While IMF warns of global economic slowdown.
German Chancellor Angela Merkel on Tuesday vowed ongoing support for Greece, saying the country has made progress on a “difficult path.” Merkel’s support is especially important since Germany has been the chief financial backer of Greece, although many Greeks blame Germany for the harsh austerity measures. Athens increased security and banned protests for Merkel’s visit. Police fired tear gas at demonstrators who threw stones and gas bombs at them. Meanwhile, the International Monetary Fund released a report on Monday saying the global economy is still slowing down and it is cutting its growth forecasts. In Britain, Prime Minister David Cameron said on Tuesday that he would not create a “Plan B” to ease up the austerity programs, despite the IMF’s downgrading of Britain’s growth forecast.
Christine Lagarde, head of the International Monetary Fund, is once again trying to pull Europe back from the brink.
“I got my trillion dollars,” Christine Lagarde recently told a friend with evident pride. Earlier this year, the managing director of the International Monetary Fund committed her organization to building a massive financial firewall to protect Europe’s weaker economies from rampant speculation against their debt. And that, combined with a huge infusion of cash loans at low cost and other measures by the European Central Bank, helped pull the continent back from the brink of an abyss.
With Europe stuck in the mud—or maybe the quicksand—the striking, stylish, white-haired Lagarde once again is speaking out with the unique authority of her position, and her personality. And as she looks for ways to solve the problem, she finds herself running up against the other most-powerful woman in the world, German Chancellor Angela Merkel. All of this comes against the backdrop of a looming calamity bigger than anything they’ve yet had to deal with: economic suicide by dysfunctional politicians in the United States.
International Monetary Fund (IMF) Managing Director Christine Lagarde with members of IMF governors at a meeting in Tokyo on October 12. (Kazuhiro, AFP / Getty Images)
At the center of the IMF-Germany debate is that perennial problem child of the European Union: Greece. During the fund’s annual meeting in Tokyo last week, Lagarde told a press conference that Athens should get two more years to meet some of the target conditions of the new €130 billion ($167 billion) bailout package. “It is sometimes better to have more time,” Lagarde said. But the next day, Merkel’s man at the meeting, German Finance Minister Wolfgang Schäuble, accused Lagarde of sending mixed signals. “When you want to climb a big mountain and you start climbing down the mountain, then the mountain will get even higher,” he told the Financial Times.
There may be more than a little theater involved in all this, especially with a European Union summit coming up on Thursday. (According to one source who’s attended many meetings between Lagarde and the Germans, she and Schäuble, at least, are on very good terms: “It’s almost a love fest,” the source said.) With Lagarde playing good cop and Merkel the bad, these two powerhouses may hope to keep pressure on Greece to mend its spendthrift ways, but at the same time prevent the strain from growing so extreme it drives the country deeper into ruin and out of the common European currency altogether. Merkel has recognized, however reluctantly, that austerity can’t cure all ills. The IMF is aware, of course, that growth alone cannot begin to extricate Greece from a situation in which its government debt is projected to reach almost 180 percent of its gross domestic product next year. And despite repeated predictions of imminent catastrophe, somehow this push-me-pull-you approach has kept Europe and its common currency from utter collapse.
The United States is another matter. European analysts worry that their stalled economies will be plunged into recession, or worse, if Washington does not pull back from the fiscal cliff created by Congress and the Obama administration, which can’t seem to compromise on, well, just about anything. The sudden expiration of the Bush-era tax cuts and credits would suck out what little air is left in the economy and almost certainly plunge the United States into recession. And if there is another refusal by the Republican-controlled Congress to raise the debt ceiling, which used to be almost automatic, the U.S. could see its bond ratings plunge and borrowing costs soar.
The IMF likes to adopt wording almost as oracular and inscrutable as the Fed when it issues communiqués, and the one that came out of Tokyo in English was no exception: “In the United States, resolving the fiscal cliff, raising the debt ceiling, and making progress toward a comprehensive plan to ensure sustainability are essential.” But in the French version, in Lagarde’s native language, there was no doubt about the force of her opinions: it was “imperative” to find a way to avoid the cliff, “raise the debt ceiling, and move ahead with a vast plan to assure the viability of the budget.”
Washington may not be listening right now. But whoever wins the elections in November will have to answer to the trillion-dollar woman and the common sense she represents. It is, after all, about time.
Populism takes an ominous turn.
It can be a mistake to laugh at fascists. Charlie Chaplin mocked Hitler and Mussolini in The Great Dictator. P.G. Wodehouse had fun with his preposterous parody of Oswald Mosley, Roderick Spode. But Nazism turned out to be no joke. Today Chaplin’s film, for all his comic genius, is embarrassing to watch, while Wodehouse lived to regret his complacency about what was brewing in Berlin.
Members of Golden Dawn sing the Greek National anthem. (Sakis Mitrolidis / AFP-Getty Images)
So when a party called “Golden Dawn”—which has something that looks a lot like a swastika as its logo— starts denying aspects of the Holocaust and heaping opprobrium on immigrants, it’s best to keep a straight face. Sure, they’re Greeks, not Germans. Sure, their party leader, Nikolaos G. Michaloliakos, is about as -charismatic as a barrel of rotten olives. But if elections were held tomorrow, these guys could become the third-largest party in the Greek Parliament.
The Greeks are the extreme case. But maybe that’s only because economically they are the extreme case. This year the Greek economy is forecast to contract by 7 percent. Unemployment is at 23 percent and youth unemployment a mind-blowing 54 percent. Under these circumstances, it would be rather remarkable if people were patiently sticking to the mainstream parties of the center-left and center-right.
Populism is the standard political response to financial crisis. In America we have seen two different variants—the right-wing populism of the Tea Party and the left-wing populism of the Occupy movement. But European populism takes more toxic forms.
Nothing was easier to predict than this: that the crisis of the euro zone would spark a nationalist backlash. Golden Dawn is not just xenophobic; it’s also Europhobic. The same thing has happened in the Netherlands: there, Geert Wilders started out by attacking Muslim immigrants (and indeed Islam itself), but has more recently added Euro-bashing to his repertoire of his Freedom Party.
This strategy was pioneered in Finland by the “True Finns,” whose leader, Timo Soini, has succeeded in pushing his country’s government to take an increasingly tough line on bailouts for (you’ve guessed it) the Greeks. Populism in the North fuels—and feeds on—populism in the South.
As I said, there is much about this neo- or crypto--fascist wave that is hard to take seriously. Can 13 percent of Italians really want to substitute the unkempt comedian Beppe Grillo, leader of the anti-European Five Star Movement, for Mario Monti, the prime minister who has pulled their country back from the brink of moral as well as financial bankruptcy? Do the supporters of the Lega Nord (Northern League) really intend to dismantle Italy and create a new rump state of Padania—not so much a banana republic as a Bolognese republic? Is talk of Catalan independence just a Barcelona bluff?
The austerity crisis has taken a dire toll on Italy’s poor southern regions, where families have taken to scavenging and scraping by without gas or electricity. Barbie Nadeau reports on how the situation could get much worse.
The Pignasecca market in central Naples has offered some of the best prices on fresh vegetables in the city for decades. But lately clients are waiting until after the market closes to see what scraps are left over by the vendors, racing the clock against the garbage collectors before they sweep up the produce that has fallen from the stands.
The economic crisis has made life difficult for most Italians, but none have it as difficult as those in the impoverished southern regions known as the mezzogiorno. According to a report by a consumer group SVIMEZ, it would take nearly 400 years for Italy’s south to catch up with the country’s richer northern regions on things like economic growth, industrial investment, and quality of life. Unemployment hovers hear 25 percent in the mezzogiorno where only one in four women works. Those who do have jobs are vulnerable to what SVIMEZ calls the “industrial desertification” of the south, as factories close down or relocate to wealthier regions. Almost 150,000 jobs have been lost in the area since 2007—329,000 people under the age of 25 lost their jobs in the last three years alone, and more than 1.35 million residents have packed up and left for the northern provinces to find a better life.
Workers protest planned budget cuts in Rome, Sept. 28, 2012. (Massimo Percossi / EPA / Landov)
The risk of a total economic collapse in Italy’s deep south echoes a worrying trend across the 17-member euro zone and larger 27-member European Union, where overall joblessness rose to 11.4 percent and 10.5 percent, respectively, in August, according to Eurostat, which keeps track of statistics for the European Commission. In a statement on the release of the new figures, spokesman Jonathan Todd said that more than a quarter of a million Europeans are now unemployed. “It is clearly unacceptable that 25 million Europeans are out of work,” he said, underscoring that the figure has been growing steadily since the European economic crisis began in 2009.
In Greece and southern Italy, the economic pains are more severe because many people were living in poor conditions even before the 2009 crisis began. In Basilicata and Calabria, hundreds of families are living in houses where electricity has been cut off. Children don’t go to school because no one can afford to put gas in the cars. Families where no one is working have taken to raising animals to provide milk and eggs to survive, according to the SVIMEZ analysis. And the numbers are growing as the price of survival increases. The price of basic groceries has risen nearly 5 percent, which translates to $821 more a year for a family of three and $887 more a year for a family of four.
There are an additional 988,000 Italians living below the poverty line, according to Istat (Italian National Institute of Statistics), bringing the total number of Italy’s poor to more than 10.3 million people. The number could rise even higher as more jobs are cut due to Italy’s debt crisis and continuing austerity measures. According to the Confartigianato (CGIA) association for artisans and craftsmen, there are nearly 1.3 million newly unemployed in the past 24 months, and almost half a million workers on partially subsidized leave, mostly because businesses have had to cut back or close altogether. Only Greece has more persistently poor people. “Southern Italy is likely to bear the brunt of the enduring economic downturn, having suffered the worst effects to date,” said Giuseppe Bortolussi, head of the CGIA. “Most of the new poor are single income families with a large number of children, or those families where the breadwinner is out of work.”
Currently more than 20 percent of Italian children hang in the balance, at risk of falling below the poverty line in southern Italy as the economic situation there worsens. According to UNICEF, there are nearly 2 million children living below the poverty line in families that cannot properly feed, clothe, or vaccinate them. “The poor have got to get out of this crisis alive,” warned Adriano Giannola, president of SVIMEZ, when he presented the depressing survey on the dire situation in the south. “These men and women, young people, elderly, living in dire poverty in this country is unacceptable.”
From teachers to animal control, everyone in Greece is striking to protest the looming austerity cuts. And now bailout funds are being held until Greece doubles those austerity cuts. Barbie Latza Nadeau reports.
No one, it seems, is going to work in Greece this week. Teachers, doctors, lawyers, journalists—even tax collectors—have walked off the job to protest the country’s biting austerity measures. Judges, protesting a 38 percent pay cut, are only hearing cases nearing the statute of limitations. Bus drivers are parked, protesting longer work days and pay freezes. There are limited garbage collectors and few animal-control workers on the job to protest cuts in benefits like pension contributions. Firefighters left their posts Monday, ambulance workers did not work Tuesday, and police officers have warned that may turn a blind eye to what could be chaotic protests as the country’s labor unions and private-sector leaders join the fray on Wednesday for the largest national strike since the June elections that launched Antonis Samaras into a dubious position of power.
While Greeks take to the streets, their coalition cabinet will be holed up working the numbers to try to shave off a whopping €11.5 billion from the 2013-14 budget. Government leaders have been entertaining European Union inspectors all week, trying to prove that they are working diligently to meet the requirements of the €31 billion bailout loan due from the European Central Bank (ECB) and International Monetary Fund (IMF). And Germany’s Der Spiegel broke the news that the “troika”—the European Union, the ECB, and the IMF—won’t release funds that are needed to keep the country from defaulting unless Greece actually doubles those cuts to close an estimated €20 billion budget gap.
Banners reading ''General Strike,'' ''SOS,'' ''No,'' and ''All Together'' announce Wednesday's general strike in Athens to protest new austerity measures. (Thanassis Stavrakis / AP Photo)
The Greek government has denied the budget shortfall, insisting their deficit is just €13.5 billion—of which cuts of €11.5 billion satisfy the troika’s demands. But IMF chief Christine Lagarde didn’t seem convinced, worrying openly about Greece’s future while speaking in Washington this week. A “financing gap” has emerged because of “the macroeconomic situation, the major delay in privatization and therefore shortfall in proceeds from the privatization,” as well as “limited revenue collection,” she said.
The austerity measures are brutal no matter how much they have to cut to get the aid they so desperately need. Unemployment already hovers at around 25 percent—and nearly 55 percent for those under 29. Since June 2011, nearly 1,000 jobs have been lost every single day. The retirement age will have to be raised from 65 to 67; many workers will have to work a six-day week; the country will have to raise the cost of public transportation and cut public-sector jobs. In a recent poll by MRB, over 90 percent of Greeks feel that the austerity cuts are unfair to the poor. Nearly 80 percent of the population says the country is headed in the wrong direction with austerity cuts.
Samaras and his New Democracy Party have a razor-thin majority in Parliament, thanks only to a coalition with the Socialist PASOK and smaller Democratic Left parties. But the parties are not altogether cohesive, and many PASOK party faithful have threatened not to vote for the tough austerity measures. The austerity package will go through Parliament as one bill rather than separate items, thus making it far more vulnerable. German leaders have insisted that Greece finalize its budget by October 19 or risk losing its bailout funds, effectively pressuring the Greek government to push the final budget in less than a month. Samaras plans to address the Greek population this week to calm fears that the worst is yet to come.
If Samaras, who won in June on a pro-euro platform, were to lose a confidence vote on the austerity measures, that would pave the way for the radical-left anti-euro party SYRZIA to take power, which could ultimately lead to Greece’s exit from the euro currency. At a meeting of Christian Democratic leaders in Rome over the weekend, Samaras said that “an exit from the euro zone is not a choice for Greece, it's a nightmare. For us it's not an option, it's a total disaster."
Lagarde agrees. “For many economies, under the present circumstances it will take years of fiscal adjustment to get back to pre-crisis levels,” she said. “Without sufficient growth, we should not delude ourselves about how painful this is going to be.” That’s not much comfort for the Greek population already living the nightmare of austerity.
The worst is over for the euro-zone crisis, according to European Commission President José Manuel Barroso. He talks to Daniel Gross about how to win the game and ‘score goals.’
The Portuguese coach was emphatic about his team’s prospects. “I would say we are at the beginning of the second half, and that contrary to all the commentators we have not lost, we are not losing,” he said. “We have resisted well. And what I would like to underline now is the need for all players to stay focused, to keep the team spirit, so that we can score goals.” Forget about extra time, or penalty kicks. “I believe we will win, with a comfortable margin, this match.”
That wasn’t Real Madrid’s José Mourinho talking about the next clash with Barcelona. Or André Villas Boas, the Portuguese coach of British club Tottenham Hotspur, talking about a game against Manchester United. Rather it was José Manuel Barroso, president of the European Commission, using sporting terms to describe the European financial crisis in an interview with me on Monday.
After years of near-defaults, bailouts, failed summit meetings, and halting steps toward reform, Barroso says that the European powers have begun to wrap their arms around the continent’s daunting fiscal problems. “We are in a better situation now,” he says in the accompanying video. “So the situation is improving, but inevitably it will take time to have all the solutions because the crisis was very complex.”
President of the European Commission José Manuel Barroso speaks at the United Nations General Assembly at U.N. headquarters, Sept. 24, 2012. (Seth Wenig / AP Photo)
In the last several weeks, the European financial crisis has seemed to come off the boil. In August the euro zone’s political leaders went on holiday, and the markets seemed to relax as well. With no politicians working, there could be no failed summits or vague communiqués. Earlier this month, the European Central Bank finally stepped up and promised to purchase government bonds of struggling companies (Spain, Italy, et al.) that formally ask for help. That move helped push the interest rates on government debt lower across Europe, fueled a stock market rally on both sides of the Atlantic, and has pushed the euro up against the dollar.
No one is saying that the moves have solved the European crisis. Barroso acknowledges we’re only about halfway through it. But the frenzied first half seems to be in the rear-view mirror. While the ECB’s move, and the creation of stabilization funds and mechanisms, seems to have halted the panic, the underlying conditions that have prolonged the crisis still exist. Europe is plagued by the specters of austerity-induced recession, labor markets and financial systems in need of reform, and less-than-perfect policy coordination between countries.
In today's special installment of The Number, Daniel Gross sits down with EU chief Jose Manuel Barroso to discuss the status of the European financial crisis--and why it's too soon to give up on the euro.
Barroso believes progress is being made on all fronts, and that the focus on political differences between member states masks the real progress and areas of agreement. He points to the hard work of fiscal consolidation being undertaken in several countries, proposals to create a Europe-wide banking supervisor, and the establishment of Europe-wide financial backstops. “It’s true that we don’t have all the instruments for a common currency,” he said. And while real differences remain over policy issues, there is agreement on underlying goals. “No government is questioning the need for financial stability, for discipline, and at the same time for convergence,” he said. The slowly forming consensus has, for now, at least, taken the prospect of a Greek default and a large country leaving the euro off the table. “The way forward is for more integration that the euro is here to stay.”
With unemployment sky high, a growing number of Italians, Greeks, and others hit hard by the euro zone crisis are moving to Germany to find work.
There is an old joke in Europe that goes like this: in heaven the lovers are Italian, the cooks are French, the mechanics are German, and the place is run by the Swiss. But now, thanks to the economics crisis sweeping the euro zone, it seems almost everyone wants to be German—or at least work in Deutschland.
Since the sovereign debt crisis began in late 2009, there has been a steady flow of skilled workers heading to Germany from Italy, Spain, Greece and Portugal. But over the past year, the workers have begun sprinting at a much faster pace. According to a recent survey by Bundesagentur für Arbeit, a German research firm, the number of Italians and Greeks registered to work in Germany has risen by 22 percent in less than a year. There are now 232,800 Italians and 117,700 Greek registered workers in the automotive, agricultural, fashion, arts and education fields in Germany. There are growing numbers of lawyers and doctors, too. And, once in Germany, these workers are paying taxes and contributing to the country’s economic success. “This is not just a blip in emigration,” according to the Bundesagentur fur Arbeit report. “This is a trend that is growing that will have a major impact on the future of German demographics.”
Greek immigrant Maria Zatse reads her Greek-German dictionary in her flat in Munich, Germany in March 19, 2012. (Michaela Rehle, Reuters / Landov)
To bolster their chances of getting a job in Germany, a growing number of workers are learning to speak the language before they head to the border. Over the past year, the Goethe Institut, a German cultural non-profit, has seen a 35 percent increase in German language classes in Spain, a 20 percent increase in Portugal and a 14 percent increase in Italy. Language schools in Naples, located in Italy’s impoverished south, have seen the greatest increase in German language students over the same time period; enrollment climbed by 34 percent in September 2012 compared to the year prior. Milan and Turin have also seen a 25 percent increases in adult German language students. One glaring exception: Romans, who have shown little or no interest in learning German, with barely one percent increase in the last year. “It’s the young people who want our courses,” said Klaus-Dieter Lehmann, the president of the Goethe Institut. “But it’s not to read Schiller in [his] original language, but to increase their chances of finding work.”
To help Italians make their move, several relocation services across the country are offering special “move to Germany” deals, often allowing people to share the cost of renting vans. Recruitment agencies in Germany are actively seeking out southern European workers, but they warn that not all will find the perfect job. “It’s easy to find jobs working at Italian ice cream shops and pizzerias, but you have to be skilled to find something better,” according to the website Travel to Germany. “Especially in times of crisis, many seek alternative employment abroad. Germany seems an ideal country: average salaries are higher and the average cost of living lower than in Italy. But beware, Germany is not a wonderland where everyone, German or foreigner, gets the job of his dreams without working for it.”
Despite the greater abundance of jobs in Germany, for some at least, the country might not feel like home. Not only has Germany begun to face its own economic slide, but as the rest of the euro zone drags it down, Germany has angered its neighbors by making them stick to tough austerity plans in exchange for loans. A recent survey by the Financial Times showed that less than a quarter of Germans even want countries like Greece to stay in the euro zone, citing cultural differences and what amounts to tired stereotypes. Meanwhile, over the summer, German chancellor Angela Merkel was an unwilling cover girl in a variety of publications across southern Europe, which depicted her in unflattering light and not-so-subtly blamed her for the economic pinch. Former Italian Prime Minister Silvio Berlusconi, who once privately referred to Merkel as an “unf@$%able lard ass,” went so far as to run the headline “Fourth Reich” over a photo of Merkel in one of his newspapers.
Then again, with unemployment in places like Greece and Spain at sky high rates, for many across southern Europe, what the Germans think of them is perhaps the least of their concerns.
The decision by the European Central Bank chief to provide almost unlimited funds to troubled governments could lead to the end of the Eurozone crisis, put a stop to financial dominoes falling, and lead to global economic stability.
The attention of Americans has been consumed the past weeks by extreme weather and extreme politics. The quadrennial convention ritual is as much a media fest as a political one, and the focus on the presidential election is merited. But while Presidents Clinton and Obama garnered attention, perhaps the most important event this week had nothing to do with American politics. It was instead the announcement by the head of the European Central Bank, the Italian technocrat Mario Draghi, that the bank was prepared to provide nearly endless funds to troubled governments provided only that they first promise to get their economic houses in order.
It doesn’t take genius to figure out why yesterday’s press conference and announcement by Draghi was lost in the media fray. Elections make sense; central-bank announcements replete with jargon, arcane policies, and acronyms do not stir souls. Wall Street and the financial world, however, were waiting on Draghi’s appearance with all the fervor of teens at a Justin Bieber concert. And they reacted to the announcement with measured delirium, sending equities to their highest levels in nearly four years.
Mario Draghi, president of the European Central Bank (Hannelore Foerster / Bloomberg via Getty Images )
For the general public, however, Draghi may not have made the top 10 of important stories, well below the Giants-Cowboys game, the rollout of the new Kindle and anticipated iPhone, and certainly behind the conventions. Today, the jobs report will garner attention, and should. Even in Europe, Draghi’s decision received less focus than equivalent moves in America by the Federal Reserve, and most European media outlets led with Obama. But this is one news story whose importance is not conveyed by its prominence.
Since the spring of 2010, the financial world has been intermittently paralyzed by euro fear. The rolling crisis, spreading across Europe from Ireland to Portugal, and of course Greece, before touching down in the much larger and equally troubled markets of Spain and Italy, has crimped the global economy, hampered economic activity for companies around the world, and seemed so intractable that it has created an almost permanent climate of cynicism, short-termism, and expectations of systemic collapse. The inability of the member states of the Eurozone to manage the crisis of soaring borrowing costs for indebted governments, little or no growth, rising unemployment, and radically different perspectives on the need to spend urged by Spain, Italy and France and the need to save and reduce debt articulated by Germany has brought not just the Eurozone but the entire financial system to a standstill.
Yes, the world has other issues—the viability of China’s growth and the still-unresolved issue of rising American debt and anemic growth. The euro crisis also follows the housing and derivative meltdown of 2008, and is that much more acute because of that context. But the world always has issues, and growth nowhere is constant and linear, even if people unreasonably expect and hope that it will be. The globally interconnected world of finance that evolved between the late 1990s and 2008 is one where there are no circuit breakers, and where even a country the size of Greece can imperil systems as large as the United States and the entire Eurozone simply because no one can say with confidence where or when the financial dominoes will stop falling—once they stop.
That is why central banks have such a crucial role in stemming these crises. Widely derided for their miserable management of the financial world of the 1920s that produced global Depression, central banks have never been popular. Americans fought over the banks’ establishment of a central bank in the 19th century, and significant parts of the electorate see the Federal Reserve as a rogue institution that should be abolished or curtailed (see Ron Paul and Rick Perry).
In Europe, the European Central Bank is a much newer institution, but still manages to engender strong feelings. Many Germans fear that the ECB will undermine German sovereignty and expose it to commitments and obligations for other states’ debts. And throughout the world, many harbor suspicions that the actions of bankers will lead to the debasement of currencies, the salvation of the financial industry, high inflation, and the impoverishment of the working class.
Portugal takes its medicine and muddles through.
Europe’s post-crisis bailout sagas offer a range of outcomes. Greece, clinging to the euro, has utterly failed to comply with the terms of its multiple bailouts. Spain will prove whether a country with 24 percent unemployment can cut its way back to prosperity. Then there’s Portugal, smaller and less drama-prone than its Mediterranean neighbors and literally on the fringes of Europe. Here’s a country that embraced austerity and has dutifully delivered on its promises. But it isn’t getting anywhere near the credit (literally or figuratively) it deserves.
In April 2011, Portugal, grappling with high deficits and choppy markets, turned to the European Union and the International Monetary Fund for a €78 billion bailout. Next came austerity. The government slashed salaries for civil servants and benefits for higher-earning retirees and raised taxes on everything from income to gasoline. It worked. Portugal’s annual deficit fell dramatically from 10.2 percent of GDP in 2009 to 4.2 percent in 2011. In the first half of 2012, Portugal’s deficit was €4.14 billion—safely under the bailout’s limit.
Portugal isn’t getting anywhere near the credit it deserves. (Carl De Keyzer / Magnum Photos)
But the side effects of this medicine are harsh. The economy is shrinking at about a 3 percent clip so far in 2012, and the unemployment rate rose to 15.2 percent in May. And yet Portugal is muddling through without the social unrest and anti-bailout brinksmanship seen elsewhere in Europe. It helps that Portugal is a more ethnically homogeneous country than Spain and has a less toxic political culture than Greece does. But there’s more to the story. Portugal is succeeding in part because of its ability to attract overseas capital and tap into foreign markets.
In contrast to other European countries, Portugal has been aggressive and successful in privatizing assets. In December 2011, Three Gorges Corp., the Chinese electricity company, paid about €2.7 billion for a 21 percent stake in EDP–Energias de Portugal. Last February the government struck a deal to raise nearly €600 million by selling a chunk of its power-grid operator to Chinese and Omani companies. Next up: sales of stakes in airline TAP Portugal and airport operator ANA.
As I stood during a recent visit on the piers at Belém, the port from which Portugal launched its audacious 15th- and 16th-century explorations, it struck me that the country is rediscovering its internal Prince Henry the Navigator. Centuries ago, separated from Europe by the large landmass (and sometime threat) of Spain, Portugal took to the seas early and often. Now that Spain, its largest trading partner, has slipped into deep recession, Portugal is finding customers for its industrial and agricultural goods in rapidly growing former colonies like Angola and Brazil and in Asia. In 2011 exports rose 7.6 percent. And in June exports were 9.2 percent higher than in June 2011. Portugal may even sport a trade surplus in 2013.
While Portugal’s goods exporters benefit from rising prosperity in emerging markets, its services exporters are benefiting from lower prosperity in developed markets. Both the euro and the dollar go farther in the Algarve than in most other sunny places in the euro zone. My room at Starwood’s posh hotel in Évora, a converted monastery, cost a mere $250. The unscientific census I conducted walking around the cobblestone streets of Lisbon’s tourist-packed Bairro Alto tallied a disproportionate number of French families.
The undercurrents of anger roiling Spain and Greece are not evident in Portugal, perhaps because Portugal, which sat out much of the 20th century economically and politically, is only a few decades removed from abject poverty and isolation. When I lived in Portugal in the 1970s, our Volkswagen van clattered on bumpy roads through a countryside unblighted by electricity poles; the woman who cleaned our home made her own toothpicks. Today, while the bumpy roads have been replaced by divided highways that stretch deep into the sun-drenched Alentejo, Portugal sports an economic profile much more like a former Soviet-bloc country than a Western European one. (Its GDP per capita in 2011 was roughly equal to that of Slovakia.)
As parents run out of the means to feed and care for their children across the economically battered continent, the number of infants being left at churches and centers is rising—hitting highs of 1,200 in Greece and 750 in Italy in the last year.
There is no surveillance camera overlooking the cordoned-off “baby hatch” for abandoned infants attached to the Mangiagialli clinic in central Milan, so no one knows exactly who left a tiny four-pound baby boy named Mario there late last week. The newborn was dressed in a brand-new blue sleeper, and his caretaker had tucked a bottle of formula and a few changes of clothing beside him before sliding him into the protected incubator. Mario’s keeper then closed the gray plastic door and walked away. A weight-sensor alarm in the incubator alerted nurses at the Mangiagialli hospital, who then opened the hatch from the other side and took the tiny infant to the neonatal ward. Apart from a low birth weight, he was in perfect condition, even though there is no way to find out anything about his family history, including his ethnicity. Nurses then changed the sheets in the incubator and reset the alarm so the hatch would be ready for the next abandoned baby.
Lili K. / Corbis
Baby hatches like the one in Milan are springing up all over Europe. They are a modern take on the old-style foundling wheels used in medieval times, when Roman mothers placed their unwanted offspring in revolving cribs that spun them safely into the confines of convents. Many of the abandoned babies born back then were out of wedlock or through adulterous liaisons. But the use of modern baby hatches, like the one where Mario was left in Milan, is growing rapidly across Europe because parents are unable to financially support their children.
Hard statistics are difficult to come by, since individual hospitals determine their own privacy policies about whether to release information about abandoned children to the public, but the number of orphaned infants available for adoption has risen by as much as 20 percent in Italy and Greece in the last two years, according to Caritas and SOS Villages, which run a joint, Europe-wide program to help struggling families before they resort to abandoning their infants. The agencies say as many as 1,200 babies and young children have been abandoned in Greece in the last year alone, and nearly 750 have been abandoned in Italy, up from 400 the year before.
“Unless a solution is reached, children and families continue to suffer for their new poverty,” says Luca Taborelli, who runs the Greek arm of the joint program. “This is especially important with small children, because parents were no longer able to feed them.”
Newborns such as Mario may never know their real parents, and will likely be adopted within months. The hospital where he was left received more than 500 inquiries when news of his abandonment made headlines in Italy. His case highlighted just how devastating the effects of austerity and poverty are becoming on Europe’s youngest citizens. But sadder still is the growing number of cases of abandoned young children who do know their parents and are being left at schools and daycare providers. Last spring, four young children, including a week-old baby, were left at the Ark of the World Daycare center in central Athens in just one week, as austerity measures led to job cuts and a decline in social services. One 2-year-old named Natasha was left with a note pinned to her sweater: “I will not be coming to pick up Natasha today because I cannot afford to feed her. Please take good care of her. I’m sorry.” A day later, a 1-year-old was left and never picked up.
Abandoning a child in the European Union is a crime punishable by prison time and hefty fines, but many countries overlook these crimes if the child is given up for economic reasons and left in a safer place, like a church or school. Italy and Greece both have clauses under which women can give birth anonymously. Women who opt for “concealed deliveries” are granted immunity from prosecution if they leave their babies at the hospital. Eleven (Austria, Belgium, Czech Republic, Germany, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, and Slovakia) of the European Union’s 27 countries allow the use of baby hatches, and make special concessions for anyone known to leave an infant there because the person is not abandoning the child on the streets. In many countries, parents have 90 days to come back and claim their child if they change their minds. If not, the babies will be put up for legal adoption. Italy’s baby hatches, including one at the Vatican’s Santo Spirito hospital, have posters in six languages meant to help comfort mothers making what is surely a tough decision: “Don’t abandon your baby. Leave it with us.”
Supporters of the hatches argue that their existence offers desperate mothers a safe option that will inevitably give the child a better life by decreasing abortion, preventing infanticide, and stopping other forms of more reckless abandonment—such as leaving children on doorsteps or killing them and dumping them in garbage bins. But not everyone agrees with the use of the modern foundling wheel. The United Nations Convention on the Rights of the Child, or UNCRC, wants them banned, saying they deny the child the basic right to know who his or her parents are. The agency argues that instead of the hatches, struggling mothers should be given resources and support to keep the child, even if that means eventually giving it up for legal adoption.
To regulate big banks.
The euro zone is in the process of creating a new agency to supervise banks within the currency union that would report to the European Central Bank. Germany and other European nations with strong economies see the establishment of one overarching authority as necessary to keep the rest of the bloc in line. The objective, at first, is to get all of the euro-zone countries’ biggest banks regulated and then maybe move on to smaller banks.
Confidence in technocrat Mario Monti has been hitting a new low amid the debt crisis. But are Italians really ready to return to the promises of il Cavaliere?
Silvio Berlusconi is back in Italian headlines, but not for his peccadilloes or corruption trials. The 75-year-old media mogul is setting the stage for a full-fledged political comeback. After weeks of speculation, Berlusconi finally addressed his party faithful on June 27, assuring them he won’t likely run for prime minister in the next elections, slated for 2013—that job would go to his political protégé, Angelino Alfano. Instead, he has his sights set to be Italy’s economy minister. The catch—and there is always a catch with il Cavaliere—is that his Party of Freedom political arm will aim to swing back into power on an anti-euro platform, riding the wave of euroskeptism that is gripping Italy.
Over the course of the last three weeks, Berlusconi has been using the growing angst over euro-zone currency membership to maneuver his way back into the hearts and minds of Italians. Over 60 percent of Italians polled in late May said life was better with their old lira currency. Stories of widespread poverty in Greece and bank runs in Spain have added fuel to the anti-euro fire. Berlusconi, obviously keeping a mindful eye on Greece, where the New Democracy Party performed admirably on an anti-euro-zone ticket, sees his political future as an alternative to the status quo. Three times since those anti-euro polls, Berlusconi has called for Italy to leave the currency, including one slightly bizarre rant in which he suggested Italy might consider printing its own euro notes, basically counterfeiting the official currency. On Wednesday, he wrote on his Facebook page, “Leaving the euro is not a blasphemy.”
Berlusconi in Brussels on May 23 (Laurent Dubrule, Reuters / Landov)
Berlusconi’s push back to the center ring has been buoyed by a growing distrust for his successor, technocrat Mario Monti, who was assigned the dual roles of prime minister and finance minister when Berlusconi was heckled out of office last November amid an economic crisis that nearly sent Italy into default on its $1.9 trillion debt. Monti initially enjoyed wide parliamentary support and a post-Berlusconi honeymoon, but he has since fallen short of passing vital reforms the country needs to keep its financial books in order. He has successfully tightened the noose on thousands of Italian tax-evaders who are now paying stiff fines and penalties for years of evasion. But he has lost considerable favor by being soft on Italian parliamentarians, whose salaries are still among the highest in Europe despite austerity measures that are choking the general population, and for turning a blind eye to the Vatican, which enjoys significant tax benefits for properties outside the official boundaries of the Vatican city-state. Berlusconi initially supported Monti’s mandate, but this week, he announced that now 78 percent of his party followers “do not agree in supporting the government’s policies any longer.”
If Monti loses any of the upcoming crucial votes of confidence on key austerity measures, the effects could be catastrophic. Widely referred to as “Merkel’s helper” in European circles, Monti’s alliance with Merkel—amid growing anti-German sentiment for the country’s harsh line on euro policies designed to help struggling nations like Greece, Spain, and Italy—has drawn little favor at home. On Thursday, Monti attended a European Union meeting of finance ministers, presenting a eurobond plan that would have theoretically helped weaker economies through collective debt-sharing. But Merkel vetoed the idea. Even European parliamentarians were baffled. “I think we should stop talking about eurobonds now because, with the German government’s ‘no,’ with this definitive ‘no’ from Mrs. Merkel, eurobonds are now a non-issue,” European Parliament President Martin Schulz told a German television station after the Brussels meeting. “I personally continue to see it as a good solution, a sensible one, but there is no sense in conducting theoretical debates when the house is on fire.”
Berlusconi has predicted Monti’s mandate won’t last another two months, which may be a warning shot in terms of his intentions, since his party has enough of a showing in Parliament to cause the collapse of Monti’s government if he should choose to withdraw support. That would send the country into an election panic mode, which may work well for Berlusconi’s party’s chances for regaining power. Even the country’s president, Giorgio Napolitano, addressed fears that Monti’s days are numbered. “It’s worrying that the disputes and conflicts are increasing among the parties who support the government,” he said after mildly complimenting Monti’s efforts at reform.
Monti’s approval rating has hit a new low, at 33 percent this week, down from from 71 percent when he took office. Berlusconi’s party’s popularity is on the rise, climbing 15 percentage points in just three days after announcing their anti-euro platform. “Give me just 51 percent of the vote and I will lead our country out of this crisis,” he said this week at a party rally.
But where he would lead them to from there is the real question on every European’s mind.
On Fed projections, Chinese manufacturing.
After reaching a five-week high, European stocks slipped Thursday. “The mood of market participants is still characterized by great uncertainty about future developments in Europe and the slowdown in China,” Stefan Angele, investment management head at Swiss & Global Asset Management, told reporters. Reports that came out this week predicted that China’s manufacturing industry would continue to shrink in the coming month, and the United States Federal Reserve said that the economy would only grow at a rate of 1.9 percent to 2.4 percent this year. A National Association of Realtors report due out Thursday morning will reportedly show that house sales dipped in May.
The neo-Nazi party had a strong showing in Greek elections, winning a staggering 7 percent of the vote. Barbie Latza Nadeau on Golden Dawn’s violent campaign to force out immigrants.
The smell of urine and sweat, simmering in 90-degree heat, wafts through an open window like poisonous perfume. A half-full plastic water bottle balances on the ledge below a dirty mesh curtain tied in a knot. More than 20 illegal immigrants live behind the window, in the four-bedroom apartment on Filis street in central Athens, sleeping in shifts to share the beds. They pay what they can, and are forced to give up their bed when someone can pay more. “It’s better than the street,” says a man when asked what it’s like inside. A few blocks up, the doors are half-open with bare lightbulbs above them. When the light is on, it means the brothels inside are open. Women of all ethnicities and ages peer from the windows. This is not the Athens that tourists flock to. But it is home to roughly 1 million estimated illegal immigrants who live and work in the city.
Members of the Greek extreme-right ultra-nationalist party Golden Dawn (Chryssi Avghi) sing the national anthem out of the Golden Dawn's office in Thessaloniki, June 17, 2012. (Sakis Mitrolidis, AFP / Getty Images)
Being an immigrant—illegal or not—has become a risky way of life in Athens. Since May 6, when Greeks gave voice to extremist neo-Nazi anti-immigration party Golden Dawn, attacks on immigrants have doubled. On May 31, an Albanian man standing on the street in Athens’s Neos Kosmos neighborhood was stabbed with a sword by a masked motorcycle driver. Paramedics had to remove several ribs to dislodge the sword, which pierced his chest and was left sticking out of his back.
The same night, 20 minutes later, two Polish men were stabbed with knives in the same part of town. The next day men from Bangladesh and Pakistan were stabbed in the city’s subway stations. “Things have gotten worse since the elections,” Reza Gholami, who heads an association for immigrants from Afghanistan, told Greek Kathimerini newspaper after the May 6 election. “There are daily beatings.”
On June 17, Greeks again voted Golden Dawn into Parliament. The group won 6.92 percent of the vote, which will give them 18 seats in Parliament despite a platform hinged on kicking all immigrants out of Greece and setting up landmines on the borders. Polls consistently showed that a strong segment of Greeks supported the measures, even when party spokesman Ilias Kasidiari threw a glass of water on one female opponent and punched another on national television. After the election results, party faithful gathered at Golden Dawn headquarters at Larissa station in Athens, shouting nationalist slogans. "Today's vote proves that the nationalist movement is here to stay," the party's leader, Nikolaos Mihaloliakos, said in his postelection speech on Sunday night with a statue of a Naziesque eagle on his desk. "Golden Dawn represents the Greece of the future."
Many Greeks resent the presence of so many illegal immigrants on the streets. Since 2011, when Italy and Malta tightened their borders, Greece has become the primary gateway for migrants coming to Europe from Africa, Asia, and the Middle East. Nearly 90 percent of all irregular immigrants now enter Europe through Greece, according to international border-guard agency Frontex. Last year 130,000 people entered the country illegally. A spike in crime has been blamed on the wave, and even climbing jobless rates can be tied to illegal workers who are more willing than regular Greeks to take untaxed jobs in the growing black market. In April Greek authorities built the Amygdaleza detention center that can house up to 1,000 detainees who will eventually be deported back to their countries of origin. The rest live on the streets of Athens and smaller cities near the coastlines, working on farms and fishing boats to eke out a living. “There is not enough to go around and when what little social services there are go to immigrants, people are angry,” Athens retiree George Schinnachoritis told The Daily Beast. “There is not enough to share.”
The week before the election, a group of thugs stormed the house belonging to a 28-year-old third-generation Egyptian fisherman near Piraeus, breaking his jaw and nose. Authorities say the man was a legal resident who paid taxes. His three children attended the nearby school, and his wife works in a local pharmacy. The next day, Golden Dawn candidate Ilias Panagiotaros promised supporters that the war to take back Greece from the outsiders has just begun. “If Golden Dawn gets into Parliament, we will carry out raids on hospitals and kindergartens, and we will throw immigrants and their children out in the streets so Greeks can take their place.”
The new Greek prime minister is tasked with rescuing his country from financial ruin. He’s also Amherst, Class of ’74. James Warren, class secretary, on the latest alumni doings.
The apparent winner in the Greek elections Sunday was the euro and thus the stability of world financial markets.
The winner of the Greek elections, conservative Antonis Samaras, center, answers journalists questions in the Greek parliament in Athens on Monday (Petros Giannakouris / AP Photo)
But a close second is me, secretary of the Amherst College class of 1974.
Trolling for notes every few months can be a Sisyphean task. How many times can you mention that a classmate’s daughter graduated from somewhere, or that a Wall Street law firm laid him off, or that he and spouse just got back from a Scottish holiday?
Now we probably have the next Greek prime minister, Antonis Samaras, to write about. Beating the odds of Mediterranean-cum-New England probability, he’d be the second Greek PM from our original freshman class.
Yes, both Samaras and George Papandreou showed up with us in pastoral western Massachusetts in the fall of 1970. And while the latter would ultimately graduate in 1975, for a period the future political rivals and ideological nemeses were roommates, close chums, and urbane fellows who lured attractive women without difficulty.
On Sunday the New Democracy Party was the election winner and should fashion the next cabinet, with party leader Samaras the seeming favorite to take the tricky job of prime minister in the latest coalition government. His party’s platform was based on largely accepting the onerous terms of a bailout of the Greek economy.
His ascension would represent a certain complex irony for our class, since the right-of-center Samaras, and a horrendous economy, forced out the left-of-center Papandreou as the nation’s leader last year.
Greek voters chose to keep their shaky spot in the euro zone by electing Antonis Samaras of New Democracy. Barbie Latza Nadeau on why there’s even more uncertainty in Athens.
A makeshift shrine in front of the tree in Syntagma Square where 77-year-old Dimitris Christoulas shot himself in the head April 4 is a striking reminder of the price Greeks have paid to stay in the euro zone. Dozens of notes are tacked to the trunk, and wilting flowers and stuffed toys are scattered around the base. Christoulas’s suicide note has been engraved in red on a slab of gray marble. He paid his taxes for 35 years, assuming his state pension would see him through his twilight years. But when his pension was cut under austerity measures, he gave up. “I see no other solution than this dignified end to my life, so I don’t find myself fishing through garbage cans for my sustenance. I believe that young people with no future will one day take up arms and hang the traitors of this country at Syntagma Square.”
Michalis Karagiannis, AFP / Getty Images
On Sunday, Greek voters decided, however reluctantly, to stick with austerity and keep paying the price for euro-zone membership. Antonis Samaras of the pro-euro New Democracy secured 29.7 percent of the vote, just shy of what he needed to form a single-party government. This means that if he wants a majority in Parliament, he will have to form a coalition government. “The Greek people voted today to stay on the European course and remain in the euro zone,” Samaras said in his victory speech. “There will be no more adventures. Greece’s place in Europe will not be put in doubt.”
On the surface, New Democracy’s win does imply that Greece will work to keep its membership in the euro zone intact. But in no way does the win offer any solid guarantee that he can pull that off. Samaras campaigned on a pro-bailout platform, promising Greeks that he would try to renegotiate some of the strictest terms of a $164 billion European Union bailout agreement that will keep the country afloat. The bailout has kept Greece from defaulting on its loans, but the terms of the deal, referred to in Athens as “the memorandum,” have driven Greece further into recession. Job cuts under austerity measures have pushed unemployment to nearly 23 percent, with more than 50 percent of those younger than 25 out of work. Because of pension cuts and job losses, 48 percent of Greeks now live below the poverty line—and social-service cuts have meant that those people cannot get health and basic needs. “We’ve got children who are passing out at school because they haven’t eaten enough,” Athens retiree Dimitra Cordalia told The Daily Beast. “This is Europe?”
Despite the pain, staying in Europe and maintaining the euro currency is still the better option for most Greeks. Going back to the drachma would cause even more problems. Eight out of 10 Greeks want to stay in the euro zone, according to a recent poll. But even with New Democracy in charge, that might not be an option. The Greek economy is in a downward spiral, shrinking by 6.9 percent in 2011, and analysts expect it to shrink by 5.3 percent in 2012. Tourism, the country’s major business, is down by more than 15 percent. “The economy is set to contract until mid-2013 due mainly to needed fiscal retrenchment. Growth may turn positive in the second half of 2013,” according to the Paris-based Organization for Economic Cooperation and Development.
Monday, Samaras met with Greek President Karolos Papoulias, who gave him the mandate to lead the nation. Now New Democracy leaders have three days to either go forward with a minority government with just 129 seats in the 300-seat Parliament or form a coalition of former enemies to steer Greece back on track. They could also form a unity government, but Alexis Tsipras, leader of the radical-left SYRZIA Party—which won 27 percent of the vote on an anti-euro, anti-bailout platform—has said he won’t agree to that.
Barbie Nadeau reports from Athens on Greece's election results.
Instead, Tsipras has promised he will not make it easy for Samaras to fulfill his mandate. He says he plans to act as a strong opposition voice that may result in parliamentary deadlock. “Even if we didn't manage to take the first place, SYRIZIA is now the most basic body representing the average individual, the progressive, and the anti-memorandum segment of our population,” Tsipras said in his concession speech. “We will be here as the opposition. We represent a majority of people opposed to the bailout deal.”
In today's special installment of The Number, Daniel Gross sits down with EU chief Jose Manuel Barroso to discuss the status of the European financial crisis--and why it's too soon to give up on the euro.
The ECB chief’s decision to provide almost unlimited funds to troubled governments could end the Eurozone crisis and lead to global economic stability, says Zachary Karabell.
That's the interest rate that Spain had to pay for selling six-month bonds. Dan Gross and Zachary Karabell on how this could be the beginning of the end of the Euro crisis.
Spain has accepted a big bank bailout, but the Eurostorm isn't ending anytime soon—and it may come to American shores just in time for the election.
The austerity crisis has taken a dire toll on Italy’s poor southern regions, where families have taken to scavenging and scraping by without gas or electricity.
Everyone is on strike—and now no bailout funds until cuts are doubled, reports Barbie Latza Nadeau.
The euro zone is in chaos, but a pro-austerity candidate may win in Greece. By Barbie Latza Nadeau.