Is it the Euro or the Yugo?

• Permalink

The highly-touted European currency, the Euro, is performing more like the ill-fated Yugoslavian car maker, the hapless Yugo.  And, there is a pretty good analogy between the problems inherent in the fractious group of countries that make up the European Union and the fractious group of countries that made up the now-defunct country of Yugoslavia, where the Yugo was born.  You know the regions I'm thinking of–Bosnia, Serbia, Montenegro etc. Once the veneer of nationality was swept away, Yugoslavia quickly descended into a hellish nightmare of civil war and racial hatred.

Maybe I'm overstating things a bit, but the events in Greece over the past few weeks do not suggest a peaceful outcome is nigh as riots, strikes and social strife rock the country.

David Callaway, Editor-in chief, at MarketWatch, recently wrote a lengthy piece on the history of the Euro and what is going on.  He believes the Euro can and should be saved, but only if the European Community goes to extraordinary lengths to do so [emphasis added].

Malignant market forces set sights on Europe (MarketWatch, May 6, 2010, David Callaway)

…A cover story in Business Week magazine, perhaps 15 years ago before the euro was adopted, envisioned how it would collapse. As Greece was not seen as an eventual member then, the story imagined the crisis would start in Italy, and almost exactly as it has played out in Greece, with poor budget management leading to economic punishment from Europe, leading to rioting in the streets.

The story was shrugged off by the winners of the euro debate at the time, who with the momentum of historic change behind them claimed it was scare-mongering by a reckless financial media. Once instated, the euro could not collapse without economic chaos if member states tried to revive their former currencies, they argued. Now the markets are looking at the very real possibility of that happening.

There is still time to save the project, and indeed, it should be saved. But it will take an extraordinary effort not just by Jean Claude Trichet at the ECB, and the IMF, but by the leaders of the major European nations, Germany, France, and yes, the non-euro U.K., once it votes on a new government this week.

…The euro can be saved. But Europe's leaders will need to trash their playbook and roll out a much more ambitious and expensive plan — one that will call for an unprecedented degree of cooperation and sacrifice among each other and their nations. And they need to realize that at the moment, nobody is betting that can happen.

The reason the financial markets are skeptical about the Euro is that Europe's leaders have already given the crisis their best shot.  They united briefly on this nearly $1 trillion bailout, but that is almost certainly about as far as they can go.  In fact, the bailout is already causing severe political problems for Germany's leadership.

Unfortunately, as New York Times columnist and Nobel prize-winning economist, Paul Krugman wrote at the end of a column about the Greek crisis, the bailout won't be enough to do the trick [emphasis added]:

…The good news here is that for the first time in this crisis, European policy makers have gotten ahead of the curve, acting more strongly than almost anyone expected. That's a shock, and it has awed the markets. But I still don't think it's nearly enough.

The problem Krguman refers to is solvency, not just liquidity.  That is, Greece has a budget deficit north of 13% of GDP and there is little likelihood that the political and social will exists to cut that back in a meaningful way.  Government debt amounts to 125% or more of GDP.  Deficits and debt of that magnitude are well beyond what that economy can manage.  In other words, Greece is broke.

Earlier in the column referenced above, Krugman spelled out what has to happen if Greece is get become solvent [emphasis added:

…What the country must do, regardless of how it's accomplished, is achieve relative deflation — reduce its costs and prices compared with Germany and France, regaining competitiveness. With German inflation low, this means an extended period of deflation, with high costs in employment and output. It also means fiscal difficulties, requiring spending cuts and tax increases that deepen the slump…

The prescription for regaining fiscal health as outlined above above would probably work, but it would also trigger negative consequences including lower economic growth and social unrest.  Truly, a no win situation.  And, I sincerely doubt if the political will exists in Greece or the EU to take the steps outlined by Krugman.

The currency markets have looked at the Euro and, at least for now, the trend is down as this MarketWatch report indicates:

The euro slumped Friday to the lowest level against the dollar since October 2008, as worries about financial stability on the Continent and the political will to enact unpopular deficit-reduction measures led traders to dump the shared currency. The euro's decline was sparked by a report, since denied, that France's president had threatened to pull his nation out of the euro zone.

…The shared currency touched an intraday low of $1.2357, its weakest level since at least October 2008…

…"The euro is in a no-win situation at this point," said strategists at Brown Brothers Harriman. "There is also concern that the much tighter fiscal stance in the euro-zone periphery will have significant negative impact on the growth outlook, with potential serious negative social consequences."…

So, where does that leave the Euro.  Is it:

• The Euro, the vaunted currency that is poised to supplant the U.S. dollar as the world's reserve currency
• The Yugo, a failing currency whose time has come and is now going?

I believe we will see some countries leaving the common currency as they become increasingly unable to manage their own economies under the Euro straitjacket.  Candidates for this would be Greece, Italy, Spain, Portugal and Ireland.  It also has become unlikely the United Kingdom will agree to give up the British Pound to go with the Euro.  What will be left are stronger countries such as Germany and France and perhaps a few more.  At that point, there will not be much reason to keep the battered Euro going.

Though it will take a long time, I believe the Euro is really the Yugo and it is doomed to a similar fate.

http://blogs.marketwatch.com/fundmastery/2010/05/15/is-it-the-euro-or-the-yugo/

Uncovering Albania's role in the Kosovo war : - TRUTH FOR ONCE

Uncovering Albania's role in the Kosovo war

After the arrest of a man in Kosovo on war crimes charges this month, the BBC's Nick Thorpe visits Albania, which is at the centre of the EU-led investigation into torture and murder.

Durres is a popular holiday spot, but is implicated in a dark chapter of history

The Hotel Drenica still graces the sea-front in Durres, on Albania's Adriatic coast - one of a long line of hotels and restaurants waiting for the summer influx of tourists.

Children take their first dip of the season in the warming sea, while their parents sip coffee and watch them from the terraces, and boys play football on the sand.

Ties to neighbouring Kosovo run deep. Tens of thousands of refugees found shelter here during the war, and local people are proud of their role in helping their ethnic-Albanian brethren in their hour of need.

Many bars incorporate Kosovo in their names. In the 1998-99 conflict, the Hotel Drenica was at the centre of everything - it was the local headquarters of the Kosovo Liberation Army.

There is still an engraving on a red marble block at the back of the hotel, of a soldier and the initials UCK - the KLA.

But the arrest of Sabit Geci in Pristina on 6 May, and an ongoing investigation by the War Crimes Unit of Eulex - the European Union Law and Justice Mission in Kosovo - look set to show the role of Durres in a different light.

We panicked every time they opened the door, wondering who they were going to pick on next Former prisoner, Kukes detention centre

Mr Geci, 51, stands accused of the torture and killing of ethnic Albanian prisoners of the KLA at a detention facility within a KLA base in the north-east Albanian town of Kukes in 1999. According to investigators, some of the 40 people who were mistreated in Kukes were detained by the KLA in Durres.

There were also Serb prisoners kept in Kukes - apparently kidnapped and smuggled in from across the border, and kept in a separate room.

Lawyers for Mr Geci say he denies all charges, and was receiving medical treatment in Slovenia during the period mentioned by Eulex, April-June 1999.

Interrogated

As Serb military and paramilitary forces swept through Kosovo in the spring of 1999, forcing 800,000 Kosovo Albanians from their homes, and killing more than 10,000, many refugees found shelter in Albania.

Many Kosovan refugees ended up in a refugee camp in Kukes, Albania

Some stayed in makeshift refugee camps near the border. Others were redistributed around the country, and an out-of-season tourist resort like Durres proved very useful.

But the KLA was curious about some of the new arrivals. Why were young men of military age not joining their ranks in the desperate conflict with the Serbs? Had some collaborated with the Serbs in the past? Did some belong to rival Albanian political and military factions? Had some even been sent as spies for the Serbs, to uncover KLA supply routes for men and guns into the country?

In Durres, the interrogations took place in the Hotel Drenica.

"Bad things happened here," said a man on the beach at Durres, nodding in the direction of the Hotel Drenica, "but I am not willing to talk about them."

Buses bedecked with red and black Albanian flags took the willing - and less willing - recruits back to the front.

Some men were taken prisoner and held in terrible conditions in detention facilities inside KLA camps. The one at Kukes, in a disused factory, was among the worst. A BBC investigation last year contacted former inmates.

"We panicked every time they opened the door, wondering who they were going to pick on next," one survivor of the Kukes camp told us.

"There were no good guards there. The ones who came from the fronts and had lost relatives would beat us up, or threaten us with automatic rifles.

"One man was killed in front of all the prisoners in that room, including myself. He was shot and left to bleed to death."

He could have understood such mistreatment, the witness added, if he had really been a traitor to the Albanian cause.

'Misuse of uniform'

The Prime Minster of Kosovo, and former political commander of the KLA, Hashim Thaci, last year denied that the KLA had mistreated prisoners in Kukes or elsewhere, telling the BBC: "It just didn't happen. At any time, in any case, in any place... this has nothing to do with the Kosovo Liberation Army."

Like many local venues, the Hotel Drenica is proud of its links to Kosovo

He admitted that war crimes had been committed after the war, but said the culprits were "pretending they belonged to the KLA", by wearing its uniform.

But Eulex war crimes investigators believe Mr Geci, who is said to have been a key figure in KLA intelligence in Kukes, took part in the beatings there.

On 12 May, the house of another Kosovo Albanian suspect, Xhemshit Krasniqi, was raided in the western Kosovo town of Prizren. Some items were reportedly removed.

Eulex inherited 980 war-crimes cases from the outgoing UN mission in Kosovo. They have narrowed their investigations to just 20 cases - two of them across the border in Albania.

But they say their requests for help from the Albanian government - to visit former camps, interview witnesses, and exhume graves - have been stonewalled.

In February this year, Philip Alston, UN special rapporteur for extra-judicial killings, visited Albania and reported that "none of the international efforts to investigate KLA abuses in Albania has received meaningful co-operation from the government of Albania".

Ilir Meta, the Albanian deputy prime minister and foreign minister, denied that.

"Albania is willing to co-operate for respecting... international law with the international community, and I think that for every request we... will give the right answer," he told the BBC.

"Including with Eulex?" I asked.

"Why not?" he replied.

 

http://news.bbc.co.uk/2/hi/europe/8687186.stm