Tag Archives: European Central Bank

SYRIZA WINS GREEK ELECTION

Alexis Tsipras

In the last few weeks we’ve developed a taste for Kerrygold butter, which comes from Ireland.   Diane did the research – Kerrygold and Anchor (from New Zealand) are the two healthiest butters you can buy.   The milk comes from “happy” cows!

Unfortunately, Kerrygold costs more than regular butter.

In theory, the price should have come down recently as the euro has fallen in value against the US dollar.   It now takes only $1.11 to buy a euro; it was twenty-five cents higher fairly recently.   Ireland uses the euro, so the price of everything they produce should have come down with the lower value of the euro.   But the price of Kerrygold has not fallen – in fact, it’s gone up by 50 cents for half a pound.   (We can’t buy Anchor in Lansing but it, too, should have fallen in price as the US dollar has risen.)   Not only has the euro decreased in value, transportation costs have also fallen with the drop in the price of oil.

My favorite beer also comes from Ireland.   I don’t buy it as often as butter (you will be pleased to know) but I’m hoping that the price has not similarly risen.

Sometimes, there’s no logic when it comes to money and exchange rates.   All money today is built simply on confidence.   The value of the dollar and the British pound usually rise when there is great turmoil in the world – people around the world have more confidence in the two older democracies, which have a longer record of stability.   When the euro was launched in January 1999, its’ value was $1.1743. It reached its highest rate against the dollar in July, 2008, when it took $1.6038 to buy a euro.   This was at a time when confidence in the US currency was low.   It’s now almost a third less against the greenback.

Monday will likely see a further fall in the value of the euro, so perhaps I should expect Kerrygold to go up in price again, when it should, in fact, come down.

The reason that the euro will likely drop further in value is the Greek election held today, Sunday.   The “very left-wing” party, Syriza, has been voted into power.   The party campaigned on a promise to end austerity, imposed on the country for its extreme profligacy.

The party leader, Alexis Tsipras, rather naively hopes that he can cut Greece’s debts by 50% in a new deal with the troika (the European Central Bank, the European Union and the International Monetary Fund).   If that fails, withdrawal from the eurozone is a definite possibility.   Other members may even encourage Greece to leave before they do greater harm to the single currency.   Withdrawal would enable Greece to have its own currency.   They could then print money and print more money and then even more money . . . you get the picture.   This would not, of course, solve their problems but it might give them a temporary high.

Spain is watching developments in Greece closely.   The Spanish economy is a lot bigger than Greece’s.   It has also been going through a long period of austerity for the same reasons as Greece.   The Podemos (“We can”) party is Spain’s equivalent of Syriza.   It, too, could win the next election, due later this year.

Germany is unlikely to approve any deal for Greece that absolves them of debts owed to German taxpayers lest Spain make the same demand.

The eurozone is not really in danger, though Greece and Spain could certainly withdraw from the currency union.   Other profligate countries could follow – Italy and Portugal, for example.   Corruption is a big problem in all four countries.   Mr. Tsipras has promised to do something about it, as have other earlier prime ministers.

Nineteen countries are now members of the eurozone.   Six other European countries also use the currency.   Outside of Europe, remaining overseas territories of European countries also use it. Additionally, 210 million people worldwide use currencies pegged to the euro, including 182 million Africans.   This makes the euro the most used hard (convertible) currency in the world.

Expect further turmoil in world financial markets as well as possible changes in the composition of the EU, though few on the continent of Europe seem to want that, at this point in time.   The EU and the euro have brought many advantages and have a great deal of support.   Even Mr. Tsipras is calling first for changes that will simply end the long period of austerity that has devastated his country.

 

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INTERNATIONAL NEWS DESK

syriza

Syriza was described on the BBC World Service this morning as a “very left-wing party.”   It looks as if it will come to power in Greece this Sunday, January 25th.

The big issue, as is common in western democracies, is the economy.   In the case of Greece, this means austerity, which, in turn, means the euro.

In May, 2010, faced with imminent national bankruptcy, the European Central Bank, the European Union and the International Monetary Fund (the so called troika) bailed out the small Mediterranean country, while imposing strict austerity on the Greeks.   Austerity measures were increased in 2011 resulting in very high unemployment, especially amongst the young.   The measures were extremely unpopular.   Much of the blame was given to the euro, Germany and Angela Merkel.

Today, Syriza is threatening to unilaterally halve the debt, to end Greece’s national “humiliation” and if necessary, to leave the euro. Angela Merkel has indicated she is ok with a Grexit, the term being used for a Greek exit.

One concern is that, if one country withdraws, others will follow.   The eurozone could unravel.   Although not a member of the eurozone, Great Britain could pull out of the EU, which, again, might influence others.

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King Abdullah of Saudi Arabia died yesterday, automatically succeeded by his half-brother King Salman.   Little change is likely in the kingdom in the immediate future.   The two kings come from a total of 45 brothers and half-brothers.   However, King Salman, aged 79, is likely the last of the present generation.

King Abdullah’s passing is ill-timed.   He has been king since 2005 and before that was de facto monarch for ten years as the previous king had suffered a serious stroke.   So, for twenty years, he has been the most powerful man in Saudi Arabia and a major figure in the Middle East.   His knowledge and experience will be sorely missed.

This is a challenging time for the Arabian peninsula, home of Al-Qaeda in the Arabian Peninsula (AQAP), perpetrators of the Paris terror attack.   Yemen’s pro-American government resigned this week as rebels seized the capital.   At the same time, another neighbor, Oman, will soon lose its leader, the pro-western Sultan Qaboos, who is now 74 and has been suffering from an undisclosed medical condition, which has resulted in him being rarely seen in public.

King Abdullah has been involved in bringing down the price of oil.   If the king had wanted to, he could have reversed the falling price simply by cutting Saudi production, but he didn’t.

He has also played a major role in supporting western efforts at fighting IS (Islamic State) and supporting Sunni rebels against Syria’s leader, who is allied to Saudi Arabia’s enemy, Shia Iran.   It should be noted here that Iran’s leader will attend a memorial for King Abdullah tomorrow.   Under Islamic custom, the king was buried today.

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Tomorrow is the 50th anniversary of the death of Sir Winston Churchill. He died on 24th January 1965.

His official biographer is Sir Martin Gilbert.   Sir Martin spends two months every year at conservative Hillsdale College in Michigan, where he lectures on Churchill.   He has willed his extensive Churchill library to the college.

A few years ago, a student invited me to go with him to one of the lectures.

I asked Sir Martin to sign my copy of his one volume book on Churchill, which he gladly did.   I also took the opportunity to ask him a question:   “If Churchill had never lived, what would have happened in World War Two?”   His response was:   “We wouldn’t have gotten very far.”   His lecture that evening illustrated his point.

That evening’s talk was on the sinking of the French fleet after the fall of France.

Churchill ordered that the fleet should be sunk so that it would not fall into the hands of the Germans.   Hundreds of French naval personnel died in the British attack on the fleet.   The incident remains controversial to this day.   Not only did it deny the Germans the use of the fleet, it had the added side benefit of convincing US President Franklin Roosevelt to back Churchill.    He was now convinced that the British war-time leader would stop at nothing to win the war.

The western world desperately needs a Churchill now.