Prospero’s Europe: Part 1, Too broke to pay for fuel

February 5, 2013 | Austerity, Economics, Ecosystem, EU, Eurozone, Greece, Spain

By:David A. Smith

 

Illegal logging has surged in Greece as households suffering through three years of recession hoard wood to burn during cold winter days.

 

Though the body’s metabolism is not conscious, our cellular automata are rational: frostbite, gangrene, and starvation kill our extremities first, and the body lets them die to preserve the core.

 

They won’t grow back

 

While for an individual organism this may be grimly rational – after all, one’s toes are not as important as one’s lungs or heart or brain – the realpolitik of letting the extremities expire becomes much less moral when those extremities are not cells but nations, nations comprised of desperate people, as revealed by comparing two articles in the Wall Street Journal (December 28, 2012) (red font), and Wall Street Journal (January 11, 2013) (blue font):

 

Madrid—Nuria Jarque’s company has maintained water-treatment plants in Spain for 25 years, but lately she is being forced to act like a lender of last resort.

 

Money is the economy’s platelets, carrying economic nutrients throughout the body.  When the platelets run out, the extremities cannot be nourished.

 

Shaped like coins, and more valuable

 

Greece and Spain are enduring severe recessions – more like depressions, actually – because they are yoked to an overvalued currency relative to their national productivity, and they have debt obligations (and pension obligations) denominated in a currency they cannot depreciate.  If they were truly sovereign nations, able to inflate their currency, they’d devalue current debts in domestic currency and while the creditors (and pensioners and workers) would all suffer, the economy would revive.

 

Courtesy of AHI

 

Local governments across the country, facing a steep drop in revenue and largely unable to borrow from banks or financial markets, have been paying Ms. Jarque and other suppliers of goods and services months behind schedule.

 

When a government cannot honor its obligations, it loses another pillar of its legitimacy.

 

Ms. Jarque says the delays amount to interest-free loans to fund government operations, and are pushing her company to the brink of bankruptcy.

 

Slowly the undernourished extremities die.  Spain’s fiscal bankruptcy is creating a Spanish economic bankruptcy.

 

Good King Wenceslas looked out / On the feast of Stephen

When the snow lay round about / Deep and crisp and even

Brightly shone the moon that night / Though the frost was cruel

When a poor man came in sight / Gath’ring winter fuel

– John Mason Neale, 1853

 

When the money runs out, people who cannot buy essentials forage for them:

 

Egaleo, Greece—While patrolling on a recent cold night, environmentalist Grigoris Gourdomichalis caught a young man illegally chopping down a tree on public land in the mountains above Athens.

 

When confronted, the man broke down in tears, saying he was unemployed and needed the wood to warm the home he shares with his wife and four small children, because he could no longer afford heating oil.

 

Mr. Gourdomichalis showed the charity the good king showed:

 

“Bring me flesh and bring me wine / Bring me pine logs hither

Thou and I will see him dine / When we bear him thither.”

 

Royal charity

 

That’s the same charity I hope you and I would show:

 

“It was a tough choice, but I decided just to let him go” with the wood, said Mr. Gourdomichalis, head of the locally financed Environmental Association of Municipalities of Athens, which works to protect forests around Egaleo, a western suburb of the capital.

 

Although no one knows why for certain, the Anasazi may have left Mesa Verde (and migrated south, probably becoming Navajo in the process) because after many years of drought, they consumed so much mesquite for firewood.

 

They left when the economy ran out

 

When the Venetians arrived in the thirteenth century, Crete was covered with thick cypress forests.  A few hundred years ago, Venetian and Ottoman logging for galleon masts had deforested Crete, from which the island’s ecosystem has never fully recovered.

 

Lepanto, powered by the denuded forests of Crete

 

Tens of thousands of trees have disappeared from parks and woodlands this winter across Greece, authorities said, in a worsening problem that has had tragic consequences as the crisis-hit country’s impoverished residents, too broke to pay for electricity or fuel, turn to fireplaces and wood stoves for heat.

 

Though many carbon-tons of private-jet fuel are burned into the atmosphere flying the cognoscenti to Davos to preach about global warming, little attention is paid to ecological catastrophe being brought about by man-made causes.

 

Whose ox is being gored?

 

As winter temperatures bite, that trend is dealing a serious blow to the environment, as hillsides are denuded of timber and smog from fires clouds the air in Athens and other cities, posing risks to public health.

 

This smog brought to you by poverty

 

The number of illegal logging cases jumped in 2012, said forestry groups, while the environment ministry has lodged more than 3,000 lawsuits and seized more than 13,000 tons of illegally cut trees.

 

Obviously this is a terrible shame, both for Greece’s environment and for these Greek families, but what else can they do?

 

Such woodcutting was last common in Greece during Germany’s brutal occupation in the 1940s, underscoring how five years of recession and waves of austerity measures have spawned drastic measures.

 

The Greeks didn’t forget this

 

This is just a new form of German occupation – economic occupation.

 

Smog, on some days visible to the naked eye and carrying the distinct smell of burning wood, has prompted local officials in Athens to discuss mitigation strategies, including proposals to restore heating-oil subsidies.

 

How will they pay for them?

 

On Christmas Day, Greece’s environment ministry said, particulate in the air over one of Athens’s biggest suburbs, Maroussi, was so bad that it was more than two times the European Union’s acceptable air-pollution standards.

 

In terms of global warming, soot is the real problem, not carbon dioxide. 

 

Hail our Chinese flag! Pollution in Beijing

 

After all the decades of effort to control carbon dioxide by creating crooked cap-and-trade markets with perverse consequences, it will be cruelly ironic if we discover that the effort should have been

focused instead on making it possible for people to heat their homes without using charcoal or wood.  If so, then Mario Draghi may prove himself history’s biggest polluter.

 

“The average Greek will throw anything into the fireplace that can be burned, ranging from old furniture with lacquer, to old books with ink, in order to get warm,” said Stefanos Sapatakis, an environmental-health officer at the Hellenic Center for Disease Control and Prevention.

 

Desperation makes us wood-burners

 

Strike ‘Greek’ – the average poor person will do that.  It’s not green to be poor.

 

He said the smog could affect vulnerable groups, including the elderly, children and people with asthma. He likened the air conditions in Athens to an instance in postwar London where smog from wood fires blanketed the city for five days in December 1953, contributing to the deaths of more than 4,000 people and leading British authorities to ban the use of fireplaces in the city.

 

In distant Brussels, his home heated by natural gas, his office air conditioned by electricity, Mario Draghi had no comment.

 

All is proceeding as I have foreseen

 

Thousands of companies are shouldering similar burdens as the financial woes of Spanish government bodies ripple across an economy amid its second recession in three years.

 

By the end of October, regional governments had accumulated bills in 2012 for providers, interest payments and other obligations totaling €13.7 billion ($18.1 billion), more than 1% of Spain’s gross domestic product (GDP), a government report found.

 

Economists would call a 1% drop in national GDP a severe recession.  This may be worse, because the work done creates obligations (e.g. salaries) that go unpaid, resulting in a multiplier effect.

 

Suppliers are depleting their cash reserves, forgoing investments and postponing payments to their own providers. Many have dismissed workers, pushing up a national unemployment rate that exceeds 25%. A growing number are filing for bankruptcy—27% more through September of this year than in the same period in 2011, according to Spain’s judiciary.

 

Name your own currency’s price? Not a chance!

 

At some point, unemployment becomes so chronic employers can simply name their price.  When desperate employers they do that, and others do the same, the result is deflation.

 

Strikes and street protests have erupted over late payments. Pharmacists in Valencia shut down for much of November in an effort to force the regional government to cough up hundreds of millions of euros it owed them. Some were paid late in the month.

 

This isn’t economic activity

 

Idle people revolt.  That’s what they do.

 

The eyes of despair

 

Workers who look after the disabled marched in Madrid this month in part to complain about past-due invoices.

 

“Money is really, really tight, and the suppliers are having to bear it,” said Angel Saz Carranza, professor at ESADE Business School in Barcelona. “It is putting a further brake on economic activity.”

 

Though Mr. Carranza’s statement is self-evident, someone has to say it.  At Europe’s other extremity, Greece, the situation is equally dire:

 

[Continued tomorrow in Part 2.]

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