July-August 2015

OPINION: Who do we think we are?

Fiona RintoulThe Eurogroup didn’t want to hear economic arguments during the Greek bailout discussions, Yanis Varoufakis told the New Statesman, shortly after resigning as Greece’s minister of finance in July. “There was point-blank refusal to engage in economic arguments. You might as well have sung the Swedish national anthem.”  Perhaps that was tacit acknowledgement that Financial Times associate editor Wolfgang Münchau was right when, after  the Greek referendum, he wrote: “There  is no reputable economic theory according to which an economy that has experienced an eight-year-long depression requires a new round of austerity to bring about economic adjustment.” Certainly, the ugly negotiations over the bailout can have done nothing to gladden the heart of any pro-European. “It has been an unedifying spectacle,” wrote Chris Iggo, chief investment officer, fixed income, at Axa Investment Managers, “and has sharpened the focus on some of the euro area’s structural fault lines – Franco-German relations; the tensions created by giving up sovereignty and still wanting a democratic mandate to govern a nation state; the shortfall of real integration.”  These are big, and unresolved, problems. Thus, while commentators from the funds industry broadly welcomed the deal reached on 12 July (at the time of writing, it may yet falter), the welcome was chilly.  “Following months of indecision and reasons to be cautious, it is perhaps unsurprising to see a stark positive reaction to what is a ‘deal’ full of pitfalls and contradictions,” was the best Martin Harvey, fixed income portfolio manager at Columbia Threadneedle Investments, could manage.  As tempers frayed, it felt appropriate that it fell to French president François Hollande, who at times seems to have all the gravitas of Monsieur Hulot, to warn us what would really be at stake if Greece exited the euro temporarily: our very conception of Europe.  In an interview with Die Zeit, economist Thomas Piketty issued a similar warning. If we start kicking states out of the Eurozone, he said, “we risk sacrificing Europe’s social model, its democracy, indeed its civilisation on the altar of a conservative, irrational austerity policy. We need to look ahead. Europe was founded on debt forgiveness and investment in the future. Not on the idea of endless penance. We need to remember this.”  The crisis goes way beyond economics and politics. It asks us who we are as Europeans, what this union is all about. If the European Union was created to heal the wounds of the Second World War, they are reopening now. Plenty of people are comparing the bailout deal imposed on Greece to the Treaty of Versailles, and many Germans are concerned about Germany’s role. “Angela Merkel and above all her finance minister, Wolfgang Schäueble, have managed to turn half of Europe against Germany with their austerity rhetoric,” wrote Roland Nelles, political editor at Spiegel Online, noting that a lot of damage – “perhaps too much” – was done during the negotiations.   Some Germans are concerned that the line between saving and punishing Greece has disappeared. Punishing Greece at this point feels about as useful as the Eurogroup leaders sticking their fingers in their ears and shouting: “La la la la” – which, it seems, they did do when Varoufakis presented his arguments. They need to fix the structural flaws identified by Iggo, but the Greek bailout doesn’t promote that outcome. “All in all, this agreement seems to be more about France and Germany staying friendly than solving the Greek problem,” wrote Wouter Sturkenboom, senior investment strategist at Russell Investments. “Slippage in terms of reforms and privatisation is almost guaranteed, as well as disappointment with respect to Greek economic performance. The Greek issue will not go away but continue to haunt the Eurozone for years to come with the review cycle as a drumbeat of bad news.” On the plus side, everyone in Europe can now name two Greek politicians – which wasn’t the case this time last year. It’s not much, I concede, but right now we don’t have much. Fiona Rintoul is editorial director at Funds Europe ©2015 funds europe

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