‘Two-speed Europe’ is a fair solution

If the Eurozone countries agree to more centralization of economic power, they might quite easily be able to impose that on the whole EU at some stage in the near future, believes Philip Booth from the Institue of Economic Affairs.

­“Not surprisingly, the French and Germans in – slightly different ways – are trying to use this Euro-crisis as a means to centralize even more power within the EU institutions,” Booth told RT.

Non-eurozone EU countries, such as Britain, are posed in a very dangerous situation, where a refusal to sign a “fiscal union” treaty might create a two-speed Europe. But Booth believes that a multispeed European Union is, in many senses, a good outcome.

“I hope that a two-speed Europe is the outcome of this, and I hope that a more decentralized Europe is the outcome of this,” he said. “David Cameron has got to negotiate very hard, but from a position where he outside the main negotiations, to try to reclaim other powers that are currently centrally held by the EU.”

One of the powers Brussels could get is to impose austerity measures on countries it bails out. When individual governments did this to their own people, it was met with large-scale protests – but, Booth says, that there is no easy and centralized way out of this mess “that does not involve individual member governments facing up to their own problems.”

“The only real sanction that the Eurozone countries can impose on an offending member is some kind of fine, which actually makes the situation worse,” he explained. “That was rejected when the European Stability Pact was first drafted. It is up for discussion now, but it is no more obvious how this would work in the future.”

­‘First-class passengers in a Titanic’

­EU politicians are somewhat oblivious to the consequences of the current economic situation, believes economic analyst Michael Mross.

“They behave like first-class passengers in a Titanic that is already sinking,” he said. “And what politicians are saying right now, is, ‘OK, we have time. Everything is alright.’ But this ship is sinking and there is no solution to keep it alive.”

Mross is pessimistic on the prospects of finding a solution at the upcoming EU summit.

“I cannot hear anything which comes close to a solution. The only thing they are producing there in Brussels is catastrophe, a catastrophe of rescue efforts. And this will lead next week more or less to chaos, catastrophe – and collapse of the whole system, possibly.”

‘Greece & EU: Either saved or collapsed together’

Greek MP Simos Kedikoglou predicts his country’s economic collapse within weeks, even days, if it doesn’t receive another tranche that finance ministers of eurozone countries have agreed to release.

­But the fall of Athens will have a domino effect – tugging away the rest of Europe.

The Greek politician has sharply criticized the recent country’s government and the newly appointed prime minister for bowing entirely the Brussels’ will and passing laws which are required solely by the European leaders.

“Greece does not feel to be rightfully represented by this parliament because they feel they were tricked in the last elections,” Kedikoglou told RT. “The socialists were saying ‘we have money, we will give you money’ and they ended up by taking the money of the people. Greeks need to feel rightfully represented by their parliament and we need a government that is supported by the Greek society. And that comes only with elections”.

Simon Kedikoglou acknowledges there is a fear for tomorrow in Athens.

“We don’t know what’s coming next,” he said. “Now everyone is realizing that it is not just a Greek problem, it is the European problem. The whole system that we have made up in the European Union is not working.”

“We had only monetary union without economic union, without political union. We need to move to a faster and bigger integration,” he added.

The MP says the government in Greece used to lie to its people about how the country’s development was progressing.

“It was the way of borrowing money and giving it away. It was done in the wrong way,” he claims. “We don’t produce as much as we did before and we don’t have the exports that we could have and we haven’t attracted the investments that we must attract. So we must change the whole structure of our economy very quickly and completely.”

“We didn’t speak the truth to the people over the past years. We know the problem is we didn’t do what had to be done quickly and radically. We tried to do the changes slowly and without shocking the society. It proved to be too slowly and too late,” he stated.

“Now we have to speak the truth that in the last 20 years, Greece has been importing more than it’s been exporting. We don’t produce. Greece doesn’t produce the wheat, the meat that Greeks need. It is the first time since World War II Greece can’t feed its own people. In a country like Greece, where everything can grow, I think it’s a crime.”

But at the same time Simos Kedikoglou argues austerity cannot save his country.

“If you raise the taxes in an economy which is in recession then the results are catastrophic. We need a policy which encourages development. If we go where we are going, I think the collapse is certain”.

“And that’s going to be Greek tragedy. And not just Greek tragedy,” he predicts. “It will have a domino effect and the whole Europe will be affected. You can’t sacrifice Greece just to save eurozone. Eurozone will either be saved all together or collapsed all together.”

Russia prepared to ride to Nicosia’s aid

Russia is poised to save Cyprus from financial meltdown with a €2.5bn (£2.2bn) loan that will enable it to pay maturing debt and deal with its burgeoning budget deficit.

The crisis-hit island’s communist government is close to successfully concluding negotiations with Moscow – a move that will quash fears of Cyprus having to resort to rescue loans from the EU.

“It will not solve public finance or other problems in the state sector, but it will help us better deal with issues of liquidity,” said the country’s finance minister, Kikis Kazamias. “With the situation that exists in world markets and the difficulties we face with bonds, we don’t have the luxury of choosing our lenders.”

Like Greece, Cyprus is in effect locked out of international capital markets because it would be charged prohibitively high borrowing rates following a series of credit downgrades. Agencies have cited the island’s overstretched banking system and its exposure to debt-stricken Athens. The Cypriot economy was strained further by a devastating munitions explosion in July that knocked out electricity supplies and sparked fears that Nicosia would soon have to follow Portugal, Ireland and Greece in being bailed out by the EU.

The EU’s most easterly member, Cyprus accounts for 0.2% of the eurozone’s total economy. About €1bn of government debt will mature at the beginning of 2012.

Russia, which on Wednesday ruled out increasing holdings in the eurozone before Europe came up with a clear strategy to save its debt-burdened states, is thought to have agreed to a five-year loan with an annual interest rate of 4.5% – well below that offered even by the former British colony’s financial institutions.

“Eurozone countries have not approached us in general [for aid],” Moscow’s finance minister, Alexei Kudrin, told an investment conference sponsored by Reuters.

“We are holding talks only with Cyprus. We have good progress at talks. They will conclude within one month.”

The emergency loan reflects the two countries’ close relations. Favoured by oligarchs because of its low taxes, Cyprus is a popular destination for Russian capital and has a large Russian community.

Even before the island’s entry to the EU, the vast majority of its 14,000 offshore companies were Russian-owned, according to the Global Policy Forum. An estimated $18.7bn of foreign investment from Russian sources was poured into local banks last May alone.

Under President Demetris Christofias’s communist Akel party, ties with Moscow have improved considerably, with the government going out of its way to award citizenship to Russians depositing large amounts in banks.

Like many members of Akel, Christofias studied in Moscow and is a fluent Russian speaker. “He is very proud of his communist affiliations and deeply fond of Russia,” said a seasoned observer of Cyprus affairs. “It’s where his heart lies.”But the prospect of being rescued by Russia has also been criticised with lawmakers worrying it will entice the government into eschewing crucial structural and fiscal reforms vital to streamlining a profligate public sector and overhauling the Cypriot economy.

“This will help stave off the immediate danger of default but it doesn’t solve our economic problems, it just pushes them down the road,” said Nicholas Papadopoulos a local parliamentarian with the centre-right Diko party.