Thread: Germany has 'budget control' plan: Greece Tells Germany To Shove It

Germany has 'budget control' plan

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irishtimes.com - Last Updated: Sunday, January 29, 2012, 19:51

Germany has confirmed it drafted proposals to intervene directly in the Greek budget if it consistently fails to implement reforms.

European sources confirmed the plan yesterday, saying "several ideas are being discussed on how to react to a programme which is consistently off-track".
"If the Greeks aren’t able to succeed themselves with this, then there must be stronger leadership and monitoring from abroad, for example through the EU," said German economics minister Philip Rössler, the first member of chancellor Angela Merkel’s cabinet to confirm the proposal to appoint a "budget commissioner".
"We need more leadership and monitoring when it comes to implementing the reform course." Though the proposals would apply to all programme countries with a backed-up reform programme, the paper is focused on Greece as it struggles to cope with its €350 billion debt mountain.
Amid repeated failures to meet the terms of its current programme, agreed with EU partners, Athens is currently negotiating a second €130 billion package and a debt restructuring plan with its private creditors.
The German plan, leaked to the Financial Times , says that, "given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time."
European officials say a central problem is Greece's decentralised budget structure, which makes it "near-impossible for Athens to exercise fiscal discipline".
"One idea to cope with this is the introduction of a legal clause into Greek law to give deficit reduction absolute priority in the system," said the European official familiar with the document.
Another idea is to have external expertise on the ground, as well as the Troika, with some decision-making power.
This "external expertise" would have the authority to make sure Greece's programme gets back on track, giving debt-repayment priority over other government spending.
The European Commission said it wants to reinforce its monitoring of Greek finances, but that Greece should retain sovereign control.
Amid this sign of resistance from the European Commission, the official said the talks were at an early stage: "It’s all about stabilising Greece and helping it."
Greek officials rejected the proposal, saying it was contrary to national sovereignty.
Meanwhile, Greece and its private investors are close to a deal which will pave the way for a second bailout.
Greece and its private creditors are "very close" to an agreement on a debt-swap, government spokesman Pantelis Kapsis said this morning.
Reuters/Bloomberg

Germany has 'budget control' plan - The Irish Times - Sun, Jan 29, 2012

The great EU conjuring trick

The original players behind the single currency claim astonishing sleights of hand have brought the euro to its knees.


Currency wobble: leaders of the EU at a recent meeting Photo: REUTERS

By Allan Little, and Jane Beresford
7:00AM GMT 29 Jan 2012
77 Comments

In the Nineties, the economist Miranda Xafa was at Salomon Brothers in London, watching from a distance as her native Greece prepared to enter the euro. She knew – and advised her clients – that Greece’s economy was not ready, that the statistics its government was publishing did not reflect reality.

“I’d come to Athens from London with clients,” she told me. “We always saw the head of the statistical agency of Greece who compiled statistics on the debt, the deficit and so on. We’d call him the magician because he could make everything disappear. He made inflation disappear. And he made the deficit disappear.”

Take, she says, the Greek state railway. “There were more employees than passengers. A former minister, Stefanos Manos, said publicly at the time that it would be cheaper to send everyone by taxi. How did they cover this deficit? The company issued shares that the government would buy. So it was counted not as expenditure, but as a financial transaction” – and did not appear on the budget balance sheet.

In 2004, with Greece a member of the euro, the conjuring trick was becoming transparent. A new, centre-right government was elected, with Peter Doukas appointed Budget Minister.

“I asked the senior staff of the ministry to give me details of the budget that had been passed the previous December,” says Doukas. “I said don’t worry about persecution or anything, just tell me the true story.”

The difference between the published deficit and the real one was huge. “[It] was about 7 per cent of GDP. The budget said the deficit was 1.5 per cent. The real shortfall was 8.3 per cent.” Under the Maastricht treaty, member states must keep their budget deficits below 3 per cent of GDP.
So what did he do? “I said we should start chopping down the budget. But the answer I got at the time was: 'We have the Olympic Games in a few months and we cannot upset the whole population and have strikes and everything just before the Olympic Games.’”
To meet the deficit, Greece borrowed and borrowed. Banks queued up to lend. The markets did not believe there was a risk of default because Greece’s currency was locked into that of Germany.
Germany drove monetary union in the Nineties. Berlin had come to see exchange-rate instability as a form of back-door protectionism. Exports account for a third of Germany’s economic output and most of its exports go to the EU.
“We wanted Italy to stop devaluing the lira,” says Dietrich Von Kyaw, then Germany’s ambassador to the EU. “This has to do with things like Bavaria needing to continue selling surplus milk to Italy, or Volkswagen wishing to keep competition from Fiat within certain limits.”
Admitting Italy into the euro in the first wave looks, in retrospect, to be the key mistake. “Think back 20 years when we were working all this out,” says John (now Lord) Kerr, former British ambassador to the EU. “My view was that it would be five, possibly six countries that would start. It never occurred to me that Italy or Spain, let alone Greece, would qualify.”
Italy’s failure to meet the Maastricht criteria meant it was the only one of the six founder states of the old European Community that looked likely to be left behind. Italy’s national debt was around 120 per cent of GDP. Maastricht required it to be below 60 per cent.
“But it was a very unusual kind of debt,” says Joachim Bitterlich, then a senior foreign policy adviser to Chancellor Kohl and one of the architects of monetary union. “It was atypical because 80 per cent of what Italy owed was to its own people. It was internal, not external. So people said that under these circumstances, we can accept the Italians.”
Did you bend the rules to let Italy in? I ask him. “Yes. To some extent. We interpreted the rules at that time in favour of the Italians.”
It was part of a pattern. At key moments, political imperatives trumped economic better judgement. Italian membership opened the door to Portugal, Spain, Greece and others.
But it wasn’t the behaviour of the eurozone’s southern members that first plunged the euro into crisis. There was, from the start, a way for the EU to police the economies of member states. It was called the Stability and Growth Pact, and it wasn’t Italy or Greece that torpedoed it; it was Germany.
In 2003, France and Germany had both overspent, and their budget deficits exceeded the 3 per cent limit to which they were bound. The Commission – then led by the former Italian Prime Minister Romano Prodi – had the power to fine them. But finance ministers voted not to enforce the rules, which were designed to protect the stability of the euro. Britain’s Chancellor, Gordon Brown, still committing sterling to its love affair with prudence, voted with the French and Germans.
The EU is often criticised for the power wielded by the unelected European Commission. On this pivotal occasion, the Commission ran up against something much more powerful: the combined will of democratically elected governments.
“Clearly,” Romano Prodi told me, “I had not enough power. I tried and they [the finance ministers] told me to shut up.”
Jacques Lafitte was seconded to Brussels in the Nineties to help construct the single currency. He said the technocrats working on the project knew that some central mechanism was needed to ensure member governments complied with the rules. “We made suggestions to the member states at the time but these were rejected because they would have involved transferring sovereignty from national governments to Brussels or maybe Frankfurt,” he says.
“We knew deep inside. Again, we could not say so publicly. We were mere technocrats. We were supposed to shut up and listen to the member states who, almost by definition, knew better. I was convinced it was not enough.”
Sir John Grant was Britain’s ambassador to the EU at the meeting of finance ministers. He says: “The credibility of the Commission and the readiness of the member states to accept its authority as the independent enforcer of the Maastricht criteria was gravely undermined.”
It was also a signal to everyone else in Europe. “The view,” says the Greek budget minister Peter Doukas, “was that if the big boys won’t impose discipline on themselves, they’ll be more relaxed in enforcing the treaty [on us]. No one can impose sanctions on Germany and France. They are the European superpowers. So they won’t adhere. The pressure was simply not there.”
Europe is wise after the event. The power the nations retained to police their own budgets is being stripped away. Governments in the eurozone will, in future, be required to submit their budgets to Brussels for approval. How long before national populations revolt in the name of democracy?
From Helsinki to Athens, revolt is stirring, and often shot through with anti-German sentiment. “Germany is the locomotive of pain for other people’s problems,” says Doukas. “It will ask to have a much bigger say in what’s happening in Greece and Italy and Spain. The centre of gravity of Europe is rapidly moving towards Berlin. In the fiscal union they will be the ones dictating the terms, with France as a junior partner.”
The idea of Germany throwing its weight around spooks the Germans themselves. They do not seek, and do not want, leadership in Europe. But leadership has been thrust upon them.
In November, in a speech in Berlin, the Polish Foreign Minister Radoslaw Sikorski appealed to Germany to act. “I will probably be the first Polish foreign ministry in history to say so but here it is: I fear German power less than I begin to fear German inactivity.”
The unfolding paradox is this: that a process motivated 20 years ago by a desire to Europeanise Germany looks likely to have precisely the opposite effect. Much of Europe will now be required to Germanise its economic governance.
Allan Little is a special correspondent for the BBC

The great EU conjuring trick - Telegraph

Europe's lost generation: how it feels to be young and struggling in the EU

Viola Caon left her Italian home to find work. Now she returns to see how her former classmates are faring… and in the week that shocking figures showed how badly Europe's youth is being hit by the unemployment crisis, we also talk to hard-hit twentysomethings in Athens and Madrid

Comments (166)
Viola Caon in Civita Castellana
guardian.co.uk, Saturday 28 January 2012 15.00 EST


Left to right, the classmates of Civita Castellani: Martina Rossitto, Viola Caon, Maria Francesca Zozzi, Elisa Di Pietro Paolo, Michele Stentella, Michela Moretti and Elena Cirioni. Photograph: Christian Sinibaldi/For The Observer

Maybe being young is never easy. But being a twentysomething young European has rarely been more stressful.

More than a quarter (28%) of Italians between 16 and 24 are unemployed. Others are struggling to get by on unpaid internships or poorly paid jobs with little security.
Italy's new prime minister, Mario Monti, has vowed to help the younger generation, promising among other things to help them start businesses, but as austerity bites deep the future is uncertain, even terrifying, for many.

It's not just Italy, of course. Eurozone unemployment is at a record. According to Eurostat, the EU's statistical office, 16.3 million people are out of work in the 17 countries that joined the euro. The story of a lost generation is becoming the scandal of a continent. In Spain, 51.4% of those aged 16-24 are jobless. In Greece, the figure is 43%.

As the eurozone crisis worsened, I went back to my hometown of Civita Castellana, 65 kilometres north of Rome, to meet my classmates from the Giuseppe Colasanti high school. Michela, Maria, Elena, Elisa, Michele, Martina and I were in the class of 2005.

When Monti announced his €30bn austerity package, he said: "Sacrifice will be required." In Civita, those sacrifices are being made. It is one of the largest industrial centres in the region. Since the end of the second world war, about 90% of people been employed making bathroom fittings and crockery, for which Civita is renowned. What everyone now calls "the crisis" arrived here earlier than elsewhere, as the town suffered the consequences of globalisation and competition with China, where similar products were being made more cheaply. Many factories have closed; thousands are out of work.

The debt crisis that began in 2008 means redundancy hangs over many of those who have kept jobs. Then there are the young. Getting a foot on the ladder has never been simple in Italy, where who you know is often key. But with the country facing austerity for the foreseeable future, and eurozone GDP as a whole predicted to shrink by 0.5% in 2012, the outlook is bleak.

So meeting my schoolmates again was quite an experience. My decision six months ago to live and work in London was partly to do with the economy. But how had my schoolmates been getting on?

Martina Rossitto, 26, MA student, human biology
"I am doing a traineeship at the laboratory for cystic fibrosis of Bambino Gesù hospital in Rome. I was lucky, as they do serious research there. I got the place because I know one of the doctors in the lab. I am not getting paid, not even expenses. However, I consider myself to be privileged, as most of my university mates are working 12 hours a day and don't even have access to basic research tools. In Italy, choosing to work as a researcher is suicide. The government keeps cutting the funds."

Maria Francesca Zozi, 26, MA student, arts
"I am usually told I will be a useless graduate. I find it unbelievable: governments keep investing in other sectors and they cut on arts and education. It is simply ridiculous. The problem is that the public sector – which includes most of our arts heritage – is corrupt and inefficient. I have a lot of projects in mind, I would like to attend a course at Brera Academy of Arts in Milan, but I really cannot afford it. I would leave the country if it weren't for my boyfriend, who says we have to stay and fight for a better future."

Elisa Di Pietro Paolo, 25, unemployed shop assistant
"I looked for a job as soon as I left high school six years ago. I found one as a shop assistant in Rome, on a short-term contract. My employers used to renew every year, until one day they didn't. They fired a girl who had worked for them for five years because she took sick leave for pneumonia. Since last January I have been unemployed and doing occasional jobs: for a holiday camp, leafleting, and now for a non-profit thing. The problem is that, having worked as a trainee, employers must hire me on a proper contract, and it's not convenient to them."

Michele Stentella, 26, DJ and student in political science
"I have been DJing for years. Besides doing some nights in a major club in Rome, I have also started to work as a producer. If things go well, I might also sign with an important label. But the crisis has struck in my area, too. More and more clubs are closing. People cannot afford to spend much money and we all feel the pinch at the end of the month. I have a registered logo, and four guys who work with me. I really hope I can keep doing this job. Meanwhile, I study and maybe a BA degree will turn out to be useful some day."

Michela Moretti, 25, trainee lawyer
"I have just graduated in law and I started a traineeship in a law firm near my hometown, Viterbo. Of course, they are not even paying me expenses. The only people I know who are getting paid during their traineeship are lawyers' children. They go to their parents' law firm and they get paid. With Monti's talk about liberalising the professions, everything is still more unclear for us. They're even talking about getting rid of the traineeship. It's going to be very confusing."

Elena Cirioni, 25, trainee radio journalist
"I did a two-year internship for a local FM radio which never even paid me the expenses. Fortunately, I got another opportunity with a private web radio station which is paying me the expenses and is helping me obtain a journalist's licence. I work 15 to 20 hours a week and I get paid €200 a month. My dream was to become a theatre actress and I am still hoping to fulfill this Athensambition at some point. The problem is that the culture industry is eternally in crisis in Italy, and there isn't the money for new actors."

GREECE

Left to right, Christos Xeraxoudis, Evangelia Hadzichristofi and Giorgos Dimas Photograph: Milos Bicanski For The Observer

The greatest victims of Greece's economic crisis have been its youth, men and women who never knew the boom times but must now bear the brunt of one of Europe's harshest austerity programmes.

With unemployment at a record as the debt-choked country endures a fifth consecutive year of recession, nearly 44% of the 907,953 out of work are between 15 and 24. For the first time since the 1960s, the jobless rate has nudged 18.5%, according to data released by the national statistics office in November. Four out of 10 without work are young people, although three months later, with ever more businesses closing, the figures are undoubtedly worse.
Lack of job prospects and the absence of vocational training to redirect the newly unemployed, fears of impending economic collapse and warnings that it may take 10 years before the service-oriented economy even begins to recover have spurred many of the brightest and best to look abroad. The exodus has sparked a brain drain that could have a devastating effect on the country's future growth. Tens of thousands of young Greeks are believed to have moved overseas in the last two years. Almost always from part of the educated elite, they have gone to other European countries and as far as Australia.

An 800-seat Australian "skills expo" in Athens in October attracted 13,000 applicants. Community leaders in Melbourne, focus of a similar Greek migration in the 1950s and 1960s, have been flooded by requests from Greek graduates.

Christos Xeraxoudis, 24, unemployed chef
"I'm a trained chef and have been looking for work for months. I've sent my CV to hotels and restaurants all over Greece, but out of the 50 or applications that I've made I only got an answer once. Lately I've looked for jobs in the UK, Germany and Switzerland, where I happen to have relatives, but I've had no response. But I am optimistic. Greece needed to change. It needs to be rebuilt from the beginning. It has so much going for it but somehow had lost its way. After all, we had got to the point where we were importing lemons from Argentina."

Evangelia Hadzichristofi, 26, unemployed interior designer
"I've been out of work for the last year. It's hard. I'm an interior designer and our industry has been very badly hit. I had an internship at the Benaki Museum [in Athens], but then they let me go and it's been impossible to find a job since. I've looked for work as a secretary, receptionist, shop assistant and the answer has always been 'no'. It's got to the point where I am counting every cent and have to rely on my father, who is in difficulty himself with his own business. I've just applied for jobs in England and Amsterdam because at least there is always overseas."

Giorgos Dimas, 25, working as a chef
"I was unemployed for three years until last week when I finally found a job as a chef. I went back to school to train as a cook, and I've been learning English but it's been really difficult. At the back of my mind there is always the thought that the restaurant I'm about to work in might go bust, given that no one has any money any more. But although it might take a few years for my generation to find work I actually think the crisis has been a good thing. Greece was all about jobs for civil servants and nothing else. It had to change."

Report by Helena Smith Athens

SPAIN

Left to right, Eduardo Caña, Marita Blázquez, Adriano Justicia and María Lázaro. Photograph: Erik Molgora For The Observer

Now is not the time to be a twentysomething in Spain. According to figures last week, 51.4% of 16-24 year-olds are now without work, as the total unemployment count passed the 5 million barrier.

This has often been called the best-educated generation in Spain. It is also the one which has the direst prospects. Even if they are lucky enough to get a job, most of them – around 60% – have to live on low salaries with little job security. The usual best options are internships or temporary contracts that allow the employer to fire them without difficulty. The situation is now critical, as indicated by prime minister Mariano Rajoy's plea last week to Brussels. He demanded greater "realism" from Brussels over Spain's attempts to cut its deficit. Austerity is sending Spain back into recession and the danger is that a generation is to be sacrificed as a result.

About a decade ago, a new term was coined to describe young people who earned €1,000 a month – the mileuristas. Now things are so bad that this disparaging term describes an unattainable aspiration for most.

Eduardo Caña, 23, student
"I am studying journalism and economics and I've done all sort of low-paid jobs: serving beers in Valencia beach bars, working in construction in Galicia, unloading fruit trucks and filling customers' bags in Ikea. I've never been paid more than €7 an hour. I also worked as an intern for a newspaper, almost for free. This friend of mine was working on a paper for less than €400 a month. Her temporary contract expired and they called to offer me the same job but as an unpaid intern. I found that so offensive. I am finishing school next June and if nothing comes up I am thinking about moving abroad."

Marita Blázquez, 25, student
"I've found it impossible to get a job in my own field. In my hometown of Granada, I worked as a monitor in a shopping mall kids' play area and that's the closest I've got to working with kids, which has been my goal since I started studying. I came to Madrid but all I could get were two part-time jobs, first at a department store and then in a clothes shop, where they hired me as a clerk with an illegal contract making €3 an hour. When I asked for better conditions my boss fired me. I started studying again to become a teacher. But only a few posts are open every year so I have no idea what I am doing next."

Adriano Justicia, 27, unemployed photographer
"I am a photographer and also hold a film studies degree, but never could find a job in any of those areas. I've worked as a telemarketer, in credit card sales and also a Red Cross charity recruiter for not much money at all. I just went back to study for a degree in TV production, which includes unpaid training. If I don't get a job after that, I think I will be forced to move back to Berlin, where I spent a couple of months as an intern for a photographic studio. Given the circumstances, that looks like the best option, although it is always difficult to leave your country."

María Lázaro, 25, jobless tour and advertisement agent
"I came to Madrid to work as a manager for Real Madrid's museum. I worked at Santiago Bernabéu stadium museum for two years until I was fired six months ago. Since then I've been working in temporary jobs, three or five days as a hostess in business conventions and fairs, most of them without any kind of contract. My partner works as a graphic designer and he has just been offered a job in Zaragoza, so we are probably moving there. I just got admitted back into school, where I am hoping to do a masters degree, to see if that helps me finally to get a job."

Report by Diego Salazar Madrid

Europe's lost generation: how it feels to be young and struggling in the EU | World news | The Observer

I actually think the crisis has been a good thing. Greece was all about jobs for civil servants and nothing else. It had to change."

This is the direction we seem to be taking.

They all have a "spending problem" just like us.....