Rescue of the euro zone

 

THE financial rescue plan for the euro zone agreed last week will profoundly change power balances - at regional and global level. Greece, for one, has lost its economic independence. As the price for halving its government debt, it will have officials from the European Union and international institutions permanently installed in Athens to supervise the asset sales and debt reduction that are the pound of flesh. Italy avoids the live-in monitors but is required to detail progress in its fiscal reforms reluctantly agreed as the price of getting a firewall against the Greek contagion.

Power has shifted even more to Germany, which has essentially set the terms of the rescue. Yet doubts hover about whether the planned €1 trillion ($1.32 trillion) European financial stability facility can be put together - Britain for one is opposing contributions from the International Monetary Fund - and even if it can be, whether it will be enough to face down the self-fulfilling pessimism of financial markets in a bearish phase.

Much will depend on the ability of the new Italian president of the European Central Bank, Mario Draghi, who starts work today, to overcome the grim Teutonic preoccupation with inflation and moral hazard he inherits from his predecessors at the Frankfurt-based institution. Many analysts feel the dangers of a euro-zone break-up and prolonged economic depression are so clear that these concerns should be downgraded, and the bank follow its US, British and Japanese counterparts in quantitative easing - printing euros, in effect, by massive purchases of bonds issued by European governments.

Without this back-up, the stabilisation fund may buy only a little time. The ''bazooka'' aimed at the Mediterranean debt crisis may need much heavier firepower. Other Europeans are begging the Germans to unleash the biggest gun. But Angela Merkel's government is refusing to allow the European Bank the scope for massive injections of funds in case the default concern shifts more critically from Greece to large economies such as Italy and Spain. She worries that this would allow big borrowers to keep spending, and get their lenders out of responsibility. Much tighter European supervision of fiscal management may be required as a companion safeguard.

The other power shift is a global one. France has directly asked China to contribute to the stabilisation fund. The sovereign wealth funds of Saudi Arabia and the Gulf states will also be tapped. Whether directly or through the IMF, traditional roles are being reversed. Though a higher degree of mutual dependency is created, it is usually the lender in an enhanced position. The days of US and European control of international agencies such as the IMF and the World Bank are numbered.

The flawed euro system looks doomed and Europe may be better off without it

Paul Krugman October 26, 2011

Silvio Berlusconi ... interviewed at the end of an Euro zone leaders summit in Brussels. Photo: Reuters

If it weren't so tragic, the present European crisis would be funny, in a gallows-humour sort of way. For as one rescue plan after another falls flat, Europe's Very Serious People - who are, if such a thing is possible, even more pompous and self-regarding than their American counterparts - just keep looking more ridiculous.

I'll get to the tragedy in a minute. First, let's talk about the pratfalls, which have lately had me humming the old children's song There's a Hole in My Bucket.

For those not familiar with the song, it concerns a lazy farmer who complains about said hole and is told by his wife to fix it. Each action she suggests, however, turns out to require a prior action, and, eventually, she tells him to draw some water from the well. ''But there's a hole in my bucket, dear Liza, dear Liza.''

What does this have to do with Europe? Well, at this point, Greece, where the crisis began, is no more than a grim sideshow. The clear and present danger comes instead from a sort of bank run on Italy, the euro area's third-largest economy. Investors, fearing a possible default, are demanding high interest rates on Italian debt. And these high interest rates, by raising the burden of debt service, make default more likely.

It's a vicious circle, with fears of default threatening to become a self-fulfilling prophecy. To save the euro, this threat must be contained. But how? The answer has to involve creating a fund that can, if necessary, lend Italy (and Spain, which is also under threat) enough money that it doesn't need to borrow at those high rates. Such a fund probably wouldn't have to be used, since its mere existence should put an end to the cycle of fear. But the potential for really large-scale lending, certainly more than €1 trillion ($1.3 trillion), has to be there.

And here's the problem: all the various proposals for creating such a fund ultimately require backing from major European governments, whose promises to investors must be credible for the plan to work. Yet Italy is one of those governments; it can't achieve a rescue by lending money to itself. And France, the euro zone's second-biggest economy, has been looking shaky lately, raising fears that creation of a large rescue fund, by in effect adding to French debt, could simply have the effect of adding France to the list of crisis countries. There's a hole in the bucket, dear Liza, dear Liza.

You see what I mean about the situation being funny in a gallows-humour fashion? What makes the story really painful is the fact that none of this had to happen.

Think about countries such as Britain, Japan and the US, which have large debts and deficits yet remain able to borrow at low interest rates. What's their secret? The answer, in large part, is that they retain their own currencies, and investors know that in a pinch they could finance their deficits by printing more of those currencies.

If the European Central Bank were to similarly stand behind European debts, the crisis would ease quickly.

Wouldn't that cause inflation? Probably not: whatever some may believe, money creation isn't inflationary in a depressed economy. Furthermore, Europe actually needs modestly higher overall inflation: too low an overall inflation rate would condemn southern Europe to years of grinding deflation, virtually guaranteeing both continued high unemployment and a string of defaults.

But such action, we keep being told, is off the table. The statutes under which the central bank was established supposedly prohibit this kind of thing, although one suspects that clever lawyers could find a way to make it happen.

The broader problem, however, is that the whole euro system was designed to fight the last economic war. It's a Maginot Line built to prevent a replay of the 1970s, which is worse than useless when the real danger is a replay of the 1930s.

And this turn of events is, as I said, tragic. The story of postwar Europe is deeply inspiring. Out of the ruins of war, Europeans built a system of peace and democracy, constructing along the way societies that, while imperfect - what society isn't? - are arguably the most decent in human history.

Yet that achievement is under threat because the European elite, in its arrogance, locked the continent into a monetary system that recreated the rigidities of the gold standard, and - like the gold standard in the 1930s - has turned into a deadly trap.

Now, perhaps European leaders will come up with a truly credible rescue plan. I hope so, but I don't expect it.

The bitter truth is that it's looking more and more as if the euro system is doomed. And the even more bitter truth is that, given the way the system has been performing, Europe might be better off if it collapses sooner rather than later.

The New York Times

The flawed euro system looks doomed and Europe may be better off without it

All eyes on expansion of European bailout

Clancy Yeates October 26, 2011

The financial world is today holding its breath as Europe's attempt to avoid a full-blown economic crisis reaches a crunch point.

After repeatedly failing to address debt woes, European leaders will gather in Brussels to finalise a ''comprehensive strategy'' for containing the crisis.

Markets are desperately hoping the 17 leaders of euro-zone nations can put their squabbling to one side, amid a damaging plunge in confidence that threatens to derail the global economy.

Investors want the leaders to announce a deal between Greece and its bankers and to expand the region's €440 billion bailout fund so it can handle far more distressed debt.

But success is far from certain and the stakes could hardly be higher. Failure to reach a credible agreement is likely to spark further volatility on markets, and could ultimately threaten the future of the euro zone.

A sudden turn for the worse in Europe also threatens economies in Australia's region.

The Minister for Foreign Affairs, Kevin Rudd, yesterday said the crisis had reached a ''critical stage'', and any fallout could have ''major global repercussions from which few economies would be immune''.

''What Europe does now affects not just its 27 member states. It affects all 193 member states of the global economy,'' Mr Rudd said in Perth.

''And it affects us in the Asia-Pacific region, where continued economic growth and stability go hand in hand.''

Earlier this week, the French President, Nicolas Sarkozy, reportedly told the British Prime Minister, David Cameron: ''We're sick of you criticising us and telling us what to do.''

Mr Sarkozy and Germany's Chancellor, Angela Merkel, have also attacked the Italian Prime Minister, Silvio Berlusconi, over his efforts to get debt under control.

Amid these tensions, the deputy governor of the Reserve Bank, Ric Battellino, yesterday said the situation in Europe was ''particularly disturbing''.

It had helped lower world economic growth this year, taking the edge off inflation, he said.

In a sign the slowdown could result in a Melbourne Cup day rate cut, Mr Battellino said there was ''scope for monetary policy to be supportive of economic activity, if needed''.

But although many households would welcome a rate cut, the consequences of a severe crisis in Europe could overshadow the ''good news'' of lower rates.

The chief currency strategist at Westpac, Robert Rennie, said failure to reassure financial markets would almost certainly plunge Europe into recession, with ''very uncomfortable'' consequences for the world economy.

With the United States struggling to avoid recession and Asia slowing, Mr Rennie said it was not clear which country would support global growth if Europe hit serious trouble.

''If Europe is heading towards a nasty recession, if the US is bumping along and Asia is weakening, it's not obvious to me who is going to make up the difference.''

All eyes on expansion of European bailout

Coptic Christians Killed In Attacks In Egypt

William Dalrymple October 12, 2011

A mass funeral makes its way to the Abbasiya Cathedral. Photo: Reuters

The latest violence in Cairo marks an ominous development in the story of Egypt's unfinished revolution. It is very bad news for several reasons.

First, it demonstrates more starkly than ever the dubious role being played by the army. Eyewitness reports are clear that it was firing by the army, followed by the repeated crushing of unarmed demonstrators by an armoured car, that turned a peaceful demonstration into a violent altercation that left 24 people dead.

More specifically, the violence is very bad news for Egypt's Coptic minority - by far the largest Christian community in the region. The Copts now face an uncertain future with a wide spectrum of possible outcomes, from a liberal democracy to an Islamic republic or, most likely of all, a continuation of army rule with different window-dressing.

That sectarian violence was likely to follow the end of the Mubarak regime was something the Copts have been fearing for decades. Three years ago I attended workshops run by the Coptic newspaper editor Youssef Sidhom, intended to prepare his people for the rise of the Muslim Brotherhood. Sidhom, editor of Watani, Egypt's leading Coptic newspaper, believed that dialogue between the two faiths was a pressing necessity and that the Copts would have to learn to live with the Islamists.

The Copts have long suffered petty discrimination. But the revival of the Islamists over the past few years made the Copts' position more uneasy, and their prospects more uncertain, than they had been for centuries.

Throughout the 1990s the Copts, especially in southern Egypt, were targeted by the Islamist guerillas of the Gamaa Islamiyya. Since then, the Gamaa have renounced violence, and the Islamists have concentrated on reaching power through the ballot box. The Copts reacted by retreating ever deeper into sectarian isolation, further polarising the country.

A generation ago, most Egyptians chose names for their children that could be either Christian or Muslim, such as Karim or Adel. Now they tend to give their children names such as Mohammed or Girgis (George) that define their sectarian affiliation. In the face of growing polarisation and discrimination, the Copts have tended to form their own schools and social clubs, keeping their distance from the Muslim majority. This is something the Coptic clergy - every bit as conservative as their Muslim counterparts - have often encouraged. At the same time, the Copts have seen their political influence slowly diminish: under Hosni Mubarak's last government there was still one Coptic provincial governor and two Coptic ministers. But in contrast to the situation at the time of Gamal Abdel Nasser and Anwar Sadat, no senior policemen are Copts, nor judges, nor university vice-chancellors, nor generals.

In the growing uncertainty and violence that followed the fall of Mubarak, a spate of anti-Coptic riots broke out in Cairo and Alexandria, which the army did very little to stop.

The dilemma and fears of the Copts mirror those of Christian minorities across the Middle East. Just as the elderly Coptic Pope Shenouda III supported Mubarak right up until his fall, whatever individual Copts were doing in Tahrir Square, so the churches in Syria are still publicly supporting the Assad regime, even if many Christian activists are at the forefront of the opposition.

At the back of their minds, the Christian hierarchies are aware of the devastation of the Iraqi Christian community after the fall of Saddam Hussein, when more than half the Christian population - some 400,000 people - were forced to leave the country in a wave of Islamist pogroms.

The Arab Spring, it is widely feared, could yet mark the onset of the final Christian winter for the forgotten faithful of the Middle East.

Only elections and the advent of sympathetic and stable democratic governments across the region are likely to allay such fears. Sadly, at the moment this outcome seems less likely with every passing day.

William Dalrymple is the author of From the Holy Mountain, a study of the Christian minorities in the Middle East.

GUARDIAN

Coptic Christians Killed In Attacks In Egypt

Bloodbath in Cairo: An Eyewitness Account

 Sharif Abdel Kouddous October 11, 2011

October 9th is a day that will not soon be forgotten in Egypt. Chaos and bloodshed engulfed the streets of Cairo in some of the worst violence the country has seen since the ouster of Hosni Mubarak eight months ago.

The day began with a peaceful march of 10,000 people, the majority of them Coptic Christians, who took to the streets to condemn the recent attack on a church in southern Egypt. A similar protest five days earlier had been violently dispersed by military police. The march began at around 4 p.m. in the predominantly Christian district of Shubra and headed towards the state television and radio building, known as Maspero, in downtown Cairo. Approximately two hours into the march, the demonstrators came under attack when men in civilian clothes pelted them with stones from surrounding streets and a nearby bridge. The attack eventually subsided and the marchers continued towards Maspero where a few thousand people had gathered to await their arrival.

Many in the crowd of men, women and children were holding lit candles aloft while others chanted. A group of Coptic priests, in traditional long black robes, stood in the midst of the crowd as people kissed their hands in respect. Traffic crawled along the Corniche El Nile, the main thoroughfare between the large state TV building and the Nile.

As the protesters gathered, a massive security presence had amassed around them. Armored personnel carriers (APCs) lined the far side of the street and hundreds of military police, clad in army fatigues, black helmets and wielding large wooden sticks and shields, stood on a median pavement in the center of the road facing the crowd. Dusk settled and the excitement began to build as the marchers were said to be approaching along the corniche.

It took only a few seconds for the peaceful scene to be transformed into one of violence and mayhem.

A line of military police crossed the street and formed a cordon directly in front of the protesters, holding them back as traffic inched by. The crowd suddenly swelled, pushing the military police back. Several protesters continued moving forward, forcing the soldiers to retreat past the median and across the street to where the APCs were stationed. One protester threw a rock that hit the side of an army vehicle.

Then, the military attacked.

A line of military police rushed the crowd, swinging long wooden sticks and beating people. The sound of gunfire erupted in the air. People began to flee in all directions. Several fell over and were trampled in the stampede. The shooting continued as hundreds ran into a street behind the Hilton Ramses.

On the corniche in front of the hotel, APCs began driving at high speed through crowds of protesters. "An APC mounted the island in the middle of the road, like a maddened animal on a rampage," writes journalist Sarah Carr in Al Masry Al Youm English Edition. "I saw a group of people disappear, sucked underneath it. It drove over them."

Protesters retaliated by setting police vehicles on fire. Young men on motorcycles, riding two at a time, rushed into the melee to collect the wounded and bring them out. The sound of wailing filled the air. Many wounded, unconscious and wrapped in blankets, were carried through the streets. One man who appeared to have been shot in the stomach, his shirt soaked through with blood, was carried into an ambulance that had arrived at the scene.

In the middle of the chaos, a lone policeman in a black uniform, apparently stranded, ran through the crowd, desperately trying to reach the military forces at the other end of the street. A protester with blood streaming down his face grabbed a thick wooden plank and began to chase after him, but he was held back by other demonstrators.

Running battles ensued between thousands of enraged protesters and military, police and plainclothes thugs, each side temporarily gaining the advantage. Security forces resorted to tear gas, firing canisters in high arcs that landed in the midst of the crowds, forcing people to run back, coughing and spitting with tears streaming down their face.

In a building nearby, security forces stormed into the studios of independent television stations TV 25 and Al Hurra TV and cut their live feeds as they were reporting on what was happening in the streets below. A videographer taping near Maspero was surrounded by several soldiers and forced to hand over his memory card, which was then tossed into the river.

In the meantime, State TV and radio were reporting that "the Christians" had attacked the army first and killed three soldiers, a claim they were forced to retract the next day. It also broadcast interviews with soldiers lying on stretchers describing how they had been attacked. State TV anchors, repeatedly using sectarian language, called on "honorable civilians" to come to Maspero to protect the military from "the Copts."

The fighting continued as men wielding clubs and sticks raced toward the area, chanting Islamist slogans and vowing to stand with the military.

Many of the dead and wounded were taken to the nearby Coptic hospital. Eyewitnesses described horrific scenes of corpses with flattened faces and missing limbs lying on the floor of the morgue. A hospital medic later said that all of those killed had either been run over or shot. The hospital itself came under attack by a mob of thugs who threw Molotov cocktails and burned cars.

The violence continued around the streets of downtown until early Monday morning. All told, at least 25 people were killed and more than 300 wounded--a bloodbath in the streets of Cairo.

The scene at the Coptic hospital the following afternoon was harrowing. Families and friends of the victims crowded into an open-air courtyard at the hospital morgue. Some sat stone-faced, staring into empty space. Others wept uncontrollably, pulling at their hair. Sixteen coffins were laid out on the courtyard floor and in an adjacent room. They had been decorated with white flowers and crucifixes. Some families had taped on photographs of their lost relatives--haunting images of the dead staring out from their caskets in large, colorful studio shots.

The coffins remained empty as families and lawyers worked to get autopsies that would officially record the cause of death. There was shouting and confusion as people argued about the right course of action. The air hung heavy with sorrow.

People loudly criticized the media for its coverage of the attack, aghast that they had been portrayed as having instigating the violence.

Outside the hospital gates, a large crowd rallied and chanted against the military council and Field Marshal Hussein Tantawi, Egypt's interim leader. A march of thousands from the nearby Coptic cathedral joined them as the sun was setting. Chants for Tantawi to step down and of "Muslim, Christian, one hand" echoed in the street.

The Supreme Council of Armed Forces, headed by Tantawi, announced it would form a fact-finding committee to investigate the violence. Many asked how the military could honestly investigate itself, especially in a situation where army officers were directly implicated in the killing of civilians for the first time.

Night fell and the bodies of several of those slain were finally being prepared to be taken to the Coptic cathedral for a funeral service. Meanwhile, the streets of Cairo remained noticeably emptier and quieter than the usual Monday bustle. It appeared many Egyptians had stayed home out of fear.

About the Author

Sharif Abdel Kouddous

Sharif Abdel Kouddous is an independent journalist and Democracy Now! correspondent based in Cairo, Egypt. His reporting is supported in part by a grant from the Pulitzer Center on Crisis Reporting.

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This piece was first published by the Pulitzer Center on Crisis Reporting.

Bloodbath in Cairo: An Eyewitness Account | The Nation