International Business

I.M.F. Report Shines Uncomfortable Light on Greece’s Financing Gap

By JACK EWING

JULY 15, 2015

The end of an affair for France and Germany

The faultlines on Greece are set to deepen and widen, writes François Heisbourg

by: François Heisbourg
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Another Greek Can-Kicking

There won’t be light at the tunnel’s end until Germany kicks itself out of the eurozone.

By Holman W. Jenkins, Jr.

July 14, 2015 7:59 p.m. ET

  Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel at a news conference in Berlin, March 23. Photo: tobias schwarz/Agence France-Presse/Getty Images


If you’re a Greek who no longer has much money in the Greek banks, Grexit is looking better and better. That’s even with the latest tentative bailout deal, which is the extend-and-pretend variety: It’s unlikely to get the Greek economy moving or end Greece’s destabilizing cycle of crisis upon crisis.

If you still have money tied up in Greek deposits, you might feel differently. Another bailout might seem another chance to get your money out without suffering a haircut (to recapitalize Greece’s broken banks) and conversion to the drachma (an outcome still in the cards). You are willing, then, to sacrifice the economy’s return to long-term health to maximize your chance of reclaiming your life savings.

If you’re Angela Merkel, you’re willing to settle for another extend-and-pretend bailout of Greece because you don’t want Grexit on your watch. But you also don’t want a shellacking from your domestic German voters who are weary of seeing their money go to prop up the Greeks. That’s why you’re pleased with co-conspirator France stepping out as defender of Greece and promoter of fake plaudits for the Greek bailout. A European tradition is that Germany likes to be seen deferring to France to quell any idea that Germany is becoming strident and imperialistic again.

No actual long-term problem of Greece or the eurozone is being solved here, however. At the same time, don’t believe cries that Greece must be saved or the European project is doomed.

This is a case of the propaganda that was used to sell the euro in the first place coming back to haunt. Stop lying to yourselves, Europeans. Currency integration was not necessary for the European Union to succeed. It isn’t necessary so Europe can have clout in the world. It’s not necessary in order to avoid another war, as former German Chancellor Helmut Kohl was fond of implying.

If anything, the single currency is undermining the larger European project. The antidote to fascism is becoming a stimulant to fascism as the eurozone overreaches to impose what amounts to nation-building on Greece even as it continues to accommodate France and Italy, whose debts pose the real long-term threat to European togetherness.

Let’s quickly add that the euro is a failure only because it wasn’t allowed to work. If we have learned anything about “optimal” currency zones, fiscal discipline has to begin with lenders, not borrowers—with bankers and fund managers knowing their money will be lost if they lend to countries on unsustainable paths.

That said, authentic market discipline was never realistically compatible with modern European welfare and interest-group politics, as the eurozone lately has been proving over and over.

Which brings us to Hans-Olaf Henkel. Back in the day, pro-business Europhiles like Mr. Henkel—he ran IBM Europe and headed a prestigious German trade group—embraced the common currency as a lever to compel pro-market policy change. “Structural and competitive weaknesses will now be mercilessly exposed,” he preached.

Alas, it was not to be. The euro, which was supposed to be the rod that spanked the Europeans into reforming their welfare states, became the opposite, the enabler of Europe’s growing debt addiction.

Mr. Henkel saw the error of his ways. He co-founded Germany’s version of the anti-euro political party that has been popping up all over the Continent, but with a difference: His party, Alternative for Germany, still believed in the European Union, it still believed in the common market, just not the single currency.

As of last week, though, he separated himself from the party over its growing anti-immigrant wing, a sign of troubles percolating across Europe. Last year he warned that a British vote to exit the European Union would be the “worst scenario” for the forces trying to save Europe from itself.

Mr. Henkel wrote a book proposing a bifurcated currency system. The uncompetitive southern countries, including France, would keep the euro. They would be spared messy currency conversions.

They would be spared bank runs. Germany and other creditor nations would bear much of the cost of adjustment by adopting a new, strong currency, essentially a deutsche mark in all but name.

What about the supply-side reforms that were also part of this week’s Greek deal? If enacted, wouldn’t they contribute to genuine recovery inside the euro system? It can’t be repeated often enough: The currency the Greeks use matters less than the domestic policies they adopt for true prosperity. But missing is any evidence from recent experience that such changes of heart can be imposed successfully from outside.

In Mexico, Crime Is Bigger Than a Crime Boss 

The alleged end of the tunnel through which Mexican drug lord Joaquin "El Chapo" Guzman Loera could have escaped from the Altiplano prison, at a house in Almoloya de Juarez, Mexico, on July 12. (YURI CORTEZ/AFP/Getty Images) 

 

Summary

 

The July 11 escape of the notorious Sinaloa crime boss, Joaquin "El Chapo" Guzman Loera, from a maximum-security prison in Mexico has drawn considerable Mexican and international media attention. While the brazen and elaborate nature of the escape will add to the lore already surrounding Guzman, the escape itself carries little significance for organized crime in Mexico — though it will place a momentary strain on coordination between U.S. and Mexican law enforcement. The forces that drive the evolution of organized crime and their impact on society in Mexico are simply greater than any single crime boss.

Analysis

Mexico's geography enabled drug traffickers like Guzman to operate on a global scale. As international law enforcement effectively dismantled the powerful Colombian cartels and stymied their maritime trafficking routes through the Caribbean in the 1980s and 1990s, Mexico became the lynchpin of new smuggling routes into the United States. This evolution took place just as the Mexican criminal networks that trafficked drugs broke down into smaller groups. Though crime bosses like Guzman rose in stature relative to others, all organized crime groups in Mexico are the result of a systematic decentralization in cartel structure that continues today.

In fact, by the time Guzman was arrested in February 2014, the Sinaloa Cartel was already fragmenting. Groups that operated in areas such as Chihuahua, Sonora, Sinaloa and Baja California states — areas that were once part of El Chapo's criminal network — were already acting autonomously. Some of them were even fighting one another. The arrest of Guzman and the subsequent capture of some of his lieutenants only accelerated this trend. Now, geographic domains that were controlled by Sinaloa-based crime bosses for decades are now controlled by other groups, including the Cartel de Jalisco Nueva Generacion, which expanded from the Tierra Caliente region, and La Linea, which was once the enforcement group for the Juarez cartel.

Among the myths surrounding El Chapo were tales pertaining to his purported role as an arbiter of organized crime in Mexico. According to some of those myths, his organization preferred to expand its business operations through negotiation, rather than through violent conflict. But Guzman, in fact, was party to some of the most violent turf wars in Mexico, introducing rampant insecurity in places such as Tijuana, Nuevo Laredo and Ciudad Juarez.

These conflicts had subsided by the time he was arrested but not before nationwide turf wars devolved into more localized conflicts. Guzman may attempt to re-consolidate the control he once had over Mexico's organized crime activities, but his previous efforts to do so failed, and the task would be even tougher now that his network has become even thinner.

Since 2012, Mexican organized crime has become increasingly balkanized amid government efforts to revamp public security institutions, and nationwide levels of organized crime-related violence have gradually diminished. Though having more crime groups means there are more bosses, these leaders have not been able to sustain violent offensives against their rivals and fend off the state as well as their predecessors did. And while waves of extreme violence can still emerge in places like Tamaulipas, they typically weaken as soon as security forces move in — in contrast to past conflicts in places like Juarez, where violence continued to climb despite repeated deployments of federal troops.