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You can borrow till someone lends to you. That means that if you abuse of it ,(too much debt till to reach a situation of potential default),is simply because there was a lender irresponsible like you that lends to you money,(without any prudence in term of basic risk management), for his profit.
Greece, Germany, France and Italy do you remember?
Or in clear text:
- Greece: the irresponsible borrower with political elected elite ,(PEE);that gained from it
- France and Germany: the irresponsible lenders with the elites either of global systematically important banks and multinationals and their political supporters gained of it and for that their banks are at risk a lot more then these of other EU Countries[i]
- Italy: the irresponsible borrower with a political elected elite that gained from it but among the gainers we have also to list the Germans banks interested on lending to Italy because Rome is the 5th world market,( just after the USA),for Germany and China is the 7th after Austria as well as we have to list the French ones because Italy is the 2nd world market for Made in France and China is the 9th[ii].
On clear text the relation can be described as follow: if German and French banks buy Italian sovereigns that mean for the Berlin a bigger 5th world market and for the Paris a bigger 2nd one. But not only that because France is the 1st world market for Germany as well as Germany is the biggest market in the world for France and if Paris and Berlin can gain more exporting to Rome it is also clear that they become richer and one can export more to the other. At the end of the day both the irresponsible borrowers and the irresponsible lenders benefit from this situation.
And why both were irresponsible is now more than clear as it is clear that all kinds of elites,(political, industrial and financial), gained from it in each of the mentioned Countries.
Before that we go ahead we want to magnify that this is neither a Marxist-style analysis nor a no-global-anonymous-style one and this allows us to introduce other actors but before of that we have to explain how we consider them.
State Actors and Non State Actors and their relation of powers facing the public interests is the chessboard where we develop our analysis.
Even if we do neither underestimate and not under evaluate the Greece structural budget problems, ( for example due to a poor tax collection or to a too generous retirement system), we want also to focus to an important but too often totally missed additional element of the debt crisis: that of the debt holds by foreign banks and used by Greece to pay companies that come from the same countries.
It is now clear that the problem started “not only as” direct consequence of the American mortgage crisis but ,(and “simply”), because it was reached the level where Greece cannot pay back the debts with France and Germany used to pay infrastructure built up by German and French multinationals. If you prefer with the right hand Athens borrowed by French and German banks the money used by the left hand to pay French and Germans multinationals involved to build up infrastructures in the country, ( it is told that the Olympic Games were the “mother of all debts”).Infrastructures that generated jobs and wealth and with them also political consensus . Thank to this mechanism were possible to obtain “ the perfect quadrature of the circle “ here the financial, industrial and political elites in each country can benefit in term of revenues or of votes.
At that point instead to solve it as a controllable and local banks crisis the political leaderships in Berlin and in Paris wanted to drill it for opportunistic and populist electoral reasons. The ratio was to gain internal electoral consensus and also to impose their leadership in Europe. For Merkel and Sarkozy was easy to think that due to the intrinsic weakness of the Italian politic landscape and the Spanish weakness as country vs. France and Germany. They were also sure that London will follows its own political trajectory,( and by the way London is internationally stronger than Berlin and Paris for a lot of soft as well as hard assets).The situation is not changed on June 2012 where :
I) in Italy after the local elections on May we have that all the national parties are de facto not national in the sense that they need to develop electoral tickets with he local new political forces,( Civic Lists), to be able to win and to win only inside a coalition.At the same time the landscape is so fragile that these local forces need to be allied with the “national” one in order to generate a ticket to be able to have a national voice, ( by the way this is because Berlusconi wants to create a network of Civic Lists).
II) In Spain the government is fragile
Till now for both President Sarkozy and for Chancellor Markel this decision is not been generating any electoral success. They lost an election after the other since the beginning of the crisis and Sarkozy lost the Presidency .
And at European level it is also not so clear their leadership also because Berlin and Paris have not the money to “lead the dance”. But not only this because Germany and France cannot afford to leave the EU if for example, Germany generated 80% of the gins for export in the Union and China is only its 5h market ,( Italy is the 6th),and not other BRICS is in the top 10 world markets,( this according to D-Statistis 2012 for the year 2011). Paris and Berlin cannot “say no “ to the EU and if they leave the euro with currencies ,(mark and franc), with a 20%-30% higher value than the European currency it will be for them a problem to export even in Belgium or Italy but not for Brussels and Rome to export to them with a 20%-30% cheaper currency,(euro). It is also logic that we can expect some kind or reduced growth in France and in Germany when the 2nd biggest world market of the first and the 6ht of the latter are in deep recession. By the way we are talking about a EU Country like Italy.
Or, better, Standard & poor´s and Moody´s could do more than Chancellor Merkel and President Sarkozy ,( and today more than Chancellor Merkel and President Hollande),to convince worldwide investors to buy or not to buy the sovereigns of EU Countries in crisis.
And Chancellor Merkel cannot do a lot ,( and surely lees then we are used to credit), if Commerzbank have problems to find a buyer for its share in a top Russian bank and without that money Moody´s will not improve the rating. Or she can also do nothing if the Landsbank of Bayern , a Land controlled by the sister party CSU, since 2008 has accumulated a growing deficit of ten billions euros. Maybe the day that Berlin has to pay this bill the Chancellor will re-consider her approach about the euro-bond and she will ask to all to pay for it. Something not new for Berlin if we consider what happened in the late spring 2011 when Germany accused Spain to be the origin of the e-coli bacteria and ruined its export. The consequence was that the whole EU paid to Spain more than 200 million € as indemnification. We repeat the whole EU and not only Berlin that generated this problem and, of course, that day was more than normal for the Chancellor to “ask to share the burden” of the cost for a problem generated only by her government and its false accuses. Or it was not “against a wise budgetary policy ” when in January 2012 the new Italian Government reduced the fine for tax evasion to a leading Germany multinational from 1.5 billion € to only 300 million € ,(and doing that avoided the bankruptcy of the multinational that told that had not the money to pay it) . That time to condone a German tax evader was considered “moral and European” by a Chancellor always ready to teach about ethic, virtuous and moral management of public finances that must have a “zero tolerance” against tax evaders..
In other term the stronger elites of the stronger EU Countries suffer a dramatic lack of credibility and popularity. And not mention about these of other countries in Europe like Italy, Greece or Portugal.
Inside this frame the Rating Agencies simply fulfilled a vacuum of powers generated by this lack of credibility.
In other terms: they are strong because others, (the political powers), are weak
[i] European Banking Authority 2011 EU-wide stress test aggregate report http://stress-test.eba.europa.eu/pdf/EBA_ST_2011_Summary_Report_v6.pdf