7 July 2015   Leave a comment

The European economic malaise is murkier than it ever has been.  Ambrose Evans-Pritchard is one of the most connected economic journalists in Europe and he has an explosive piece in The Telegraph.  In the article, Evans-Pritchard contends that Greek Prime Minister Tsipras actually expected that the Greek people would vote “Yes” in the referendum and had no back-up plan when the results came in to reject the bailout offer.  Tsipras was blown away by the demands of Greece’s creditors and made the decision to hold the referendum as a graceful way to capitulate to those demands.  The demands, according to Evans-Pritchard, were extraordinary:

“Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke.

“Creditors insisted on further pension cuts of 1pc of GDP by next year and a phase out of welfare assistance (EKAS) for poorer pensioners, even though pensions have already been cut by 44pc.

“They insisted on fiscal tightening equal to 2pc of GDP in an economy reeling from six years of depression and devastating hysteresis. They offered no debt relief. The Europeans intervened behind the scenes to suppress a report by the International Monetary Fund validating Greece’s claim that its debt is ‘unsustainable'”.

The situation now is that Tsipras cannot really back down, and Germany also believes that it cannot offer debt relief without encouraging other countries in trouble to follow the Greek path.   It seems inevitable that Greece will have to leave the eurozone at some point.  The Greek economy will collapse, but slowly recover.  The biggest loser will be the European project: it cannot be a union of equals given the demonstration of German power and will.

An anti-austerity protester burns a euro note during a demonstration outside the European Union (EU) offices in Athens, Greece June 28, 2015

 

Negotiations in Vienna between the P5+1 and Iran have been going on even though the 30 June deadline expired.  The parties have extended the deadline to the end of this week and it seems clear from the rhetoric that a deal seems possible, but the most difficult issues remain to be resolved.  According to Reuters, those issues include:

“…Iranian demands for a U.N. arms embargo and ballistic missiles sanctions to be lifted, the timing of U.S. and EU sanctions relief, and future Iranian nuclear research and development.”

The agreement will still have to be submitted to the US Congress, and there are reasons to believe that there will be strong opposition to it.

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Posted July 8, 2015 by vferraro1971 in World Politics

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