Europe is always a heated topic at a Conservative party conference. This year much debate has focused on David Cameron’s ongoing renegotiation of terms for staying in the EU. By contrast, the terms on which a Brexit might happen have garnered little attention. Those advocating it oscillate between – and often treat as interchangeable – quite different and incompatible scenarios.
German Finance Minister Schaeuble claims that he raised the possibility of a Greek exit to push for an alternative, and he did so with backing of the Merkel government. He used the threat of a violating the “irreversible clause” of the EMU Treaty as a cudgel to beat Greek Prime Minister Tsipras into submission.
It appeared to work. Tsipras has not only agreed to all the terms he previously called “blackmail”, but he agreed to essentially implement all the earlier agreements since the crisis began and more.
Three years ago this month, ECB President Draghi issued his now-famous pledge to do “whatever it takes” to save the euro. Indeed, it has done its part. The ECB has a negative deposit rate, something that even with a protracted fight against deflation, the Bank of Japan never tried. The Federal Reserve is said to have considered it but obviously chose not to do it.
The markets remain off-kilter. The dollar has recouped a little of the ground lost yesterday. Reports in a Greek paper that Tsipras may be reconsidering Juncker’s proposal may prevent a deeper pullback in the euro, which found a bid near $1.1135 after approaching $1.1280 in yesterday’s spectacular reversal. Over the next two days, there are an estimated 3.3 bln euro options struck at $1.12 that are set to expire.
Critics of the Greek government repeatedly claim that its radicalism prevents a resolution to the crisis. Yet the EC has indicated that the difference between the creditors’ proposal and Syriza’s plans amounts to 2 bln euro a year in government revenue. This does not seem so radical.
Consider Ukraine’s threat of a unilateral moratorium on its debt servicing unless its creditors accept a 40% haircut. The Ukrainian position enjoys support from the IMF, though Greece does not.
The media often depicts a European Union that is unraveling. The financial crisis, high unemployment, and demands for austerity for as far as the eye can see have undermined confident in the European project. Syriza and Podemos from the Left and the likes of the National Front and the Northern League on the right are squeezing the center in a pincer movement.
Europe’s economic recovery is gaining momentum, leading to a more positive outlook for the region’s long-term financial prospects. According to Barron’s, gross domestic product (GDP) in the European Union should grow by 1.8 percent in 2015 and 2.1 percent in 2016, and each member state of the EU could see average growth around 1.5 percent.
The pre-Socratic Heraclitus was the philosopher of change. He wrote, “no man steps in the same river twice; for it is not the same river and he is not the same man.” Truth that.
European Central Bank President Mario Draghi believes global growth is too slow, and Europe needs market reforms to stimulate demand.
The die is cast: British people have voted for a government that has promised to hold a referendum on the UK’s EU membership by 2017. This week, business has intervened to liven up the debate. The country’s main industry lobby group wants its members to make a decisive contribution to the pro-EU campaign, but what has become clear in recent days is that there will be a far more complex picture of the corporate response than we might have anticipated.
