New Europe' articles selection

ANALYSISNew Europe |Page 3NEW EUROPE

November 13 - 19, 2011

In the past two weeks, we witnessed theclimax of the Greek debt crisis, when thethen Greek Prime Minister GeorgePapandreou took the other EU leaders bysurprise, by announcing a referendum onthe EU summit’s last decisions regardingthe haircut of Greece’s government bonds.A few days later, the confidence crisisspread to Italy, where Prime MinisterSilvio Berlusconi’s government has so farfailed to convince the markets about itsdetermination to carry out the muchneeded reforms in order to deal with Italy’sdebt problem.

As the international pressure mounted,many voices in favor of leaving the euroand returning back to national currenciessurfaced in both countries. For some,especially the Greek communist party, thisis a matter of ideology; for others, it is agesture of patriotism, or a way to restore“national pride.”

On the other hand, there are peoplewho emphasize the technical difficulties ofchanging currency, such as the printing ofhundreds of millions of new banknotes oradapting the legislation, back-offices,ATM’s, and software. A long period,probably up to a year, would be necessarybefore being able to circulate the newmoney, hence the quasi-impossibility of asurprise move to return to the drachma orthe lira. However, these practicalcomplications alone, aren’t sufficient toprevent an exit from the euro.

Let’s take Greece for example. It is mybelief that the return to the drachmawould be disastrous for the Greekeconomy and society, to an extent that goesfar beyond what the average (usuallymisinformed) citizen could imagine, sincehardly anyone seems to get into the troubleof clearly explaining the consequences thatwould result from such a decision.

There aren’t that many ways to changecurrency. The transition from the ancientfranc to the nouveau franc in 1960, or theintroduction of the euro (which required athree-year planning) are examples of thesmooth way. Violent changes occurred inseveral european countries in 1945-1946,at the time when communist regimes wereestablished. In those cases, the suppressionof currencies was a conscious choice of thenew regimes, aimed at destroyingaccumulated value and levelling off socialdifferences.

We can assume that if an exit from theeurozone were to occur in Greece, thiswould happen under strong pressure fromthe markets, thus it would violent. In sucha case, the transition scenario could be thefollowing:

1) Over a weekend, when markets andbanks are closed, the government wouldannounce the abandoning of the euro and

the adoption of a national currency, say theNew Drachma. Obviously, this would beaccompanied by a drastic devaluation.

2) The currency change would bebacked up with a package of measures,including:

- strict foreign exchange controls(transfer restriction, tourist currency limitsetc)

- daily or weekly limits to bank accountwithdrawals

- import licencies granted only for basicproducts…

3) All transactions would be deno -minated in the new currency; however, asthe new banknotes wouldn’t be availablebefore long, in practice, payments wouldstill be made in euro of course, using thenew devalued exchange rate.

After the first few days or weeks ofchaos, a new business environment wouldbe shaped:

4) All payments would be made in euro,or in any other hard currency (dollar…), orother form of accepted value such as goldcoins (gold sovereigns are still popular inGreece as a store of value, especially amongthe elderly), within the limits of theamounts available in the hands of thepublic. And this could last long justremember 1945-48 post-war Germany,which, deprived of official currency, wasreduced to use dollars and even Americancigarettes as a means of payment.

5) Without euros in the coffers andunable to borrow from the markets, thegovernment would have to delaypayments of salaries and pensions formonths a very common practice inEastern European countries during the‘90s.

6) Imports would freeze, and only fewlicences would be granted for food andenergy; rationing of those goods wouldbecome inevitable (Greece runs a veryhigh trade deficit).

7) Government action would benecessary to cope with tragic socialconditions; foreclosures, evictions, andcharity meals would have to be organizedon large scale.

8) Limitations of imports and scarcityof means of payment would cause Soviet-style shortages of goods, leading touncontrollable black markets. The anxietyand panic of those searching for medicine,a spare part, or fuel would drive prices toheaven.

9) Within a few months, the economywould be “demonetized” due to the lack ofcash, and barter would prevail. As a result,GDP would collapse, and living standardswould follow. As always, the mostvulnerable (elderly, unemployed etc) wouldbe the most affected.

10) When the new banknotes wouldfinally become available (which might takelonger than normal, due to thedisorganized state of government services),transactions would slowly start tonormalize. Lack of trust in the newdevalued currency would initially limit itsuse to paying salaries and pensions, whilevalue transactions (real estate etc) wouldrequire some form of hard currency,following the well established Gresham’sLaw (“bad money drives out good”).

11) As previously mentioned, distrust inthe new currency and shortages of goodswould fuel hyper-inflation, which in turnwould cause a series of devaluations of thenew currency. Endless litigation wouldstart in international courts and arbitrationauthorities over the currency of the foreigndebt.

12) By that time, the level ofdeterioration of living standards wouldbring about generalized corruption andcriminalization of society.

Naturally, at some point, things wouldgo better, and we might even see somebenefits from the reduction in productioncosts and the substitution of imports bylocal production. The question is thatreaching that point, usually takes a wholegeneration… Meanwhile, all the countrywould be left with is its “national pride” and“sovereignty.” After all, everything in lifecomes down to what price we’ re willingto pay.Christos Kissas, PhD is a FinancialEconomist

FINANCIAL

Leaving the Euro- Think twice

An onlooker reads a plaque under a giant bronze replica of Greece's one-drachma coin,Greece's last currency, in central Athens, Greece.|EPA/ORESTIS PANAGIOTOU

By Christos Kissas

IAEA ConfusionIran is not helpful

According to the United States, “Iran is keeping open the op-tion of developing nuclear weapons”. This written statement of10 February 2011 by the Director of National Intelligence,General James Clapper, implies a belief that Iran was not thendeveloping nuclear weapons. Clapper also said that Iran believesit can deter its adversaries with its conventionally armed missiles.There are other reports in the public domain from US intelli-gence agencies supporting these views. In 2007, the CIA as-sessed with high confidence that Iran called a halt to its nuclearweapons program in 2003.Intelligence sources have told this author that the Iranian gov-ernment appears to have decided to abandon its nuclearweapons work in 2003 and that it did not return to that nuclearweapons design or testing after 2003. At the same time, Irandoes continue to develop two enabling technologies for devel-oping nuclear weapons should it choose to do so, enriched ura-nium and ballistic missiles. This is exactly what U.S. intelligenceofficials appear to be saying in public on the record. Iran isobliged under its international legal commitments to reveal allmilitary related aspects of its nuclear program, whether thesewere in the past or the present. The current United Nations Se-curity Council resolutions and continued concerns of the In-ternational Atomic Energy Agency (IAEA) about Iran’smilitary nuclear activities relate to the period of Iranian weaponsrelated work before the end of 2003, and to Iranian conceal-ment after 2003 of that previous activity.The recent IAEA Board of Governors’ report (8 November2011) includes a special Annex that “provides a detailed analy-sis of the information available to the Agency to date which hasgiven rise to concerns about possible military dimensions toIran’s nuclear programme”. The Report and its Annex reveals nospecific evidence of Iranian government development of a nu-clear weapon that is specifically dated by the report after 2003.The report claims a good knowledge of events before 2003, butacknowledges that the “Agency’s ability to construct an equallygood understanding of activities in Iran after the end of 2003 isreduced, due to the more limited information available.”The IAEA report goes on to say: “The information indicatesthat Iran has carried out some research activities that might berelevant to the development of a nuclear explosive device.” Thisdoes relate to activities dated “after 2003”, but the report notesthat the activity also had civil applications. The report says that IAEA information “indicates that prior tothe end of 2003, these activities took place under a structuredprogramme, and that some activities may still be ongoing.” Itappears to reveal uncertainty whether such activities continuedafter 2003 at all. It does not describe a comprehensive set ofweaponization activities that continued after 2003, rather someinconclusive evidence that possibly it did. By contrast, the IAEAhas very detailed information on different strands of weaponiza-tion research and design that occurred up to the end of 2003,such as trigger design and safety arrangements for nuclear test-ing. The IAEA report can be faulted in many places for puttingdates on certain information and the activities described in thatinformation and not on others, or conflating past events of al-most a decade ago and the present, as in the excerpts above. Thereport can be faulted for not indicating which military activities“may” be “ongoing” and when exactly they occurred. Those gov-ernments holding well-sourced evidence of Iranian nuclearweapons development after 2003 should share it publicly. TheIAEA report is not that helpful in trying to get at the facts. Itpaints a less than convincing picture that the Iranian govern-ment is now pursuing a weaponization program.

EWI is a New Europe content partner

By Dr. Greg Austin

07NEW EUROPE4 - 10 November , 2012

ANALYSIS

US presidential elections are always aprivileged moment for making assess-ments and expressing judgments aboutthe status of the American economy. Onlythis time, it won’t be a typical assessmentof a normal economic situation, but an ap-praisal of the handling of the secondbiggest financial crisis in 100 years. Fouryears ago, when G.W. Bush was passingthe power to President Obama, we werein the middle of melting financial mar-kets, soaring debts, collapsing banks, sink-ing asset prices, and a widespread feelingthat the world economy was about to im-plode, dragging us into a new Great De-pression decade.

Four years later, the situation is defi-nitely different. After multi-trillion TARPand ARRA (i.e. federal spending), variousFed ‘quantitative easings’ (an euphemismfor money printing), the difficult handlingof the eurozone crisis’ implications, and anextensive and profound industrial and fi-nancial restructuring, the US economylooks at least stabilized, although at lowergrowth rates, high unemployment, andhuge debt and public deficits. Some con-sider these characteristics to be the newpermanent state of economic functioning,and call them the “New Normal.” Othersclaim that we are still at the mercy of abigger crisis, where the debt and deficitproblems will play a major role. Who’sright?

The good news is that America has

completely revamped its productive ma-chine. After a tide of mergers, acquisi-tions, spin-offs, and closing ofunproductive or high cost units, the USindustry has attained a high level of pro-ductivity; stocks are low, orders are high,and in some industries such as aviationorder books are full. Cash holdings are athistorically high levels, as US companiessit on 1.7 trillion dollars. Even better, thefinancial institutions that benefited fromthe bailout money have returned most ofit to the government. Profitability hasbeen largely restored, something that iswell reflected in stock market prices: sincethe lows of early 2009, the New YorkStock Exchange index (S&P 500) hasdoubled, in one of the best rallies of itshistory. Also, despite the severity of thecrisis, median household income remainedpretty stable over the period, and in anycase enough to support the demand forseveral new products, such as iPads andiPhones, which attracted huge queues infront of the stores (not really the GreatDepression’s free-meal queues).

Let’s now look at the other facet of theeconomy. By US standards, unemploy-ment remains high at around 7.8% andvery resistant to all kinds of stimulus poli-cies. Budget deficit, trade deficit, and gov-ernment debt have skyrocketed. Incomeinequality is among the highest in theworld (USA ranks 95) and widening…But above all, the major risk looming overthe American economy is the trend ofpublic spending, and the ensuing accumu-

lation of debt (currently, around $16 tril-lion). Several voices have pointed out thisissue, and revealed its importance.

In September 2012, George P. Shultzand four other prominent economistswrote an article in the WSJ about “TheMagnitude of America’s Mess.” Some ofthe figures given are quite alarming: fed-eral government spending now exceeds its2007 level by $1 trillion; to pay for ‘quan-titative easing’, the Fed saw its reserve bal-ances going from $8 billion in September2008 to $1.5 trillion now…

In a famous 2011 study called ‘USA,Inc.,’ financial analyst Mary Meekerlooked at the US economy as if it were acorporation, with shareholders and bal-ance sheet. Her findings are similar; in her460-slide PowerPoint presentation, onecan read: “By our rough estimate, ‘USAInc.’ has a net worth of negative $44 tril-lion… If current trends continue, entitle-ment spending and net interest paymentscombined will equal all of federal revenueby 2025… ‘USA Inc.’ has a spendingproblem, not a revenue problem.”

Finally, Bill Gross, the ‘dean’ of US bondmanagers, published a paper called “Dam-ages,” last month where he included a graphin which various countries were ranked ac-cording to public sector deficit and struc-tural fiscal gap. The countries that had theworst combination of the two factors wereincluded in a so-called “Rim of Fire”, ac-cording to his terminology. Guess who’s in-side: Greece and Spain of course; andFrance; but also (surprise!) the US, the UK,

and Japan—the last three in a worse posi-tion than the archetype of economic disas-ter that Greece is. Gross explains thatkeeping the US economy safe means to cutspending or raise taxes by 11% of GDP inthe next few years, that is a $1.6 trillion peryear, or four times the amount of the failedattempt for a budget compromise betweenCongress and the President.

So, which conclusion can we draw—success or failure? In my opinion, the an-swer is quite clear: yes, the Americanindustry is doing fine; the risk of a finan-cial sector collapse was properly ad-dressed; and the general handling of thecurrent major economic crisis was effi-cient, given the magnitude of the issues.Only, the price to pay was a phenomenalincrease in public spending, deficits, anddebt; and also a persistent manipulation ofinterest rates, which has brought a severedistortion in the markets.

The big question is: how do we exit thissituation? When and at what pace can wereverse power, that is: to start cut spend-ing, increase taxes, and let interest ratesmove up, without crashing the alreadyfragile economy. And, above all, how willpoliticians explain the necessity of suchunpopular policies to society? As MaryMeeker, the author of “USA Inc.,” put it:“There are compelling reasons we don’ttackle these questions regularly: the an-swers usually involve some form of polit-ical suicide.”

Christos Kissas, PhDwww.christoskissas.com

The skyline of lower Manhattan is seen from the Staten Island Ferry prior to the arrival of Hurricane Sandy on October 28, 2012 in New York City. The timing of Hurricane Sandy has been said to possibly affect the election, Europe and the

US will be watching.

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POLITICS

The two-faceted American economy

By Christos Kissas

NEWEUROPE19th Year of Publication | Number 1007 | 18 - 24 November , 2012 | € 3.50 www.neurope.eu

On 16 November, Russian PresidentVladimir Putin and German ChancellorAngela Merkel attended a "PetersburgDialog" Russian-German forum in theKremlin in Moscow with the two sidesseeking to soothe tensions over Berlin'srecent criticism of the Russian record onhuman rights.

"We want Russia to succeed," Merkelsaid. "We have our own ideas on how onecan succeed. Our ideas don't alwayscoincide, but what matters is that we lis-ten to each other." Germany needsRussia for raw materials such as gas andoil, while Russia needs Germany to helpin modernisation, infrastructure andhealth care, Merkel said.

In turn, Putin said as for political andideological issues, Russia hears its partners.“But they hear about what's happening

from very far away," he said. On the eve ofthe visit, German lawmakers from Merkel'scoalition urged the government to push formore democracy in Russia as theyexpressed concern over a crackdown on civilsociety since Putin's return to the Kremlinin May.

Before Merkel’s visit, Putin's spokesmanDmitry Peskov denounced a rise in "anti-Russian rhetoric" in Germany. But he saidhe did not expect strong business tiesbetween the two countries to be affectedand that annual mutual trade of $87bn wasa "safety cushion" that would keep ties ontrack.

On 14 November, Russian gas monopolyGazprom agreed an asset swap that willallow the Russian company to take full con-trol of gas and trading storage businesses itjointly owns with Germany’s BASF.

Viagra may be upping people’s sexual lives,

but it’s not bringing any money to the UK’s

‘Her Majesty’s Revenue and Customs.’

Neither does ‘Lipitor,’ the best-selling drug

on the UK market. The reason is that Pfizer,

the pharmaceuticals giant which produces

these drugs may well post a £ 1.8 billion

turnover in this country, but pays no income

taxes at all.

Same goes for other international compa-

nies, such as Starbucks, Amazon, or Google.

The issue is considered serious enough, to

convene the Parliament’s ‘Public Accounts

Committee’ to investigate on how such

multinationals take advantage of the tax leg-

islation, and show little or no profits, shift-

ing the tax burden to the shoulders of the

courageous middle-class people.

The problem is not only limited to the

UK; France has a similar issue with Apple,

Amazon and Google. The latter is under

investigation by the ‘Direction Générale des

Finances Publiques’ for tax noncompliance,

and faces a potential fine of € 1 billion in tax

due and penalties. In fact, Google (which

denies the accusations), is nicely operating

in France and gets revenue from its ads’ sales

to French companies, but books the con-

tracts with French clients in the so accom-

modative and low corporate tax land of

Ireland. This way, Google claims that busi-

ness was conducted outside France, and

thus it has no tax liability in this country.

The figures speak for themselves: for 2011,

reported revenue from potentially highly

taxed French operations was only € 138

million, while revenue from the low-tax

Irish-booked contracts amounted to € 12.4

billion.

The recipe is well known: for companies

producing and selling goods (like Pfizer) it’s

called ‘transfer pricing;’ for companies sell-

ing services (like Amazon or Google) it’s

even easier, as it comes down to the simple

‘booking’ of the business in another sub-

sidiary of the same group. Transfer pricing

means buying the goods at a high price

from a company of the same group located

in a low-tax jurisdiction or paying very high

royalties to a group licensing subsidiary,

owner of the patents and registered in an

offshore centre.

In all cases, the group’s profits are trans-

ferred from the high-tax to the low-tax

country—in Google’s case, Ireland. From

there, the monies transit through various

‘tax optimization channels’ (for example, a

Netherlands ‘BV’ or ‘NV’ called an ‘inter-

mediate holding’), to reach their final desti-

nation, usually an offshore centre like

Bermuda, where they stay safe and tax-free,

waiting to be reinvested somewhere else in

the world.

People pay but do companies?

Putin, Merkel seek to soothe tensions

continued on page 3

Europe's Tax issueITALYOn 10-11 November in Romeabout 1000 people from all theItalian Regions participated atthe “Tecnica” Auditorium inRome at the XIX NationalCongress... ·Page 5

·Page 31

LOBBYINGBy definition, every cent thatlobbyists receive from thetobacco industry is dirtymoney. So why are some ofthese grubby guns for hiretreated... ·Page 7

KASSANDRAThe Israel-Iran confrontationis coming to its final stage asIsraelis are very much awarethat Iran is getting close tobecome a proper nuclearpower...

·Page 32

ENERGYAzerbaijan’s state oil and gascompany SOCAR openedan office in Brussels to boostits strategic energy partner-ship with the EuropeanUnion... ·Page 28

Two men wearing a tent attempting to enter a branch of Starbucks coffee shop near Saint Paul's

cathedral in central London during an "Occupy" anti-capitalist protest in May 2012. British lawmak-

ers grilled global coffee giant Starbucks over its tax policies on November 12, arguing that claims

that its British division was unprofitable "just doesn't ring true". | AFP PHOTO / LEON NEAL

Last week, we mentioned the case ofBivol.bg, a strange internet site, operatingin Bulgaria for years. The site enjoys ahigh popularity, as it is famous for expos-ing ‘stories’ that are not usually found inthe mainstream media; it takes pride inpresenting itself as the closest copycat ofthe famous US site “Wikileaks,”although without having access to thearchive of secret services, as Wikileakshas. And still, part of the audience con-sider this site as a trustworthy and ignoresthe fact that its sources are unknown, andthe ‘facts’ it presents are not always com-patible with reality…

The strange case of Bivol (part 2)

·Page 32

By Christos Kissas

World TV day

Page 10

Celebration

AFP PHOTO/POOL/MAXIM SHEMETOV

The political agenda of Presi-dent-elect François Hollandewas broadly based on the prom-ise to restore a more just distri-bution of income within Frenchsociety, going to such extremes asto include a 75% taxation rate forhigh incomes, those exceedingone million euro per year. Presi-dent Obama’s tax agenda in-cludes similar, though not soprovocative, provisions in orderto finance his entitlement poli-cies in favor of the poorer.

The fact is that fighting in-equality, that is the “abnormal”distribution of income, wealth,and the burdens of financial cri-sis, has been a central theme inmost western-European and USpolitics for some time now. So-cial movements such as “OccupyWall Street”, “the 99 percent”,anti-globalization movementsetc are in essence a more or lessconscious attempt to denounceinequality.

Yet, so far, all the problematicabout inequality was focused onthe social side of the problem,stressing the moral aspects of in-come and wealth unbalanced dis-tribution. The new element thathas become predominant nowa-days is that inequality is moreoften viewed as a purely macro-economic parameter. In-depth

economic research, well publi-cized among others by formerIMF’s chief economist Raghu-ram Rajan in his book FaultLines, has shown that inequalityis a serious impediment togrowth. Growing concentrationof income leads to the so-called“savings glut”, a situation reflect-ing the fact that the rich and thesuper-rich tend to save a largerpart of their income, especially inultra-conservative forms of in-vestments such as treasury bonds,thus impairing effecting demand.

Another aggravating factor isthat income concentration is sus-

pected to be the main cause ofover-borrowing by lower andmiddle-income people, facili-tated by policies of low interestrates, and easy consumer andhousing credit. Pro-market eco-nomic policies, followed by mostwestern governments over thelast 30 years, have profoundly af-fected income and wealth distri-bution. According to DeanBaker, another well-knowneconomist who researched thesubject, a “massive upward redis-tribution of income” has startedin the US since President Rea-gan’s time, due to policies that

changed the before-tax distribu-tion of income, not the reductionin tax rates on the wealthy. A setof policies was put in place inorder to press downwards thelower and middle wages, beforetax cuts affect the income distri-bution to the detriment of thepoorer even further.

A quick look at some key statis-tics in the US confirms thesetrends. Corporate profits are at anall-time high; top ten percentearners are capturing a highershare of national income than theyhave anytime since the 30s; CEOs’pay is the highest in 20 years. On

the other hand, total tax to na-tional income ratio is at its lowestsince the early 80s and, what’smore, average hourly earnings inconstant dollars (when inflationhas been removed) are at the lev-els of the early 70s…

In this context, it’s not surpris-ing that both households andgovernments had to borrow mas-sively from the banking systemand the markets in order tomaintain and improve their stan-dards of living, and their offer ofpublic services, respectively.Hence, the present mountains ofprivate and public debt, at na-tional and international level.

According to this analysis,both the weak demand and thedebt problems are not the conse-quence of some policy “mistake”,but rather the fruit of a long-term well-thought set of policies,meant to alter the distribution ofincome and wealth. After threedecades of such policies, thatdate back to the Reagan-Thatcher era, the ensuing ex-treme inequality of income andwealth have caused a fundamen-tal imbalance in westerneconomies. Without addressingthe inequality issue, it won’t bepossible to stabilize the financialmarkets, and find a viable solu-tion to the current mess.

Christos Kissas, PhD, is a Financial Economist

KASSANDRADavid Cameron used to end his text messagesto Rebekkah Brooks, Sun editor with LOL,until she explained that it meant laughing outloud and not as Cameron thought, lots of love!

Page 32 | New Europe

13 - 19 May, 2012

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Once upon a time in Leveson...

Follow me on twitter @Kassandra_NE

The Visit Greece campaign received an

unexpected boost during the Commis-

sion's meeting of 18 April. As eu-

roblogger Ronny Patz discovered, after a

discussion on Greece, according to the

minutes, President Barroso "asked each

Commissioner to travel to Greece to

support the communication actions

there and demonstrate visibly not just

the Commission’s support for the Greek

people but everything it had done to lay

the groundwork for inclusive growth

and sustainable development in Eu-

rope."

In a demonstration of obedience and

solidarity, not one has done so, almost a

full month later.

Perhaps the Commissioners would like

to explain why they are refusing to show

solidarity? Surely, they can't all be afraid

of the Greek hospitality?

Can't they?

Will the Commissioners obey Barroso?

By Christos Kissas

There are a host of events celebrating Eu-rope Day, but this photo of the 2008event, run by the Estonian foreign min-istry shows a novel approach; frighteningchildren.

Inequality – the real issues

Anti-austerity protesters. "Without addressing the inequality issue, it won’t be possible to stabilize the financial markets" |EPA/CHRISTOPHE KARABA

Can such a decaying structure be restored?|AFP PHOTO/LOUISA GOULIAMAKI

The Estonians promote Europe in their own

way|Estonia foreign ministry

Homo Euro!

KASSANDRAAS the PES gathered for a pre-summit meet-ing where were the Brits? We hear EdMiliband had a scheduling conflict, the termfor 'can't be bothered'


27 May - 2 June, 2012

[email protected]

Once Upon A Time in Brussels ...


Warlick recalledThe American ambassador to Bulgaria, James Warlick has been recalled and will leaveSofia before the end of his three-year mandate. However, Washington did not statethe reasons behind this decision.Warlick’s place will be occupied by Marcie Ries, former U.S. ambassador to Albania andDeputy Political Counsellor in U.S. Mission to the European Union in Brussels. Rieshas 31 years of diplomatic experience in Europe, the Caribbean and the Middle East.She was also counsellor at the U.S. Embassy in London, participant in missions to Wash-ington in Turkey and the Dominican Republic. At the time of her appointment, shewas assistant secretary for nuclear and strategic policy in the State Department.James Warlick was appointed ambassador to Bulgaria in 2010 and the first rumoursof his premature departure appeared in April. New Europe first reported on 8 Aprilthat the FBI was carrying out investigations in the American Embassies in Belgradeand Sofia, despite having no authority outside the US and named this as the main rea-son for Warlick’s expected stepping down.Later, on 10 April, Warlick posted on Twitter: “New Europe news report saying Ihave been recalled isn't true. But my time in Bulgaria is passing too quickly”, thus im-plying that he is due to leave Sofia sooner, rather than later.On 20 April, the now former ambassador quoted the famous writer Mark Twain inan interview for the Bulgarian bTV and stated ‘the reports of my death have beengreatly exaggerated’. In this way, he obviously tried to persuade the public that ru-mours around his leave were ‘speculation’ and untrue.The reasons behind this decision are still unclear, but the main motive for Warlick tobe recalled is considered to be his failure to defend American interests in relation toshale gas exploration in Bulgaria. The former ambassador denied this to be the mainreason behind his stepping down, but also refrained from comments.

This week’s EU summit in Brussels wasnot less, not more than a big nothing.Germany rejected the French Eurobondproposal, The UK blocked the financialtransaction tax. In the same context, all leaders decided towait for the Greeks (10 million people atthe end of the half-a-billion people em-pire) to vote on June 17, to find out whatthe future of the common European cur-rency will be. As if in the United Statesthere would be waiting for the election re-sult of Delaware to shape the future of theUS dollar. Mean while, nobody speaks that whileEurope has a common currency (thanksto the British who are not part of theEuro) it does not have (a) a common fis-cal policy, (b) a central controlling au-thority of European stock markets, and(c) a common scheme for deposits guar-antee. At the same time, the sailing team of theEU institutions is preparing a cruise inthe Aegean so to enjoy the Greek catas-

trophe from their yachts with fresh fish,spaghetti with lobster and retsina (light).Brussels Eurocrats and MEPS are findinginnovative ways of coping with thestresses and strains of austerity. Withtheir own yacht club, the Sailing Club ofthe EU Institutions.The Eurocrats not only enjoy the club fora mere €40 a year, and you can add yourfavourite intern for just €10 (wink wink),allowing even the most impoverished offunctionaries to dream of clear blue water,but also have yachts provided for them.“Membership is open to any official oragent working at the European Institu-tions as well as to their family membersor friends.”But, when the world’s oceans are yourplayground, where to go?The Greek islands. From 7 – 14 July, 25August to 8 September, the cosseted eu-rocrats will be having the time of theirlives sailing round the Greek islands. TheGreeks will, of course, be having consid-erably less fun.Holding subsidized luxury holidays forofficials while Greece burns… Dare wecall it insensitive?

Decay

When Nassim Taleb wrote his best seller “TheBlack Swan,” he tried to describe outliers, thatis: very rare and highly improbable events, thatcarry extreme impact on the social, political, orfinancial system. What we see nowadays is thatthose black swans are not as rare as Talebthought and, over the last three years, they tendto happen more and more often, to the pointthat we have become accustomed to them, es-pecially in the financial sphere. The last “bird” ofthis sort carries the name JP Morgan Chase–the largest financial firm in the United States.

Without getting into too much detail, in2011, the bank made profit by betting thatcredit conditions would worsen; in early 2012,London traders of JP Morgan changed theirview and took opposite positions. As a result,the bank now has a losing portfolio of long andshort positions with a face value of roughly$100 billion in a derivative index tracking thehealth of corporate debt, the Markit CDXNorth America Investment Grade Index.Things got more complicated by the fact thatJP Morgan itself controls a large part of thetrading in this index; thus, unwinding its ownpositions might influence the index negatively,and further hurting its own results. So far, theestimated loss is between $2 and $5 billion, butnone can exclude it might shoot higher. Totalloss in stockholder value is over $30 billion, andgrowing…

To make the story more exciting, one mustnote that JP Morgan’s Chairman and CEO

James Dimon was considered as the best riskmanager of the banking industry; that the tradewas approved by him personally, although hewas not aware of its execution details; and, fi-nally, the position was handled by a Londontrader nick-named as “the whale” due to thesize of his trades. And of course, all this hap-pened under the wise supervision of roughly 70(yes, seventy) people assigned by the relevantmarket watchdog, the Office of the Comptrol-ler of the Currency, which proudly carries thelogo “Ensuing a Sound National Banking Sys-tem for all Americans.”

Now, on the serious side, all this debacleraises two important remarks.

First, JP Morgan is not exactly a bank, butthe result of the merger of four large financialinstitutions, namely: JP Morgan, Chase Man-hattan, Manufacturers Hanover, and ChemicalBank. Those institutions were large enough intheir own right to carry significant risk by theiroperation as separate entities; their combina-tion has created a monstrous structure that isnot only too-large-to-fail, but also too-com-plex-to manage. It seems that the message ofthe 2008 crisis didn’t get through, and financial

institutions kept growing, both in terms of as-sets and of trading books.

Then, comes (again) the question of financialmodelling and its use and abuse by the finan-cial industry in evaluating risks. Most banks usethe now famous VaR or Value-at-Risk modelas their main tool for evaluating the total risk oftheir portfolios. The objective is to have a sin-gle metric capable of capturing all the risks of aportfolio, after netting the long and short posi-tions. The problem is that this metric system-atically underestimates the total risk.

The funny thing is that the VaR model waslargely developed and promoted by JP Morganitself. And the troubling point is that themodel’s flaws have been widely known for along time, to the point that a US House ofRepresentatives’ “Subcommittee on Investiga-tions and Oversight” was convened on Sep-tember 10, 2009, a year after the crash, toexamine “Risk models and specifically amethod of risk measurement known as Value-at-Risk... [an important factor to] risk-takingthat has led to a global recession with trillionsof dollars in direct and indirect costs imposedon US taxpayers and working families.”

Three years later, the case of JP Morganshows that the lessons from the 2008 crisis havenot been learnt, and the taxpayers and workingfamilies will be called again to pay the bill,through the massive transfer of income thatconstitutes the zero percent lending policy ofthe Fed to the banks.

Christos Kissas, PhD is a Financial Economist

People walk past the JP Morgan Chase Building on Park Avenue, 15 May 15 in New York. The US Jus-

tice Department has opened an investigation into JPMorgan Chase's more than $2 billion trading loss

that the Wall Street bank announced last week. |AFP PHOTO TIMOTHY A. CLARY

By Christos Kissas

ECONOMY

The JP Morgan debacle-guess who’ll pay the bill

Let’s get to the basics: what’s a bank’s main

job? Theoretically, it is to finance the econ-

omy (the word ‘to finance’ comes from the

Medieval French verb ‘finer’, meaning ‘to

complete a business with payment’). Fi-

nancing, as all banking is a fiduciary activ-

ity (‘fiducia’ meaning trust or confidence in

Latin). So, everything in banking is about

trust; without trust there is no banking.

However, the last developments in the

banking scandals sphere are here to prove

that nowadays banking, especially at top

level, is neither about financing, nor about

trust — it’s rather about speculating, and

manipulation.

The ‘Libor affair’ as the financial press

named Barclays Bank’s persistent manipu-

lation of the world’s reference interest

rates, over the last five years, is the last in a

series of black swans that shook the finan-

cial system and global economy. Only here,

the risk is not just systemic, it’s about the

system itself.

Libor is a set of interest rates for various

currencies and terms that serves as the

world reference for the bulk of financial

transactions; 90% of US commercial and

mortgage loans are linked to it, and about

$350 trillion dollars of derivatives are con-

nected one way or another to these rates.

As British journalist Gillian Tett put it

“Libor, like credit ratings, is now hard-

wired into the system.”

Manipulating Libor is the equivalent of

mass printing fake money, that is: stealing

the wealth of billions of every-day people,

because a change in Libor affects the pay-

ment of interest in student loans, small

business loans, or mortgages. Compare

this with the astronomical profits of the

banking industry and the provocative

bonuses of top bank executives (£15 mil-

lion for Barclays CEO in 2011), and you

realize the magnitude of fraudulent in-

come transfer from the bulk of society to

the “happy few.”

Another troubling element in this affair is

the time span of the manipulation. Accord-

ing to US market authority CFTC, Barclays

traders manipulated Libor “routinely and

sometimes daily” from at least mid-2005. It

is surprising that it took market authorities

all this time to uncover the scandal. More to

it, it’s hard to believe that Barclays acted

alone; at present, several heavy-weights of in-

ternational banking are under investigation,

including JP Morgan Chase which is itself

involved in another scandal… It seems pretty

obvious that everybody knew and everybody

partied. To make things worse, there are

strong allegations that the Bank of England

itself was fully aware of this game, and even

indirectly encouraged it.

There are two reasons for playing with

Libor: first, hiding the real cost of borrow-

ing for each bank, thus painting a false pic-

ture of their financial health; and second,

to boost profits through the artificially

higher valuation of banks’ derivatives posi-

tions. In both cases, the game was really

profitable for the banks involved, judging

by the cheerful mood in the emails ex-

changed by the dealers after each shot, like

the one saying “Done…for you big boy.”

Finally, the arrogance of Barclays and

the other banks involved was reinforced by

the trust put in them by the markets and

society as a whole. The very method of de-

termining Libor rates was based on trust,

given that banks were only making sub-

missions of rates, instead of real deals.

The whole point is, the damage made to

the trust and reputation of free markets,

cannot be redeemed with the $450 million

fine paid by Barclays. When a few months

ago the then candidate to the French pres-

idency François Hollande called a war

against ‘Finance,’ his words seemed ex-

treme; today’s revelations about the meth-

ods and ethics of Barclays and co. in

manipulating Libor are just as extreme.

Christos Kissas

KASSANDRAFor five years under “fixed” LIBOR, over 350 trilliondollars of derivatives were transacted all over theplanet with the blessings of the EU and the FED,daily. "Oh Lucy! - You Gotta Lotta 'Splainin To Do"


8 - 14 July, 2012

[email protected]

Oh Lucy!


Protesters demonstrate outside Portculis House in London, on 4 July against what they describe as a 'close

relationship between bankers and politicians' as former Barclays Bank Chief Executive Bob Diamond gives

evidence to the British Treasury Select Committee. Diamond acknowledged that there had been "mistakes"

and "reprehensible" behaviour at the bank as he appeared before British lawmakers. |AFP PHOTO / WILL OLIVER

The Libor affair - done… for you big boy!

European Institutions are struggling withbudgets like everybody else around Europe,but being still secure and good payers, theyhave become an exception for all those com-panies working in the technology sector.More and more IT companies are com-peting every day, through Call for Tendersto become a preferred supplier: the busi-ness is steady, the rules are clear and intimes of difficulties, having secure con-tracts for some four years is the only wayto survive.The European Institutions know this verywell and they understand that this is aunique opportunity to reduce their oper-ational costs for by recruiting cheaperworkers.How do they do it? They run public ten-ders, and in their terms of evaluation theyput price as one of the primary conditionsfor being selected, so bidders are obligedto reduce their price offers by some 20%from previous tariffs if they wish tokeep/win the contract. Nothing special up to now, but how can

these companies recruit local workers inBelgium and Luxembourg, and respecttheir commitment on such low prices?Very simple, they go south, where thereare enough countries offer workers justeager to have a job, no matter what theirsalaries could be.Therefore, more and more frequently, youhave high level educated immigrants withsalaries that are 30 %, 40% lower comparedto standard salaries in the Belgium andLuxembourg for equivalent positions, andthe difference could go up to 70% if youcompare them with the ones of Eurocrats.Not the same functions? Absolutely yes,the same job, the same office, the sameproject, the same everything. In the last year we have seen moving ahuge number of high technological whitecollect scholarships carriers coming toBrussels for a salary that their equivalentsin Belgium and Luxembourg would noteven take in consideration.The recruitment campaign of thesemultinationals in South Europe and

Balkans is quite aggressive, and more andmore sophisticated. They are selling aunique product: to get out from the mis-ery. Their job proposals are perceived as aunique opportunity to work in the centerof Europe, and if the salary is low, whocares, it is always better than not workingat all, even though nobody considers thatthe cost of living here is triple or quadru-ple compared to their original countries.What are the consequences? Market dis-tortion, unfair competition, unfair work-ing conditions between thosesoutheastern immigrates and the Euro-crats and local residents. Standard prices for a working day at theEuropean premises are dramatically de-creasing and in some cases these multina-tionals are offering prices that are lowerthan €180 a day (all social securities in-cluded) which gives net salaries very closeto the minimal levels in Belgium andLuxembourg for people that have a uni-versity degree, often one or more masterand from time to time PhD diplomas.

Can we call it Slavery? Perhaps not, butthis market distortion is causing hugedamage to the entire European collectivity. In the short term, these companies have acash boost, but then they fail to invest be-cause of the very low margins, and aftersome years they are obliged to fire thoseemployees, finding new ones because themechanism of automatic indexation does-n’t allow the companies to increase theirsalaries, therefore those people enter intothe unemployment market in Belgiumand Luxembourg.Meanwhile, the brain exodus creates per-manent damage in the southeastern Eu-rope that loses competent technologicalworkers to rebuild their economies, reduc-ing the GDP and the taxation incomes. What the European parliamentary mem-bers are doing for changing this ten-dency? Absolutely nothing, apart that inthe next months they will run a similartender for some €300 million and whocares if this time price will be evenlower..... Eric Mattei

How the EU drives exploitation…Wealthy Brussels looks for poor southerners

Page 6 | New Europe NEW EUROPE

ANALYSIS25-31 March, 2012

European Jewish parliament startedworking in Brussels and its founders arealready reporting on its first achievements.But there is still no answer to the mainquestion: how legal is this organisation.

How much time does it take tocreate a parliament from a scratch?At all appearance, Ukrainian busi-nessmen Igor Kolomoisky andVadim Rabinovich decided to beatall imaginable records: for them ittook less than one year to createtheir progeny. In April 2011, Kolo-moisky and Rabinovich an-nounced their idea that Jewishcommunities needed a new repre-sentative body in Europe; and onFebruary 16, 2012, the first meet-ing of the European Jewish parlia-ment (EJP) was already held.

Although, it is quite difficult to un-derstand, what exactly its members didduring this session. European JewishUnion (EJU), an official source of in-formation about the parliament’s activ-ity, actively quotes the solemn addressesand highlight declarations of its atten-dants, including the head of the Union,

Tomer Orni, who promised that “theparliament will take an important placein the European politics”. The practicalpart of the meeting deserved just a la-conic statement, that the attendants“discussed the situation in Iran andSyria and also anti-Semitism in Eu-rope.” EJU modestly keeps silenceabout the conclusions made by themembers of this parliament and theiraction plan.

The parliament’s reports on its ac-tivity abroad are lacking specifics aswell. During the month following theinauguration, the European Jewishparliament’s delegations managed tovisit Ukraine and Israel. Although,these events also didn’t help to unveilthe essence of the parliament’s activity.According to the official statements ofthis organisation, in Kiev the delegates“discussed a variety of important issuesof international and national Ukrain-ian level, life of the local Jewish com-munity and its contacts with Europeancommunities.”

The main question in Jerusalemagenda was the cooperation betweenEuropean and American Jewry. Itseems that getting more detailed in-

formation about the substance of ne-gotiations held there is virtually anim pos sible task: an official web-site ofthe European Jewish Union is theonly source of information about theparliament’s activity, while Kolo-moisky and Rabinovich (Presidentand Vice-president of the EuropeanJewish Union correspondingly) are inno haste to make any direct contactwith journalists.

Such low publicity has been follow-ing the Jewish parliament from thevery beginning of its creation. EJUleaders replied with a stoic silence to therow which blew out in press in con-nection with the procedure of parlia-ment members’ election. The criticismtargeted at the totally non-transparentprocedure of the on-line voting and ofthe nominees’ lists, which included ath-letes, actors, show-business celebritiesand other candidates, most of whom,for sure, was unaware of pressing issuesof the European Jewry, was also leftwith no reply. EJU made its official an-swer only when the voting was fin-ished, thus, in fact, presenting Jewishcommunities with a fait accomplished– the parliament has been created and

it is going to represent you. Extra-parliamentary activity of

Kolomoisky and Rabinovich is alsolacking transparency. It’s quite difficultto find any information about twofounders of EJP in the Europeanpress, though their biographies are ac-tively discussed in the Ukrainiannewspapers. According to local press,Kolomoisky’s entities were involvedinto scandalous privatisation of indus-trial assets, which was later revoked bythe Ukrainian authorities. Rabi-novich’s name is also connected to sev-eral scandals, starting with twoimprisonments for embezzlement ofthe state property and finishing withsupply of nuclear inputs to Iran. Eu-ropean Jewish communities may onlyguess, what EJR could achieve in thefuture, but up to now the parliamentmanaged to do just one thing – to pro-voke the split in the European Jewry.Several renowned representatives ofthe Jewish organisations simultane-ously raised their voices against theinitiative of Kolomoisky and Rabi-novich. “How is it possible to call onvoting for people, selected by nobodyknows whom, based on a principle,

unknown to anyone, over already ex-isting Jewish organisations? It will onlycause a disruption while Jews needunity so much,” – flared in its inter-view to JTA the Secretary General ofthe European Jewish Congress SergeCwajgenbaum. Morris Sosnovsky, thehead of the Jewish community of Bel-gium shares a similar opinion: “If any-one, who wants, would declare that herepresents the Jewish communities,than the European officials would eas-ily get confused, with whom theyshould keep terms and with whomthey should not. As a result, somedaythey would deal with no one.”

At the same time, European JewishParliament managed to win supportimmediately in Israel. “European Jew-ish Parliament project is a response to avital need. This body should adapt toEuropean Parliament, it should sup-plement the existing structures, ratherthan replace them,” is convinced YoramDori, Shimon Peres’ strategic advisorfor communication matters. However,we can only guess how this adaptationwith Jewish communities will go (if itwill go at all), and what the conse-quences will be.

POLITICS

Parliament ex machinaBy Gleb Liberman

So, Greece finally got its ‘credit event’. Was-it abankruptcy though, or a ‘selective default’, to usethe rating-agencies’ terminology? One thing issure – the world did not come to an end, as wascontinuously predicted by most of the financialmedia over the past two years. Neither did theeuro disappear, nor was there a break-up of theEuropean Union, as was written in countless ar-ticles by some of the world’s major newspapers.

Quite the contrary, we could say – financialmarkets reacted positively to the news, withspreads on the bond markets moving south andthe Dow Jones climbing to its highest point since2007. The story began in May 2010, whenGreece was put under the tri-party surveillance ofthe EU, the European Central Bank (ECB), andthe International Monetary Fund (IMF), collec-tively referred to as the ‘troika’, and a bailoutscheme was put in place. Under strong pressurefrom German Chancellor Angela Merkel, thecost of saving Greece was to be shared among thepublic and private sector, that is, among Europeantaxpayers and the banks, through a mechanismthat came to be known as Private Sector Involve-ment (PSI).

Throughout this period, the main concern ofEU leaders was to avoid a formal default, so as to

minimise the risk of contagion of the Greek cri-sis to other vacillating nations such as Portugal,Italy, or Spain. An additional risk of the deal wasthe activation of Credit Default Swaps (CDS),the insurance contracts against default that somebondholders had bought. Instrumental to avoid-ing formal default was the provision that debt re-structuring (the PSI) should be done on a‘voluntary’ basis.

Finally, in early March, Greece called on its pri-vate investors to ‘voluntarily’ swap their Greekbonds for new ones, of longer maturity, lower in-terest rates, and take a ‘haircut’ of 53.5 %. The dealconcerned € 197 billion debt, the biggest debt re-structuring ever done, and has saved Greece morethan € 100bn.

As initial participation quickly reached morethan 90%, Greece felt strong enough to retrofitso-called Collective Action Clauses (CAC’s) intoits under Greek law bonds (a practice which islegal under Greek law), to force all private bond-holders (including those few who resisted) to par-ticipate in the restructuring. An importantside-effect of the CAC’s was to make the deal lookless voluntary in the eyes of the Internatioal Swapand Derivatives Association (ISDA), the marketauthority that supervises those instruments, whichdecided that the bond exchange procedure was infact a “restructuring credit event”, triggering the

payment process of the CDS, for a total of $2.5bn,whichh was far lower than was initially feared.This was the second time in history that CDS gotpaid (the first time was with the US insurancegiant AIG), and in both cases under highly con-troversial triggering conditions.

That was the rescue plan for Greece, an issuethat monopolised the headlines of the financialpress over the last two years, and often created panicwaves in the international markets. The Greek re-structuring has serious implications for all those in-volved, Greece, Europe, and the markets.

For Greece, the rescue plan means that therisk of a ‘hard’ or uncontrollable default has di-minished, for now. Technically, Greece cannotdefault on its new debt, as maturities have beenextended by ten to 30 years (so, no principal toreimburse before 2022), and coupon paymentsare guaranteed up to 2015 by new loans grantedby the troika. However, the remaining debt afterrestructuring is still high (currently around160% of GDP), and chances to come down toa more manageable 120% of GDP by 2020 areslim, especially in the context of a ‘melting’ econ-omy (-7% GDP change in 2011), resulting fromharsh austerity measures imposed by the troikato Greece in order to approve the bailout. Thequestion is how long will the Greek people beable to withstand the pressure of this ‘internal

devaluation' process, and how long it takes themto react.

For Europe, the solution given to the Greekproblem is undoubtedly a clear victory. Over thepast two years, many have denounced the slug-gishness of European leaders to agree on a solu-tion, the delays of taking measures and creating adefense mechanism for the euro. Now, the Greekdebt restructuring proves that the situation is (andprobably has always been) under control. Conta-gion has been avoided, the euro remains unaf-fected by the Greek problem, the ECB has actedwisely by adding liquidity to the system whenneeded, and finally and most importantly, the Eu-rogroup has proved perfectly able to devise a so-lution to the Greek problem, by obtainingconsensus of all its 17 members.

Finally, for the markets the message is clear -governments always have the final word, whengeneral interest is at stake. And their arsenal israther big: they can buy bonds in the secondarymarket, thus transferring part of the losses fromthe private to the official sector; they can retrofitclauses into contracts; they can force ‘consensus’among private investors. The lesson from theGreek restructuring is that finally markets do notrun the world, political leaders still do.

Christos Kissas PhD is a financial economist.

ECONOMY

Greek debt restructuring-a second reading

By Christos Kissas

ANALYSISNew Europe |Page 5NEW EUROPE

17 - 23 June, 2012

Last summer it was Italy and government

borrowing. This year it’s Spain, and bank-

ing. In both cases markets discovered that

the problems were too big and might bring

the euro down. Still, the euro has survived

and, in spite of the turmoil, it looks like it’s

here to stay.

Last summer brought the first bailout

package for Greece, announced on July 21,

2011, but never applied. It also brought the

‘commitment’ among European leaders,

mainly promoted by the Merkozy group, to

move quickly towards a fiscal union, which

never happened either.

This summer, the keyword is ‘banking

union,’ as the ultimate solution to all the

euro’s problems—will this one happen?

Hard to tell, especially in light of the many

and complex steps that have to be taken,

and the conflicting views about its nature

and extent among the main European

countries.

Since the adoption of the euro in 1999,

monetary policy, that is: the responsibility

for setting the interest rates level and shap-

ing the exchange rate of the currency, was

moved from ‘local’ central banks to the Eu-

opean Central Bank, in Frankfurt. What

was left to the member-states’ central banks

was banking supervision, as the local insti-

tutions were supposed to have the specific

know-how of their home markets. The

ECB never really got involved in the super-

vision of member-states’ banks, even if some

of them were big enough to present a sys-

temic risk; nor did the ECB even try to su-

pervise the quality of supervision exerted by

the central banks.

More to that, the ECB never intervened

in the handling of banking crises when they

erupted in various member-states. This led

to very different situations, even though the

causes of such crises were roughly the same.

Take for example Ireland and Spain, both

hit by the burst of acute real estate bubbles,

that evolved into severe banking crises.

Ireland reacted promptly and decisively

by nationalizing the troubled banks, trans-

ferring their bad loans into a specialized in-

stitution (the ‘bad bank’), and thus restoring

their solvency. The price to pay was a sharp

decline in real estate prices, and a recession

across the board.

Spain faced the same issue, but handled

it in a different way, more consistent with

southern European practices. In fact, under

the previous government of José Luis Zap-

atero, it preferred to sweep the problem

under the rug: banks contracted new loans

to developers in order to repay the old ones,

and offered super easy credit to buyers of

foreclosed properties. In other words, they

bought time by throwing more bad money

after bad money. And of course, after push-

ing this reckless policy to its limits, they

went and got a € 100 billion bailout from

Europe. It goes without saying that all of

the above happened under the ‘wise’ super-

vision of the Spanish central bank, and the

‘benign neglect’ of the ECB.

A ‘banking union’ will certainly take many

complex steps to materialize, including the

creation of a common supervisory author-

ity, a common resolution authority, and a

common deposit guarantee fund. But the

real difficulty doesn’t lie in the complexity

of the mechanisms.

A banking union means that member-

states will no longer be able to hide their

problems for political reasons; it also means

that national governments will have to

transfer the power of taking tough political

decisions to the common authorities, such

as imposing heavy losses to troubled banks’

retail shareholders, or selling stakes in big

industrial companies held by banks to for-

eign groups.

In other terms, the real issue is the extent

of sacrifices in national sovereignty in ex-

change for saving the country’s banking sys-

tem. And above all, will the timing for

taking such decisions about abandoning na-

tional sovereignty be compatible with the

time limits for action set by the markets in

order to keep the euro afloat?

Christos Kissas PhD is a financial economist

ECONOMY

Spain’s bailout and the banking (dis)union

By Christos Kissas

www.greenpowerconferences.com+44 (0)20 7099 0600

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Activists stage a satirical performance depicting Prime Minister Mariano Rajoy, bailed-out bankers bankers , and the demands of citizens for greater transparency, outside the

Congress of Deputies in Madrid, on 12 June 12. |AFP PHOTO/ DANI POZO

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