Germany vs Greece – A Preview

As Carlos Velasco Carballo of the troubled Spanish Kingdom blew the final whistle in their match against the Danes, the Germans booked the date with Greece in the current Euro championships. Saved by the thin margin to make it to the next round as always with their debt rescheduling process, the Greeks will be in the works of the German machine. Angela Merkel, a passionate football fan will be watching this beyond the artistry on the field but will also peer into the marked turf between two nations cobbled into a single economic zone.

While healthy economies such as Norway, Turkey and Finland are missing from the European Party, the Greeks advance into the elite round of the quarterfinals. A clear reminder of early 2000s when nations weighed the benefits of the union bound monetary and fiscal rules but dividing lines of political direction. While the German have adapted sobriety in their outlook and cleverly allow their Mittlestand to use cost advantages to dominate the union and improve competitiveness, the Greek with no shafts and gears spent $4bn to remind themselves of their Athenian ancestry by hosting the Olympics in 2004. Preceded by the euphoria of winning the Euro championships before its Olympian display, the Greek train was on a full horn; its wreckage was never foretold.  The Greek books were being boiled till it drew a fine smell of tobacco, hiding the dangerous cancerous sting that now infects other nations in the Eurozone.

After, reworking its fiscal deficit to qualify for Eurozone, bloating its public expenditure, Greece faces dire moments as its debt to GDP ratio reaches 160%.  Greece who hid its rags under a sequined dress came  to the European party that guaranteed cheap interest rates. The creditors led by European Union and IMF bring the worn-out template – privatize public institutions,  cut welfare benefits, reduce social programs and pension funds down in order to pay its debt. In exchange for debt relief, they are asking Greece to walk out naked putting its future in a precarious position. The biggest discourse among global economists is what should Greece do?

In a game where its odds are getting higher either in winning the championship or posting growth after five years of recession what should Greece do? If Greece walks out of the euro, the exports become cheaper but the imports become more expensive. One wonders what tangible will Greece without a robust manufacturing engine export more than tourism which is currently threatened by Dubai, Singapore, Brazil and China of this world. If Greece damns the euro, creditors will swiftly demand immediate settlement of Euro-priced debts; causing a possible run on its banks, disorderly default of debts and the likes of IMF and ECB bringing it relief will quickly shut the door.

It follows the dilemma, should Greece continue to be in the Eurozone whose currency it has no control over and might not be able to sell to competitively? When the Germans over the years have learnt the act of conservative play and high efficiency, what will the Greece do to be at par? The German wages have sluggishly increased over a decade, the Greek producing and selling under same currency can’t match German thrift.  As Greece is tossed around by bankers, consortium of private lenders and short sellers, every cure given to them for their short term (how to immediately settle debts through swaps and restructuring ), no one considers the long term prospects of growth for an economy that has been in recession for five years. Now once again not from the economic minefield, they have to eyeball the Germans, pretty well they won’t survive this game. Germany will be reveling in a winner takes all attitude, the sense of nationalism that has not broken the deadlock. One day Greeks will learn a way to live sober on their own and also within their own means. Possibly they should start with this game by walking away and show that they don’t belong to this elite stage of the championship. They should seek a lower rung of football classification that actually befits them.

CBN: Between Reason & Emotion

The National Assembly currently has the Central Bank Amendment under its lens and the restless vigor they put to this bill only reminds one of its anti-gay equivalent. Under the current arrangement, the Central Bank Governor doubles Chairman of the Board of Directors. The Deputy Governors and some other independent directors make up the rest. The budget, operations and functions are handled by the CBN Board but the bravado of Sanusi Lamido Sanusi especially the recent donations to bomb victims, the legislative hatchet dangles on the apex bank. To ensure a firm  Board with checks and balances, the CBN Act mandates all the Board members to appear before it for screening but its seems in the public glare that Sanusi has overpowered the board making the rest, simple yes-men .  

 

With the past accusation by Sanusi of the profligacy of the legislators that gave him a ride on populism, the National Assembly was in a tangle with the apex bank over its budget. The CBN Governor showed up with aggregate mid-term figures that conversed nothing. Sanusi was expected to be dressed down when his budget is scrutinized but he brought the rules to the bear. Under the law that sets up CBN, he proposes and approves the budget. However the National Assembly  opines that its clause conflicts with the Appropriation Act and this amendment settles it all.  Quietly, CBN runs a mini-territory pitching to the world the need for its independence.

 

Now it all seems like a proxy war between the National Assembly and unfortunately Sanusi’s serial verbose stance might derail the institution whose independence is critical to developing long term solutions critical for economic growth. Beyond the budget shrouded in secrecy unlike its American counterpart published here, the new proposed CBN board could have Accountant General, retired Bank CEO, permanent secretaries and their representatives on Board. In short, we are peering at a civil service dominated board whose strings could be tapped by the misinformed politicians.

 

One will need to thoroughly stalk Ben Bernanke or Mervyn King, the central bankers of United States and Britain to listen to their well thought opinions. Unlike our Central Bank Governor having rendered opinions without control, Sanusi has brought scrutiny to himself and directed the revered institution he represents to the legislative matchet. Spurious donations followed bombings, unnecessary speech about Boko Haram and linking marginalization with derivation fund has desecrated the ‘papal’ nature of the office.  

 

To tame himself and his iterations from spending on impulse, the CBN’s budget needs to thoroughly go public. However while the legislators are exploring the need to tweak CBN governance structure (See here) and they should not trample on the statutory objective of the Central Bank which centers on price control. Putting civil servants who second-guess decisions for expedient political reasons might be dangerous for broader role of the Central Bank in the economy .While they might harbor anger at his needed outrage at them on their exploitative ovrheads, the legislators  should understand Sanusi is a journeyman kept in charge of the national purse for a fixed limit. In the future, I wish him well in fulfilling his lifelong dream as the Emir of Kano or take up a social crusader job which aptly sizes him. The legislators need to tame their emotional outburst that rides over reason and possibly could take a sober institution to the dunghill.