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On the Troika’s Coming Occupation of the Periphery

Europe’s inspectors will henceforth establish an occupation office in Athens to ensure the "full implementation" of austerity policies, for as long as it takes. Greece has been stripped even of the pretence of sovereignty.

This country that freed itself from Ottoman control in the 1820s (with French help), is reduced to a Sanjak of the new imperial order.

The Greeks will find out soon whether these officials answering to one Horst Reichenbach – unfortunately named for this delicate assignment (couldn’t they find a Spaniard, or a Slovene?) – intend to foreclose on sovereign assets and transfer the proceeds to North European creditors. I do not think it would be wise for them to try.

-Ambrose Evans-Pritchard

This is the consequence of the deal hammered out last week in Brussels. But, will Ireland and Portugal receive the same treatment? If they don’t make their targets, the answer is yes. The full text of the EU summit statement last week contained the following passage about Portugal and Ireland:

We invite both countries to keep up their efforts, to stick to the agreed targets and stand ready to take any additional measure required to reach those targets.

Translation: continue fiscal austerity until you reduce your deficits significantly. If the depression this creates causes you to miss your fiscal targets, redouble your efforts under the watchful eye of the Troika.

Portugal is out making additional cuts and increasing taxes (link in Spanish). Nevertheless, Olli Rehn has already indicated that Portugal runs the risk of not making its 2011 fiscal targets (link in Portuguese). Even Spain, not under an IMF program, will miss fiscal targets.

So, it is only a matter of time before what is happening in Greece happens at a minimum in Portugal and probably in Ireland as well. How will the Portuguese react? There is less unfortunate history with Germany than in Greece, and so less anti-German animosity.

But there is real hardship. Lisbon’s Banco Alimentar, or food bank, the largest in Europe, distributes 12,000 tonnes of food a year to about 250 local charities, helping to feed up to 160,000 people last year. The number has been rising sharply over the past two years, said José Almeida, a retired mining engineer who helps run it. Those asking for food, he said, "are not the ones you’d usually expect". He added: "Couples who both had good jobs, and a high standard of living … then one’s made redundant and they can’t keep up the cars, the mortgage, the school. They turn to charity." Last year lawyers, engineers, even a judge sought help, he said.

So who do people blame? There’s anger, plainly, at the banks.

"They threw money at people," said Martins. "They gave the impression it was Christmas every day."

-Spain and Portugal: ‘the worst will be next year. Then it will really hit’, The Guardian

The austerity protests are now picking up in Portugal. The next big strikes are prepared for November 8th.

Austerity cuts demand too much to have the positive effects on deficits in the short-term that Europe wants it to have. All of these countries are likely to miss their targets. And then the Troika ‘occupations’ will commence. Will they hammer out a ‘voluntary’ debt reduction in Portugal too? Will they look to force periphery governments to sell assets to foreigners? Any way you look at it, this is a combustible scenario which awaits Europe. And at this point, I fail to see the upside.

Source: The two halves of the eurozone are locked in a broken marriage – The Telegraph

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

3 Comments

  1. Troy Ounce says:

    It is difficult to believe that Southern Europeans will accept hardship without raising the middle finder to their tax collectors.

    What would you do if you pay 50% tax and the biggest part of these taxes will not go to schools, roads and hospitals in your communitey but to the foreign banks of Helmut, Karl and Uli?

  2. David Lazarus says:

    The thought that this could mean that national treasures are sold off to foreigners will definitely end badly. If this is even possible you can imagine that some will use such measures to get their hands on them. That is why the idea of Mosler bonds is a non starter.