Tuesday, 29 May 2012

Oil, banks and democracy - a potent blend

Oil carries with it so many connotations.
The social, moral and geo-political implications create a quagmire as opague and viscous as the crude substance itself.
When Ghana discovered oil off its coast line a few years ago there was a sharp intake of breath. Everyone saw what had happened in Nigeria. The Government were not prepared to fall into the same trap, creating a feral landscape where natives and multi-nationals go head to head over the black stuff, where misery is wrought across borders such as in Sudan, and where corrupt governmental allegiances and illegal wars exacerbate religious and ethnic divides. Where there is misery and oppression, there is often oil.

In the case of Spain, Italy and Greece however the interconnection between oil and misery is different.

Oil in Spain?

Yes. The Golden Stuff.

Olive oil.

For in Spain the price of oil olive has slid so drastically, caused by a sharp decline in domestic demand, a failure of potential foreign export markets to embrace the oil - such as the Far East, and a supply overload flooding the market. As a result, the EU has been forced to intervene. [Sigh]

Taxpayers' money is now being driven in to shore up the prices in order to maintain employment in rural areas that rely almost exclusively upon olive plantations.

We all know what happens when the EU intervenes, fixing prices and stockpiling resources.
Should we expect olive oil producers over the next few years to become completely dependent upon single payments?

The future of the Mediterranean economies in the Eurozone is bleaker than is being made out. In Spain, the Government are beginning to realise there is little they can do to avoid becoming the next Greece. The likelihood of the country needing an EU bail out is almost certain. Spanish banks have been propping up state finances to the tune of €316 billion borrowed from the European Central Bank. Those banks now emergency finance, to the tune of €23.5 billion, which the Spanish Government has been determined to find itself - creating an ironic cycle of debt that cannot be broken without outside stimulus.

Yet the people of Spain have already shown vehement opposition to the Government's own austerity measures, and with a quarter of the adult population now unemployed, who could blame them? Yet any EU bail out comes with a multitude of conditions that must be met - however unsympathetic to the plight of the normal person. This is the situation we are now seeing in Greece, where the democratic choice is an end to austerity, yet the EU refuses to climb down on the demands stipulated in return for propping up the single currency. One can be assured that if Spain ends up in a similar position, the opinion of the public would be known the world over.

In Ireland,  the public have gone to the polls to vote in a referendum on Irish approval of the "EU fiscal pact" set out last December. Prime Minister Enda Kenny has urged the nation in a televised address to back the proposals, in order to ensure the rug isn't pulled from under their feet, and for the time being, the propaganda appears to have worked with early results indicating voters would back the fiscal pact. Of course in Ireland they also have the added security of sterling propping up some Government debt after George Osborne signed off a £7 billion bilateral loan, but this also means our loan, which is due to be repaid with interest in the future, is at risk of falling into a fiscal blackhole if the single currency collapses.

The coping mechanism that has been rolled out during the course of the last four years has been for deeper integration and mutualised responsibility, yet this flies in the face of the will of the majority of voters in the EU,  be they Germans who do not accept their share of any burden or Greeks forced out of work, unable to access medicines and even food. The public conception is that closer EU integration has weakened national economies, rather than providing the reinforcement that it was purported to achieve.

Economics is more of an art than a science, it is often argued. It involves theorising, when nobody can understand or predict what any outcome may be, however well read they may be in the field or practised and proven in managing national debts. While one side of the argument would state that breaking the single currency up would cause a lot of short term pain but enable each country to forge an idiomatic platform upon which to compete and rebuild, others would argue that disintegrating the Euro would leave huge unaccounted for wounds of debt that would plunge the global markets back into disarray, creating shockwaves more severe than those witnessed in 2008 and the first global credit crunch.

One thing is for sure. The break up of the single currency would not be good for the EU. It would undermine the entire European project and pit disenchanted countries against one another, further enhancing the risk of member states applying to leave the EU, potentially resulting in the domino affect of the entire dissolution of the entireUnion. It is argued that nowhere in any treaty is exiting the single currency accounted for, further enhancing the risk of the break up of the Euro resulting in ejection from the EU itself - by law.

June is set to be an interesing month. If Greece runs out of money before the elections, and if Brussels are resolute in their stance that a bail out would not be provided without obeisance to their conditions, we could have a humanitarian crisis on our hands.

I hope, for the sake of the people of Greece, this is not the case.

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