Italy and Greece zeroed their fiscal deficits, expect Germany’s response

Discussion between Angela Merkel, German Federal Chancellor, in the centre, and Catherine Ashton, High Representative of the Union for Foreign Affairs and Security Policy and Vice-President of the European Commission on the left, in the presence of Herman van Rompuy, President of the European Council, on the right (in the foreground). (EC Audiovisual Services).

Discussion between Angela Merkel, German Federal Chancellor, in the centre, and Catherine Ashton, High Representative of the Union for Foreign Affairs and Security Policy and Vice-President of the European Commission on the left, in the presence of Herman van Rompuy, President of the European Council, on the right (in the foreground). (EC Audiovisual Services).

While the political scenery in Italy and Greece – the two key countries in Eurozone’s fight against sovereign excessive debt – could be termed as critical, their economic prospects do not seem discouraging at all. In this respect Italy gained a positive assessment from the IMF last week. The Fund’s report points to the zeroing of fiscal deficits this year, a surplus in the external trade account and the positive results of the stress tests performed on the Italian banking system. The Italian banks are now proven able to withstand the losses under a possible most adverse macroeconomic scenario. In Greece despite a highly charged political climate – with the crackdown of the fascist inclination Golden Dawn political party, accused of being a criminal organisation – the auditors’ troika composed of EU-ECB-IMF confirmed that the country will produce a primary fiscal surplus this year, albeit small. This information was confirmed yesterday by the Greek ministry of Finance. Let’s start from Rome.

Italian SMEs disadvantaged

In Italy, the decision of Silvio Berlusconi to withdraw his party’s five ministers from the left-right coalition government, under Prime Minister Enrico Letta, has opened a new round of political uncertainty but not unrest. President Giorgio Napolitano decisively repelled the possibility of an early election, insisting that the present legislatures should produce a new government. The entire country is convinced that Berlusconi is using his political party for ‘personal reasons’, to protect himself from the country’s judicial system. Last August the Italian High Court issued a final conviction against Berlusconi for tax fraud. Now he can be ousted from the Senate, the upper legislative body.

The IMF however focuses on other Italian sites. Under Article IV of the IMF‘s Articles of Agreement, the IMF holds bilateral discussions with member states, usually every year. On this basis the Fund writes a report on the country’s economy. According to this report the executive directors of the IMF concluded that “the important steps the authorities have taken to secure fiscal sustainability and implement structural reforms. The economy is showing signs of stabilizing but unemployment is still high and trend growth remains low. Against this backdrop, Directors stressed the need to maintain the reform momentum to sustain a robust recovery. These reforms should be complemented with steps at the euro area level to strengthen the currency union”.

This is not at all a negative appraisal of an economy which just emerged from a long-term recession and fiscal difficulties. Not to forget that all along the last three years, the Italian political scenery was not at all normal, with the Teutonic meaning of the term. Governments had time horizons of some months. Yet Italy managed to zero its primary fiscal deficits and is presently producing surpluses. At the same time the country posts a foreign trade surplus, based on the efforts of an outward looking business community, composed mainly by SMEs.

Despite the financial problems those SMEs are facing, they still can turn out competitive products and services, which sell well all over the world. Even the IMF recognised that the EU must take “steps at the euro area level to strengthen the currency union”.

To this effect the prime target of the European Banking Union must be the rehabilitation of the Italian and all south Eurozone financial markets, in order the region’s SMEs to regain access to similar credit conditions for the same risks, as in core Eurozone countries. Germany, with or without a ‘grand coalition’ government has to understand that the other option for Italy is to abandon Eurozone. By the way, Italy is the only south Eurozone country being able to stand on its feet outside the euro area.

Greece zeroes deficits

Going a bit south-east to Athens, an also weak coalition government under Prime Minister Antonis Samaras found the courage, to accuse a Nazi methods using ultra-right political party of being a criminal organisation and actually dissolve it. ‘Golden Dawn’, attempted to set the country’s political agenda, having being catapulted into the Parliament with 18 seats, an outcome of the misery from five years of austerity and deep economic recession.

However after a local branch of Golden Dawn organised the murder of an antifascist hip hop artist, the government understood that if this party or rather criminal gang is left untouched it could drive the country to hell. In a well organised police operation in close cooperation with prosecutors the entire party’s leadership and those directly implicated in the murder were rounded on charges of operating a criminal organisation, under the guise of a political party.

The news took the Greek public opinion by surprise last Saturday morning. However this is not the first time that politicians face the judicial system of this country. The late Andreas Papandreou, the powerful president of Pasok socialist party and PM for eight years, was tried back in 1992 by the Greek High Special Court accused of taking bribes. He was acquitted with 7 to 6 votes.

In spite of the uncertain Greek political environment though all along the years of crisis after 2009, the country has managed to produce now a primary fiscal surplus, as confirmed by the creditors’ troika. At this point it must be reminded that Greece asked for Eurozone’s help after an unbelievable 15.6% of GDP fiscal deficit in 2009.

Now with the country’s surplus being confirmed the rest of Eurozone member states have to honour their last November promise and accept a good hair cut on their loans to Athens. Germany however being accustomed to interpret promises under an egotistic Teutonic prism doesn’t concede to this. It was quite different last year when Berlin finally accepted an IMF proposal, to cut down Greece’s debts, if the country manages to produce a primary fiscal surplus in 2013. Now that this condition is met, Berlin changed the tune and talks only of interest rate reductions and extensions of loan maturities. It remains to be seen if promises on the highest level, between fellow Eurozone member states, can be that easily broken.

In any case both those two weak links in Eurozone’s chain, Italy and Greece, have managed to fulfill their obligation and produce primary fiscal surpluses, despite their grave internal political problems. Now it’s the turn of Berlin, Paris and Brussels to stand by their promises and do whatever it takes to strengthen the monetary union, by accepting measures in favour of all, not just for the German and the French banks. Up to now Berlin gains from the marginalisation of the highly competitive Italian SMEs and profits from the loans to Greece.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

A call for a new crop of innovators

Caspian Sea deal an invaluable step towards easing regional tensions, says UN Chief

What happens when you toss your water bottle in the trash?

We need to rethink the way we heat ourselves. Here’s why

Focus on EU’s external action and building our stronger inner core: von der Leyen at the Special European Council

EU Court of Justice invalidates Safe Harbour and the game for thousands US businesses suddenly changes

Snowden is the “EU nomination” for this year’s Oscars

‘Millions facing starvation’ – Global political and business leaders on the economic impact of COVID-19

How digital can transform healthcare in Asia for millions of people

We can meet the SDGs using the wisdom of crowds. Here’s how

We need a new approach to cutting greenhouse gas emissions: and it’s all about innovation

Moving from commitment to action on LGBTI equality

Deutsche Bank slammed by the US-based trio of IMF, Fed and Moody’s

French elections: by the time the EU economy revives and the migration crisis is solved extremists could take over Europe

VAT Gap: EU countries lost €137 billion in VAT revenues in 2017

Black babies more likely to survive when cared for by Black doctors, suggests new study

Vaccines: from miracle to possible danger

UN lauds special chemistry of the periodic table, kicking off 150th anniversary celebrations

COVID-19 and nature are linked. So should be the recovery.

LGBTQ+ inclusion on the other side of the screen

We can’t wait to act on emissions. Here’s how to get to net zero

On International Youth Day the European Youth Forum calls for true youth participation

The great sustainable reset: The new world of work after the pandemic

Syria: UN health agency highlights ‘critical health threats’ facing Idlib civilians

Health: The neglected aspect of climate change

Resilience in times of pandemic

Companies can help build a more inclusive world. Here’s how

International World Summit Award calls for outstanding digital applications with impact on society from 178 UN member states

FEATURE: Niger’s girls find sanctuary in fistula treatment centres

Phone lines open between Ethiopia and Eritrea, and people are calling strangers

France and Germany can’t reach consensus regarding EU’s top jobs

An ECB banker wants to change the European social model

Cancer is a growing global threat and prevention is key, UN study shows

Where are the world’s nuclear weapons?

How scientists are turning living cells into the tiny factories of the future

Four million have now fled Venezuela, UN ramps up aid to children who remain

Q&A: EU-China Comprehensive Agreement on Investment (CAI)

UN Security Council welcomes results of Mali’s presidential elections

Calculators didn’t replace mathematicians, and AI won’t replace humans

EU lawmakers vote to reintroduce visas for Americans over “reciprocity principle”

Western Sahara: a ‘peaceful solution’ to conflict is possible, says UN envoy

London wants new skyscrapers to protect cyclists from wind tunnels

4 ways to become a ‘business baobab’ on the African economic landscape

5 ways to fast-track the transition to a carbon neutral world

EU-US trade deal: Europe to Americanize its social model?

Why quantum computing could make today’s cybersecurity obsolete

European Union supports survivors of sexual violence in conflict

Iraq: UN demining agency rejects desecration accusations, involving historic Mosul churches

UN chief welcomes power-sharing deal between Sudanese military and opposition

How banks should prepare for robots going rogue

Merkel, Mercedes and Volkswagen to abolish European democracy

“Hasta la vista” Google says to Spain and now Europe is next?

These 4 trends are shaping the future of your job

Visiting North Korea, UN relief chief spotlights funding shortfall to meet humanitarian needs

In Rwanda, high-speed drones are delivering blood to remote communities

Focus on EU’s external action and building our stronger inner core: von der Leyen at the Special European Council

FROM THE FIELD: Niger supporting the most vulnerable, as crises mount

Russia is ready for its Phase 3 evaluation once it fulfills high-priority recommendation

New EU short-stay visas: more advantages for legitimate travellers

How to keep our cities cool as temperatures rise

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s