EU downgraded despite draconian cuts – again
Moody’s downgraded Italy, Spain, Portugal, Slovakia, Slovenia and Malta and lowered its outlook for France, Britain and Austria to negative from stable. It says the downgrade is due to uncertainty over European Union financial reforms, the region's weak economic outlook and the resulting pressure on fragile markets.
However, downgrades appear to come only after EU countries take new steps to fight the crisis. Exactly a month ago, on January 13, another influential rating agency, Standard & Poor’s downgraded France and 8 other countries.
This came days after French and German leaders met in Berlin and agreed to sign a new “fiscal compact.” The pact would allow Brussels to take individual member states to court if they exceed a budget deficit of 3% of national GDP.
European politicians have long criticized the agencies, especially those based in the US. German Foreign Minister Guido Westerwelle has even called for creating an independent European ratings agency.
European Industry Commissioner Antonio Tajani says the agencies “work for the dollar” by constantly downgrading the credit ratings of European countries. The commissioner accused them of “blackmail,” referring to their announcement of downgrades before the EU summit on January 30, 2012, where a tax on financial transactions was to be discussed.
Moody’s downgrade falls nicely into this pattern. It came February 14, a day after Greek lawmakers approved a plan demanded by bailout creditors to save the nation from bankruptcy.
A default could have forced Greece out of the euro, dragged down other troubled eurozone countries and further hurt global markets.
The new budget cuts were demanded by the EU and International Monetary Fund as the price of a second 130-billion-euro ($172 billion) debt rescue. The new cuts include reductions in the country's minimum wage and further layoffs in the public sector.
The measures have been met with blazing protests and the some of the worst violence the Greek capital has seen in years. A 100,000-strong demonstration took to the streets of Athens while parliament was still voting, with some 2,000 anarchist protesters rioting. Officials say 45 buildings were wholly or partly destroyed by fire as the violence spread.
A writer and consultant George Kenney thinks Greece could be better off out of eurozone:
“The Greeks actually have a lot more leverage here than they realize. If Greece leaves the eurozone it wouldn’t be that catastrophic, people say it would suffer tremendously, but Argentina didn’t suffer when it defaulted. If [on the other hand] the Greeks were to leave the eurozone the next weakest country in the eurozone would have the same kind of crisis immediately”
As municipal workers were clearing up the still smoldering buildings in the Greek capital, German Chancellor Angela Merkel brushed aside suggestions the new program of austerity measures for Greece should be softened.
Merkel said the Monday vote was very important and insisted the program is not just about austerity but also about structural reforms meant to make Greece more competitive. Her finance minister, Wolfgang Schaeuble, said creditors have "no intention of torturing anyone" with the plan but want to help Greece.
Germany said it would not give its final approval for the new aid payments until early March. The decision will come after it becomes clear how many banks and investment funds are willing to take losses on their Greek bonds, only then will the parliament in Berlin vote on the new measures.
George Kenney says Germany has to do more to correct the imbalances in eurozone: “You can’t have within the Eurozone the largest economy running internal balance of payments surpluses when all the small countries suffer. Germans are running current account surpluses at the expense of the Greeks. In the long run it’s going to be Germans versus the Portuguese, Germans versus Italians, those imbalances have to be corrected.”
Pushing the new bailout back underlines the amount of distrust that has built up against Greece over the past two years. Many promised cuts and reforms were passed in the Greek Parliament but never actually implemented.
Elena Ostroumova, RT
RT’s Jacob Greaves talked to people on the streets of Athens to learn they too have a certain amount of distrust that has built up against the EU and their own government’s ‘better intentions.’