More chicken games

25 Nov 2012

Apparently we are in for a new round of Chicken. The Greek government during the weekend presented its wish list (or demands, if you like) to the rest of the Euro-zone. A two year extension of the deadline for bringing down the budget deficit, a stop for the plan to fire 150,000 public sector employees, an extension of unemployment benefits from one to two years. The Greek government further wants stop the ongoing reduction in salaries for employees and to ease the taxation for lower incomes. In return they want to make tax collection more efficient. 

The extension idea looks fine, and had already been indicated by both the German foreign minister Westerwell and the EU president Van Rompuy.  

But the rest looks like continued electioneering from the new prime minister Samaras. It looks like he is planning yet another round of general elections and want to buy the loyalty of the public sector employees. And the unemployed. 

These ideas were promptly shot down by Van Rompuy and by German finance minister Schäuble. Schäuble even went as far as telling that the maximum delay the country could obtain would correspond to the delay caused by the inconclusive elections in May. 

It looks like a game of poker or Chicken going on. The Greek government is quite obviously playing on the fears in Germany that pushing Greece out of the euro will be very expensive – for Germany. Through the European System of Central Banks, Germany stands to lose big time if Greece defaults on its (euro-denominated) debt. Schäuble and van Rompuy obviously play on the enormous costs to the Greek society, if Greece were to leave the Euro-zone.  

To make sure that the Greeks got the message, Schäuble even refused to categorise a Greek meltdown as a major disaster, but simply as “something we will have to deal with”. 

German constitution stands in the way 

Schäuble has also been very blunt in stating that he expects a referendum in Germany. Not about the support to Greece, but rather about a new constitution for Germany. Berlin is quite obviously tired of having the Constitutional Court repeatedly putting a brake on further European integration (and every time strengthening the political far right). In his comments, Schäuble makes it very clear how serious the German government is about further European integration.  

Unhealthy Italian bank 

Italy’s banks are in general considered to be a good deal more solid that their Spanish counterparts. Italians prefer not to take huge mortgage loans to pay for property, reflecting a culture of significant household savings. So it is bad news when the world’s oldest bank, Montepaschi di Siena apparently will ask for help, now that the deadline for recapitalisation of the EU banks is just some days away. It is likely to unsettle the markets, who have a tendency to point out something very correct: Europe does still not have a strategy for dealing with the undercapitalised banks. 

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