act with "full force" to defeat markets hostile to the euro project. The closely watched two-year yield on 10-year Spanish bonds shot up by 65 basis points to 7.3 percent in hours, signaling a near-total collapse of confidence in Spain's €100-billion rescue by the EU last week to shore up its banking system.
News of the delay of the audit report on Spain's banks has prompted speculation that €100 billion may not be enough. Bank of America said Spain may need a second rescue of €350 billion to tide it through the next three years, pushing the total loan package towards €450 billion, a sum that would sorely test the EU bailout capability.
Ireland was forced into a €24-billion rescue of its banking system. Ireland's banks were hurt by the bursting of a house price and commercial property bubble, created when they took advantage of the country's membership in the EU and adoption of the euro as its currency to lend recklessly on low interest rates.
Now that the Greece situation has somewhat subsided, Italy's financial crisis has come to the fore. Italy's Prime Minister Mario Monti is trying to keep Italy in the eurozone. But former Italian Prime Minister Silvio Berlusconi, a Monti supporter, said that Italy should say "ciao, ciao" (bye-bye) to the euro if the ECB does not "start printing money."
Monti's consensus is rapidly decreasing because his tax increases are starting to hurt, and because Monti seems unable to cut waste of taxpayer money as he promised. Support for Movimento 5 Stelle (the Five-Star Movement), led by comedian Beppe Grillo, who criticizes the austerity measures aimed at keeping state finances and borrowing costs under control so that Italy can stay in the Eurozone, is growing. One of the six principles of Movimento 5 Stelle is "Get out of the Euro and default on debt."
Only 30 percent of Italians view the euro favorably, while 44 percent of Italians view it negatively. Further, only 50 percent of Italians would vote to keep the euro if given a chance.
German chancellor Angela Merkel will allow the Eurozone's €750-billion bailout fund to buy up the bonds of financially struggling governments in an effort to drive down borrowing costs for Spain and Italy, and to prevent the euro from imploding. Germany has opposed allowing the European Financial Stability Facility, the Eurozone's rescue fund, to lend directly to financially troubled Eurozone countries, fearing that Germany would pay the bill for Greece's, Portugal's, and Ireland's financial indiscretions, and that these countries would escape the strict conditions imposed by the EU in exchange for bailouts.
But...as Mike "Mish" Shedlock says:
Is Shedlock predicting the end of the euro because it is unpopular with a majority of Europe's public? Only 30 percent of the Italians and 31 percent of the French say that having the euro as their currency has been a good thing. Meanwhile, nearly three quarters of the British (73 percent) and 62 percent of Czech Republic citizens are happy that they have kept their own currencies.
The German Bundesbank said there should be no banking union until there is a fiscal union. Merkel said that there should be no fiscal union until there is political union. And French president François Hollande said that there should be no political union until there is a banking union. It sounds like the EU is chasing its tail regarding the euro.
So why have an EU, a euro, and an ECB?
Dr. Beatty earned a Ph.D. in quantitative management and statistics from Florida State University. He was a (very conservative) professor of quantitative management specializing in using statistics to assist/support decision-making. He has been a consultant to many small businesses and is now retired. Dr. Beatty is a veteran who served in the U.S. Army for 22 years. He blogs at: rwno.limewebs.com.
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