Op-Ed: Greece, the Euro and Israel
Dr. Manfred GerstenfeldThe writer has been a long-term adviser on strategy issues to the boards...
The year 2011 has so far been problematic for the European Union. Revolutions or riots have taken place in most countries at its southern border and a civil war in Libya is still raging. European countries such as France and the UK, but also others are involved in the fight. The consequences of this turmoil for the EU can not yet be assessed.
The travel of people without border controls — according to the Schengen agreement — has been temporarily scaled back.
One more country which got itself in economic trouble, Portugal, had to be bailed out. The number of Euro-critical citizens seems to be on the increase.
One major example concerns the rather well-governed Finland. In the April 2011 parliamentary elections, the nationalist True Finns got 19% of the votes vs. 4% in 2007.
All of this however, pales in comparison with the problems affecting the Euro. The efforts to stave off the bankruptcy of Greece — in one way or another — only seem to increase the ultimate costs for the taxpayers in the member countries. Few believe that keeping Greece in the Euro Zone is possible. The main question seems to be whether the return to the drachma will take place soon or, if writing off existing debts or further financial support from other EU countries will be able to delay this for a longer period of time.
At a time when all European countries are trimming their national budgets, part of what they save at home will evaporate once taking the direct and indirect losses from Greece’s economic problems occurs. Various horror scenarios are being imagined for the day when Greece has to stop reimbursing its loans. Its debentures are already considered junk bonds by major rating agencies. One German hedge fund manager told the Frankfurter Algemeine daily this week, that only if Greece starts to pay 50% annual interest on its loans, he then might consider them a reasonable investment.
Greek banks may go bankrupt causing additional major losses to foreign banks. These in turn may then have to be supported or nationalized. The European Central Bank which holds many Greek debentures may have to be bailed out as well. There is fear that Ireland and Portugal, presently supported by the EU, will be next in line.
Ultimately, the entire Euro construct may collapse. As the US dollar is also shaky, this may lead to a worldwide monetary crisis. While this does not have to happen, it adds to feelings of uncertainty for the future.
In the meantime, more and more sensible Greeks with savings in Euros are moving them into foreign banks. Furthermore, the main opposition party in Greece doesn’t want to support the socialists in power in another savings program which most probably will fail.
French sociologist Shmuel Trigano posited several years ago that the European Union remains an artificial construct. In his view, the European political ambition cannot succeed because there is no transnational identity. This opinion is amply confirmed by the current mood. If a poll were held today, most Europeans would vote against their country subsidizing Greece.
What does all of this mean for Israel? Several disparate financial and political subjects have to be evaluated. As confidence in the Euro declines, more and more investors may diversify part of their holdings into currencies of much smaller entities. These include Switzerland, Canada the Scandinavian countries, Australia and New Zealand. If substantial foreign currency deposits will be turned into shekels that may cause a far too strong Israeli currency. This would negatively affect the exports of the now well-performing Israeli economy.
A second matter for thought is that Israel came out of its severe 1983 banking crisis relatively well. At that time, the major banks were temporarily nationalized. So perhaps European experts should be told to come here to study what they can learn from the Israeli experience, even if the circumstances are different.
There is certainly one major similarity. While all Israeli experts knew that the banks would crash, none of those who could pull the plug did so, as they were afraid of the consequences. So they allowed the problems to continue until the banking system was on the verge of collapse. European leaders hold similar views. They hope for a miracle to save Greece without major losses.
There is also an important political aspect. Once again, significant European problems are self-inflicted. In earlier decades, no one forced the Europeans to let in, in an unselective way, millions of non-Western immigrants, high percentages of which became unemployed or even unemployable. Part of these and their offspring will continue to cause problems in Europe for several decades to come. Similarly when creating the Euro, it was a poorly constructed project and one can only marvel at how it worked for so long.
Israel has many justified claims about the arrogance with which the EU and its member countries tell it what it should do to “solve” the problems with its neighbors. The European talent to inflict upon itself unnecessary major problems should function as another warning for the Israeli government.
Letting Europe meddle here as to what Israel’s borders should be and how to make a false peace agreement, is tantamount to giving influence to those who are already major troublemakers for themselves.
Winand von Petersdorf, “Wir verdienen Respekt,” Interview with Karsten Schröder, FAZ, 30 May 2011. [German]