July 8, 2013
For the beleaguered small countries of Europe, the euro crisis has become a form of torture, a death by a thousand cuts.
The Portuguese government stumbles on but was weakened by the resignation of the finance minister and the foreign minister.
The former admitted that he had underestimated how deeply his spending cuts would bite into overall economic output and therefore of tax revenues. The latter leads one of the parties in the governing coalition and in his departing speech said that the austerity imposed by Portugal’s eurozone partners couldn’t go on.
The next tranche of Greece’s bailout money has been held up because the Greek government wasn’t meeting its pledges to cut the number of state employees and to privatize state assets.
Ironically, some of the same European governments that insist on the cuts were also those that complained when the government announced the closure of its state broadcasting service to save money. Greece’s Supreme Court then said the government had no powers to close it, which simply makes the funding gap all the wider.
The Irish economy is back in recession after a brief period of hope. New car registrations in May were down 11 percent on the previous year and the bad loans ratio is 25 percent, the same as in Greece.
The release of tape recordings of Irish bankers, boasting to each other of the way they had tricked the government into bailing them out, has soured the public mood, already depressed after five years of crisis.
The country’s budget deficit this year looks to be 7.5 percent of gross domestic product, the worst in the European Union, and public debt is forecast to reach 123 percent of GDP by the end of the year.
This level of debt is dismaying since interest rates are creeping up, after the Federal Reserve in the United States hinted that the days of cheap money could be drawing to a close, with its monthly bond purchases under review.
If interest rates climb, business in the European countries still in recession will cut back in investment. And governments like Ireland will find the burden of debt all the more onerous. Portugal, for example, looks to be reaching a public debt level of 134 percent of GDP.
At least these countries have become more competitive. Unit labor costs in Spain, Ireland and Portugal have fallen more than 5 percent since the crisis began but at a cost of achingly high unemployment. But in Italy, unit labor costs have risen 5 percent, even as the economy stagnates.
And now a new challenge has arisen. Interpol, the international bureau that coordinates crime fighting efforts, says organized crime has expanded dramatically since the recession with 3,600 criminal syndicates active across Europe. As well as narcotics and human trafficking, the new crime boom covers money laundering, counterfeit medicines, online and credit card fraud. Fraud in value-added tax alone is estimated at $128 billion a year in Europe.
“[Organized crime] is having a particularly negative effect on government’s attempts to recover from the economic recession by draining away these resources in taxpayer’s revenue,” Europol Director Rob Wainwright said.
Interpol recently concluded a 2-year study of organized crime in Italy, where the Calabrian Ndrangheta are estimated to generate illicit revenues of up to $56 billion a year.
“The Italian Mafia-style groups are among the most threatening in Europe and in order to fight them, a pan-European approach is needed. Those of us in the law enforcement community need to step up our cooperation in tackling the most dangerous criminal groups,” adds Wainwright.
The euro crisis isn’t as desperate as it was when the interest rates that Spain and Greece had to pay to borrow money were spiking into double-digits, thanks to the pledge of European Central Bank President Mario Draghi to buy as many sovereign bonds as required. But his ability to continue doing so could be limited by the verdict expected from the German constitutional court, which has been asked to rule whether the bank has the legal right to land Germany with the resulting debt and possible losses.
And the bill is mounting. Adding together the direct bailouts of Greece and the packages issued to Ireland and Portugal, plus purchases of Spanish and Italian bonds and bank support package for Spain, the total is now $870 billion.
And there is no end in sight.