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Rich Pickings

Regional Head of Research at Standard Chartered Bank, Marios Maratheftis discusses the eurozone, Greece and a common currency for the GCC.

July 16, 2012 4:16 by

So why are they doing this?

There are some complications regarding politics, where politicians want to get reelected and they talk with their domes­tic audiences in mind. So, if you are a Greek politician it’s much easier for you to blame the Germans, if you are a Ger­man politician, it’s much easier for you to blame the Greeks. So there is a lot of trademanship in place, the resources are entrenched economic beliefs that are on the verge of being the religious beliefs. People believe that this is the case and that’s the case even if it’s discredited with economic reality; people still believe that if you put austerity everywhere it will be a confidence boost and the confidence boost will need to grow. People generally believe in this, even though this theory has been discredited in the current crisis and in every crisis the world has faced it. In order to get out of the problem we need to see the Central Bank slashing interest rates; we need to see the European Central Bank go ahead with quantitative easing. We need to see some fiscal stimulus in the countries that can afford to have a fiscal stimulus such as Germany. We need to see higher inflation in Germany so Southern European economies become more com­petitive. In the absence of all these, this problem will be getting worse.

So do you see Germany accepting that?

Right now it doesn’t look like the Euro­peans are about to change their policy. I used to say that the solution to the prob­lem is for the Greeks to become more German and the Germans to become more Greek.

There was fiscal irresponsibility in Greece. Greece has been suffering for three years; one in two young people are unemployed. You cannot just have auster­ity for the sake of it everywhere, it would result in recession, which is what we are seeing right now. You can’t have an ob­session with inflation, keeping inflation at one percent in Germany, it will make the adjustment impossible elsewhere, you need to see great with Europe, you need to see people thinking regional, what we are seeing now is people talking regional and acting national. This is a recipe for disas­ter, if they talk regional they need to look at the eurozone as a whole.

Will Hollande be courageous enough to do so?

Well, it cannot do it on its own. The shots are being called from Germany and if Ger many decides to slightly change policy, it’s part of the solution. It doesn’t mean that it’s Germany’s fault, I mean there are problems in the south, but you need to see the South adjusting and the North adjust­ing. You cannot force the full adjustment through the South, because if you do that the recession they are facing will get deeper and deeper. When you are in recession you cannot reduce your debt, your debt will get higher and in the end the pain will get so much that candidates will be left with no option but to exit the Europe, and if there is one country to lose from the breakdown of the Euro it would be Germany. It had a fantastic growth spell since 2000. Since the introduction of the Euro, 2010 was the best economic performance since the unifica­tion of the country, and there is a direct link between the performance of the German economy and its export sector. Germany has been exporting itself out. Not everybody can do that; by definition if you have an exporter you need to have an importer, we cannot all export our way into growth unless we discover life on a different plan­et, which doesn’t look likely. 

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