In the Eye of the Owl


In a world where the solids hit the fan from as many as five different directions at once, this occasional column is gradually coming into its own. So as long as the hits stay high and there’s an interesting comment thread, I’ll continue to write it. Today it’s time to turn again to Europe.

In case you hadn’t noticed, Gold has been quietly climbing. Since the 29th January, it has moved up $65, and at one point today broke through $1400 an oz. While this latest spike is down to Middle Eastern unrest, most of it isn’t. Investor sentiment is becoming risk-averse again – and looking at the European continent, it’s not hard to see why.

In Athens, the Government is coming to terms with the fact that the national hobby of tax evasion isn’t going to lose its popularity just because the country’s going down the tubes. The Greeks now have an Orwellian-sounding ministry called the Financial & Economic Crime Unit. It’s a sort of pour encourager les autres organisation designed to persuade 40,00o taverna owners that next time it just might be their turn.

The inspectors arrive in civvies, check the bill, watch for suspicious offering of free Metaxa brandy, and then swoop. The swooping involves closing the restaurant for 48 hours, but very rarely the collection of lost taxes. All in all, it sounds like a classic Civil Service union scam aimed at employing more of its members.

Says Finance Minister Ilias Plakovitis, “We identify the tax-dodgers with great provision. But what we don’t collect is any lost taxes.”

The black economy in Greece is estimated at a whopping 30 billion euros – a big problem when unearthing that lost revenue could be the difference between bailout and bankruptcy.

The dilemma in Greece – even from way back when I was bumming around its islands in the summer months – is that the tax authorities do not evoke fear. Raids are sporadic, amnesties frequent, and legal processes reassuringly slow. Many traders are dead before their cases come to Court, and everyone is behind on their taxes.

At the risk of having a Clarkson-and-Mexicans moment here, this is the sort of manana south-European attitude that tends to wind up the Germans….and make them less than willing to ease ClubMed’s debt burden. So it was yesterday that ECB Council member Yves Mersch opined rather publicly to the effect that there was an “upside risk to EU price stability”, jargobollocks for impending inflation. ‘Expect rates to rise’ was the bottom line of Mersch’s meandering announcement, as a result of which the euro rose a cent against the dollar. This added several million euros to the Greek debt.

Yves Mersch was merely taking advantage of what has become an anarchic ECB open-season for shooting  a line, ever since Bundesbank head Axel Weber told Angela Merkel he’d no desire to accept the hospital pass to be Trichet’s successor as head of the EU’s central bank next October. As for the inflation debate, Trichet himself came down firmly on both sides of the fence by referring to the outlook as “broadly balanced with a slight tendency to the upside”. I do not doubt that many a currency trader’s outcome meeting went on into the early hours on the basis of that one.

Having abdicated before attaining the throne, Weber now feels able (and very willing) to scupper any ClubMedder’s feckless scheme to empty the German Treasury with further forgiving bailouts. Both Wolfgang Munchau at the FT and Ambrose Evans-Pritchard in the Daily Telegraph are giving Axel a hard time about this, but The Slog is bound to confirm that he knows whereof the Bundesbank man is coming re this one.

Axel Weber is a firm believer in the ‘forgive them twice and they’ll start taking the piss’ philosophy, as indeed am I. But where Evans-Pritchard does (as usual) have a point is in saying that the Germans should’ve thought about that before they signed up for such an unregulated single-currency voyage of discovery in the first place.

Despite recent attempts to put a positive spin on the situation faced by Spanish caja banks, yesterday the country’s central bank slipped out a little release saying there might just be the odd further problem here and there. What used to be called toxic loans are now termed ‘problematic’ in the EU. The problematic amount is thought to be in the region of £120 billion, give or take an EFSF bailout fund.

The bank’s Miguel Ordonez told the media that his plan to recapitalise the cajas was “working well”. All such plans work this well until there’s a run, but then the jury goes out and everyone waits to see what happens. The cajas are 42% of the Spanish banking system, and a frightening percentage of Spanish property owners are in negative equity. Property prices are still falling, so obviously there’s nothing to worry about. Except Yves Mersch’s proposed rate rises.

Finally, there were some odd goings-on at the Italian Borsa today, in that it opened very late. Italian officials were at pains to deny that this had anything to do with the unpleasantness in Libya, but lots of traders were sceptical about it.

They had very good reason to be: the Exchange fell 3.6% yesterday on the news from Tripoli, and although the Italian Government prefers to be vague on the matter, Gadhaffi the Mad does actually own an awful lot of Italy’s assets. These include 7% of the country’s largest bank (Unicredit), 7.5% of top soccer club Juventus (he has a season ticket, but rarely goes), and 2% of Fiat.

In addition, Italian banks, oilcos, construction giants and carmakers have the sort of exposure to Libya that RBS secretly has to Russia.

Regular Sloggers will know that I fingered Italy some ten months ago as the dark horse of EU meltdown. The odds on the nag are shortening daily.


These sorts of culturalist observations are often described by the Guardia Independente axis as ‘gratuitous’, but they are nothing of the kind. We too have our Aboramovitch, our crooked bankers and our tax evaders. But even though here too in Blighty our culture is halfway round the S-bend to the sewers below, we’ve not yet reached the stage of ClubMed countries: and lest we forget, from Nantes southwards, France is pretty much the same.

Herein lies the yawning crack in the EU superstate and its Mickey Mouse single currency – the so-called north-south divide, which is in truth a cultural canyon that can never be bridged. The Anglo-Dutch-German-Normande-Viking cold-climate circle of order, ramification and retribution cannot be squared with the laid-back laissez-faire of Latin behaviour.

Left to get on with it as a trading community – and with a massive anti-corruption drive – the EEC could easily have become a powerful economic bloc. But bureaucratic hubris has turned it into a swollen body whose unfeasibly fat head is now on the block.

No amount of smoke, mirrors, stress tests and other forms of spin can change that. As I have written many times before, the only upside of the EU is that its ultimate implosion will remove any possible raison d’etre Nigel Farage might ever have had.