It’s amazing, isn’t it? Immediately after his government won an internationally-important vote against the foreign bankers and financiers who have been terrorising Greece with undemocratic austerity measures in return for loans, finance minister Yanis Varoufakis has resigned.
In his blog, he wrote that he had been “made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement.
“For this reason I am leaving the Ministry of Finance today.”
He wrote: “Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms. [Bolding mine]
“We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government.
“And I shall wear the creditors’ loathing with pride.”
Greece has voted decisively to reject the terms of the latest loan offer from the so-called Troika – the IMF, ECB and EU.
Figures published by the interior ministry showed 61 per cent of those whose ballots had been counted voting “No”, against 39 per cent voting “Yes”. This means Greece will go back to the negotiating table with a firm mandate to reject demands for further austerity as part of the conditions of any further loans – and to demand that the country’s huge debt be restructured into a sum that it is possible to pay off.
The victory for Tsipras and his Syriza party is all the more remarkable because it faced enormous opposition from representatives of the Troika and elements of Greek society who scaremongered hard that a ‘No’ vote meant Greece would be ejected from the Eurozone, meaning the Euro would cease to be its currency and it would have to create one of its own.
This is a proud day for Greece. As a nation and democratically, these people have made it clear that austerity doesn’t work and they won’t have any more to do with it – especially when it is imposed undemocratically from beyond their borders.
But you probably won’t hear anything of the kind from the media in the UK. Here’s Guy Debord’s Catto explain why:
“The BBC and the rest of the British media will continue to peddle the lie that George Osborne’s LTEP is “working”. Can you see the green shoots of reification? If you can’t, then you’re probably an “extreme leftist”.
“As I type this, a BBC News reporter in Athens is interviewing a New Democracy politician who’s claimed that it’s a “dark day for Greece”. Then the reporter interrupts to tell her that Antonis Samaras, the leader of the New Democrats, had resigned. She stumbles and mumbles something along the lines of “I couldn’t possibly comment”.
“Cut to some vox pops of Greek people telling the camera how “scared they are for the future”. The propaganda: it’s blatant.”
The Cat also points out something well worth spelling out to the UK’s current Tory government:
“They don’t have a mandate. 24.3 per cent is nothing. 62 per cent is a mandate. Tories, take note.”
They won’t, though.
Not until the UK finally wakes up and follows the Greek example.
It’s all looking a bit tense, isn’t it? In fact, Alexis Tsipras could have this look on his face because he’s playing a particularly tricky game of Spider Solitaire on his laptop – it’s the Troika that should be scared at the moment.
Greece defaulted on its loan from the ILF last night (Tuesday). Gosh.
The world didn’t stop turning; life went on; and if there was any mass hysteria, it was on the part of neoliberals who – it seems – will do anything to keep everyone else in line with their worldview.
The neoliberals at the IMF, ECB and EU want people to believe that Greece (and, in fact, any other country that takes out a loan from western banks) has the wherewithal to pay back its debts. Their way of life depends on it because without that belief, countries start demanding debt relief packages and the whole racket that – as Vox Political mentioned yesterday – returned around $5 for every $1 lent in 2011 will fall like the house of cards it is.
Fintan O’Toole had it right in the Irish Times: “The story must be maintained: Greece must keep punishing its people to pay back the money being borrowed to make the payments on the unpayable loans.
“In the upside-down world we inhabit, Syriza, which has called a halt to this fiction, is a bunch of mad fantasists, while the troika that goes on acting as if the fictions were real is the voice of hard-headed realism. Everything – from the lives of ordinary Greeks to the foundations of the European Union – must be sacrificed to the story.”
But nobody believes that story any more. Everyone knows that Greece doesn’t have the wherewithal to pay back its debts. In fact, increasingly harsh demands by the Troika have made the problem worse, rather than better.
Everybody knows that debt relief will have to happen.
The Guardian‘s economics editor, Larry Elliott, wrote: “Somehow or other, Greece’s debt burden will be reduced. It can happen through a deal in which Athens gets debt relief for economic reform. Or it can came through a default that would swiftly follow Greek exit from the single currency.”
Richard Murphy, of Tax Research UK, agrees: “This fact has been obvious for some time. Greece has rising debt that is well above any internationally recognised sustainable level and because of falling income, imposed on it by the EU and IMF, has not the remotest chance of paying that debt off.”
He continues: “What is left is unserviceable without radical reform of the Greek economy that permits it to grow again, and that reform is not possible unless existing debt is written off. That’s because without that write off all the money needed to invest for growth will instead go in debt servicing,” as Vox Political has also mentioned in the past.
“If Greece was a company a pre-packaged insolvency would probably solve most of its problems, in days. It is time we did the same for countries. But don’t hold your breath because bankers object to this, largely because the guarantee that countries won’t fail is what they think underpins their own risk, and the last thing they want to do is accept responsibility for that.”
But Greece has failed. It is precisely its membership of the Euro that made it inevitable. Without its own sovereign currency, Greece could not take measures to prevent that failure. So Mr Murphy is right again and the banks are wrong. Again.
Meanwhile the neoliberal attempt to rule Greece undemocratically from beyond that country’s borders continues. The current plan is to make wild claims about the purpose of the yes/no referendum on the new loan conditions, called by Alexis Tsipras, to take place on Sunday. Merkel, Hollande and Juncker want the Greek people to believe it is about whether they stay in the Euro – which is not an inevitable consequence of a ‘no’ result, and would not, in any case, be a disaster (see yesterday’s post).
They’ve already lost that one, though. You see, everybody knows what’s on the table isn’t their last offer. They already gave in on that one, several renegotiations ago. If they had pulled the plug the instant Greece started to demur, they would have had leverage when Greece came back to the table but they didn’t. Now they’re on the sliding scale. They’ve admitted they need Greece to be paying back something, which means that Greece is now in a position to decide what that something should be.
(I got the above from an episode of Doctor Who entitled Deep Breath; if someone threatens to kill you and then doesn’t, they have nothing left with which to threaten you, having foolishly gone to their most extreme option first. Good show, Doctor Who.)
Angela Merkel has said the Troika won’t negotiate on anything at all until after the referendum. This has given Mr Tsipras a chance to bring in a new offer – it doesn’t even matter what it is – making him look like the reasonable man at the table. Already Merkel is on the back foot. She can refuse, look unreasonable and face a ‘no’ vote on Sunday, or she can agree, look weak and – again – face a ‘no’ vote on Sunday.
If the Greek government is holding further talks with its creditors, it is because the IMF and the Eurozone are afraid – not Alexis Tsipras.
The IMF, the European Central Bank and the European Union have a lot riding on their attempt to get Greece to give in and submit meekly to further austerity measures that are designed to keep that country in a debt-servicing economy rather than help get it back in the black.
The idea – as This Blog has reported before – was to create a debt trap, similar to that created for the so-called Developing Nations – and keep Greece in it.
Greece could continue receiving financial support if it sold off nationally-owned assets, privatised services and increased taxes – thereby insuring that it could never actually repay the loans; the profit-making facilities would all have been sold off and the tax burden on citizens would be so great that they could never pay their way out.
But Tsipras came into government on a promise to end austerity measures like this. His sticking-point, it seems, is that this may mean defaulting on the nation’s debts and dropping out of the Euro – returning to a currency unique to Greece – and the electorate doesn’t seem to want that.
Defaulting on loans isn’t as bad for a nation as it may seem. It means all those involved have to agree that the loan won’t be repaid under current conditions and new conditions must be negotiated. The Troika opposes this because its debt trap relies on presenting an illusion that the loans can be honoured. It is only an illusion; Tsipras knows that.
It seems to This Writer that he would be better-off taking a leaf out of Germany’s (history) book. When Gustav Streseman became the new Chancellor of the Republic in the 1920s, debt repayments had crippled that country. Inflation was out of control and industry had ground to a halt due to strike action.
Streseman abandoned Germany’s old currency and introduced a brand new version which was given a very high, stable starting value through the backing of US gold. Similar options are open to Greece, if it abandons the Euro.
Streseman negotiated a new, more realistic arrangement with his country’s creditors, cutting the reparations to be paid by Germany for World War I down from a wildly-punitive £2 billion to the more reasonable £50 million. He also ended the strike and ordered a full- scale return to work, making it possible to pay off this amount. This also is possible for Greece, if it refuses the austerity being proposed by the Troika.
Greece’s creditors will do everything they can to stop this from happening. They want Greece to join the Developing World countries who – as recently as 2011 – were paying back nearly $5 for every $1 lent to them by the western banks. They don’t want Greece to become another Germany; that would profit Greece – not them.
Here in the UK, it is in our interest to hope that Tsipras doesn’t blow it. He could find himself leading the way out of the neoliberal debt trap – not just for Greece, but for many other nations as well.
Greek Prime Minister Alexis Tsipras has been meeting German Chancellor Angela Merkel to discuss his country’s economic strategy and debt repayments.
The point of Austerity in Greece was never to help that country pay off its debts; it was to create a permanent debt that Greece would never be able to pay off.
Under a submissive government, this was feasible – as it has been in many countries in what is laughably called the Developing World – but now Syriza has taken control and Alexis Tsipras could have the Troika (European Central Bank, IMF and the European Union – the three organisations that have been lending money to the Greek government) over a barrel.
The plan was to add Greece to the list of nations running a ‘zombie economy’ in the service of neoliberal corporate interests, rather than the well-being of its own citizens.
The Troika’s settlement with Greece was similar to that carved out by the western banks with the Developing World – the creation of a Debt Trap.
Western banks indulged in a lending spree across the Developing World during the latter half of the 20th century but the oil shocks of the 1970s created a domino effect of economic disaster which ended up putting most of Africa and Latin America on the verge of bankruptcy.
They could not be allowed to default on their debts. This would have allowed those countries to recover but would have harmed the western world – both economically and politically, as its influence would have faded.
So the IMF stepped in with ‘bridging loans’, ensuring that the original debts could be serviced – but there was a cost. In return for these loans, the IMF created a mechanism called the Structural Adjustment Programme (SAP – an appropriate acronym as it has sapped away a huge amount of money from every nation where it has been used).
The SAP set conditions under which debtor nations were provided the bridging loans: The sale of nationalised industries and resources – mostly to foreign-owned corporations and governments; the removal of capital controls on money flowing into and out of these nations; allowing the IMF to dictate the level of public spending; prioritising debt repayment and corporate welfare over infrastructure investment and human welfare; and suppression of wages and restrictions on trade unions.*
This is more or less the deal that Greece was offered.
The result has been clear – as Professor Simon Wren-Lewis pointed out in his Mainly Macroblog yesterday: “Austerity… is of course why Greek GDP has fallen by 25 per cent.”
At the moment, the Troika is threatening Tsipras with the loss of further loans, as he has stated that he intends to reverse the privatisations that have been forced on Greece over the last few years, raise the minimum wage, and increase public spending. These are measures designed to reverse the Troika-engineered Greek economic collapse and make it possible to start paying off the huge debt the country has built up.
Tsipras wants that money because he wants his economic recovery to take place in an orderly way, so he has agreed not to roll back the privatisations that have already taken place but to review those that haven’t; to introduce collective wage-bargaining, stopping short of raising the minimum wage but encouraging non-statutory wage rises; and tackling the humanitarian crisis with free medical care for the uninsured unemployed, along with housing guarantees, at no extra cost to the public purse.
But here’s the thing: Greece can manage without that loan money, if it has to. Yes, there will be a great deal of pain, but Tsipras effectively has the Troika over a barrel. The promise of some money is better than no money. All he has to do is hold his nerve and point out that what the Troika is doing is exactly the opposite of what it is supposed to be doing.
By funding Greece during Austerity, the Troika was perpetuating its debt, rather than helping end that debt; now it is actively fighting a plan that will genuinely help end that debt. And the world can see this.
It is an important lesson for the UK, as well. This country didn’t need the Troika to enforce privatisation, wage suppression, public spending restrictions and so on because we have a neoliberal Conservative-led government that is already avid for those things.
Our economy has suffered badly – and our people have suffered brutally – because of these choices by rich Conservatives who have not had to bear any of the pain themselves.
For no reason.
It seems possible that both Greece and the UK could probably take a leaf out of 1920s German chancellor Gustav Streseman’s book – re-industrialisation and (in Greece’s case) renegotiation of loans and an exit from the Euro in order to create a new currency. Whether that is practical is best left to economists who have more expertise than a layman like this writer.
What is clear is that Austerity – and its champions – are bad for everybody’s national interest.
*Austerity – The Demolition of the Welfare State and the Rise of the Zombie Economy, Kerry-Anne Mendoza, published by New Internationalist. Pick up a copy now!
Alexis Tsipras is smiling because he can tell that David Cameron is a monstrously incompetent economic illiterate [Image: Reuters].
It is rare for Professor Simon Wren-Lewis to make an overtly critical statement of our politicians – usually he sticks to their policies.
We may therefore conclude that he has taken extreme exception to David Cameron’s comments about the Greeks, made in Brussels a few days ago.
Cameron said: “When I first came here as prime minister five years ago, Britain and Greece were virtually in the same boat, we had similar sized budget deficits. The reason we are in a different position is we took long-term difficult decisions and we had all of the hard work and effort of the British people. I am determined we do not go backwards.”
Here’s Prof Wren-Lewis’s response: “In other words if only those lazy Greeks had taken the difficult decisions that the UK took, they too could be like the UK today. This is such as travesty of the truth, as well as a huge insult to the Greek people, that it is difficult to know where to begin.
According to OECD data, the 2010 government deficit in Greece was 11%, and in the UK 9.5%. The Prime Minister is normally well briefed enough not to tell outright lies. But look at this chart you can see why the statement ‘virtually in the same boat’ is complete nonsense.
“The real travesty however is in the implication that somehow Greece failed to take the ‘difficult decisions’ that the UK took. ‘Difficult decisions’ is code for austerity. A good measure of austerity is the underlying primary balance. According to the OECD, the UK underlying primary balance was -7% in 2009, and it fell to -3.5% in 2014: a fiscal contraction worth 3.5% of GDP. In Greece it was -12.1% in 2009, and was turned into a surplus of 7.6% by 2014: a fiscal contraction worth 19.7% of GDP! So Greece had far more austerity, which is of course why Greek GDP has fallen by 25% over the same period [all boldings mine]. A far more accurate statement would be that the UK started taking the same ‘difficult decisions’ as Greece took, albeit in a much milder form, but realised the folly of this and stopped. Greece did not get that choice.
“And I have not even mentioned the small matter of being in or out of a currency union.”
Did you take note of the comment that austerity hinders productivity?
This is very important to a United Kingdom that is struggling to increase its productivity – and therefore its competitive edge in the world marketplace. We will never succeed under the stranglehold of Tory austerity.
Prof Wren-Lewis goes on to explain why Janan Ganesh’s recent claim that George Osborne is surrounded by “monstrously incompetent adversaries” is a reversal of the facts; we have a monstrously incompetent chancellor instead.
Here is a nice video of Greece’s new Finance Minister Yanis Varoufakis being interviewed in Italy late last year before Syriza came to power, writes Alex Little.
He talks about his ideas for resolving the Eurozone crises (plural) within the confines of the current rules of the EU.
Alex goes on to point out the differences between Mr Varoufakis and George Osborne, after their meeting in Downing Street yesterday (February 2). There was an image that perhaps more easily described this (which This Writer has lost – sorry) – it describes Mr Varoufakis’s qualifications as a Doctor of Economics and a Professor of Economic Theory, and then goes on to quote George Osborne’s academic achievements, which include a 2:1 in History and failure to qualify as a journalist.
The newly-elected government in Athens has always been suspicious of the Transatlantic Trade and Investment Partnership (TTIP) and will use its Parliament majority to sink the EU-US trade pact, claims a former Syriza MEP now turned minister, according to Euractiv.
After making its voice heard in the debate over sanctions on Russia, the new government in Athens is now making its opposition known to the EU-US trade deal, TTIP.
Georgios Katrougkalos, a former influential Syriza MEP who quit his European Parliament seat to become deputy minister for administrative reform in the leftist Greek government, said the new leadership in Athens will use its veto to kill the proposed trade pact – at least in its current form.
Just before the January elections, he told EurActiv Greece that a Syriza-dominated Greek parliament would never ratify the EU-USA trade deal.
Asked by EurActiv Greece whether the promise still holds now Syriza is in power, Katrougkalos replied:
“I can ensure you that a Parliament where Syriza holds the majority will never ratify the deal. And this will be a big gift not only to the Greek people but to all the European people”.
Now, why would the Western (right-wing) media be doing their best to suppress this?
Most of you, dear … readers, will have formed a preconception of what this article is about before you actually read it. I am imploring you not to succumb to such preconceptions. Prejudice was never a good guide, especially during periods when an economic crisis reinforces stereotypes and breeds biggotry, nationalism, even violence.
In 2010, the Greek state ceased to be able to service its debt.
Unfortunately, European officials decided to pretend that this problem could be overcome by means of the largest loan in history on condition of fiscal austerity that would, with mathematical precision, shrink the national income from which both new and old loans must be paid. An insolvency problem was thus dealt with as if it were a case of illiquidity.
In other words, Europe adopted the tactics of the least reputable bankers who refuse to acknowledge bad loans, preferring to grant new ones to the insolvent entity so as to pretend that the original loan is performing while extending the bankruptcy into the future. Nothing more than common sense was required to see that the application of the ‘extend and pretend’ tactic would lead my country to a tragic state. That instead of Greece’s stabilization, Europe was creating the circumstances for a self-reinforcing crisis that undermines the foundations of Europe itself.
My party, and I personally, disagreed fiercely with the May 2010 loan agreement not because you, the citizens of Germany, did not give us enough money but because you gave us much, much more than you should have and our government accepted far, far more than it had a right to [all boldings mine]. Money that would, in any case, neither help the people of Greece (as it was being thrown into the black hole of an unsustainable debt) nor prevent the ballooning of Greek government debt, at great expense to the Greek and German taxpayer.
Indeed, even before a full year had gone by, from 2011 onwards, our predictions were confirmed. The combination of gigantic new loans and stringent government spending cuts that depressed incomes not only failed to rein the debt in but, also, punished the weakest of citizens turning people who had hitherto been living a measured, modest life into paupers and beggars, denying them above all else their dignity. The collapse of incomes pushed thousands of firms into bankruptcy boosting the oligopolistic power of surviving large firms. Thus, prices have been falling but more slowly than wages and salaries, pushing down overall demand for goods and services and crushing nominal incomes while debts continue their inexorable rise. In this setting, the deficit of hope accelerated uncontrollably and, before we knew it, the ‘serpent’s egg’ hatched – the result being neo-Nazis patrolling our neighbourhoods, spreading their message of hatred.
Despite the evident failure of the ‘extend and pretend’ logic, it is still being implemented to this day. The second Greek ‘bailout’, enacted in the Spring of 2012, added another huge loan on the weakened shoulders of the Greek taxpayers, “haircut” our social security funds, and financed a ruthless new kleptocracy.
Respected commentators have been referring of recent to Greece’s stabilization, even of signs of growth. Alas, ‘Greek-covery’ is but a mirage which we must put to rest as soon as possible. The recent modest rise of real GDP, to the tune of 0.7%, signals not the end of recession (as has been proclaimed) but, rather, its continuation. Think about it: The same official sources report, for the same quarter, an inflation rate of -1.80%, i.e. deflation. Which means that the 0.7% rise in real GDP was due to a negative growth rate of nominal GDP! In other words, all that happened is that prices declined faster than nominal national income. Not exactly a cause for proclaiming the end of six years of recession!
Allow me to submit to you that this sorry attempt to recruit a new version of ‘Greek statistics’, in order to declare the ongoing Greek crisis over, is an insult to all Europeans who, at long last, deserve the truth about Greece and about Europe. So, let me be frank: Greece’s debt is currently unsustainable and will never be serviced, especially while Greece is being subjected to continuous fiscal waterboarding. The insistence in these dead-end policies, and in the denial of simple arithmetic, costs the German taxpayer dearly while, at once, condemning a proud European nation to permanent indignity. What is even worse: In this manner, before long the Germans turn against the Greeks, the Greeks against the Germans and, unsurprisingly, the European Ideal suffers catastrophic losses.
Germany, and in particular the hard-working German workers, have nothing to fear from a SYRIZA victory. The opposite holds. Our task is not to confront our partners. It is not to secure larger loans or, equivalently, the right to higher deficits.
Our target is, rather, the country’s stabilization, balanced budgets and, of course, the end of the grand squeeze of the weaker Greek taxpayers in the context of a loan agreement that is simply unenforceable. We are committed to end ‘extend and pretend’ logic not against German citizens but with a view to the mutual advantages for all Europeans.
Dear readers, I understand that, behind your ‘demand’ that our government fulfils all of its ‘contractual obligations’ hides the fear that, if you let us Greeks [have] some breathing space, we shall return to our bad, old ways. I acknowledge this anxiety. However, let me say that it was not SYRIZA that incubated the kleptocracy which today pretends to strive for ‘reforms’, as long as these ‘reforms’ do not affect their ill-gotten privileges. We are ready and willing to introduce major reforms for which we are now seeking a mandate to implement from the Greek electorate, naturally in collaboration with our European partners.
Our task is to bring about a European New Deal within which our people can breathe, create and live in dignity.
A great opportunity for Europe is about to be born in Greece. An opportunity Europe can ill afford to miss.
With Greece under Syriza about to enter negotiations with the Troika, there has been much discussion of what might happen, and what should happen. This post is in the ‘should’ category, writes Professor Simon Wren-Lewis in Mainly Macro.
In the past I have argued that the Troika should welcome the opportunity to put right earlier mistakes. There should be a large amount of guilt, or at least regret, on their side… to show that I’m not living in a dreamland, read this FT piece by Reza Moghadam, the former head of the European Division of the IMF.
In reality debt restructuring is a bargaining game, but I want to suggest a general principle that any agreement should hold to. That principle is that there should be no significant increase in unemployment above its natural rate (let’s call this excess unemployment) as a direct result of having to pay interest on any government debt.
This is why the Troika should feel guilty, because by not allowing Greece to default on all its debt back in 2010 it helped create a situation where over half young people in Greece are unemployed… As I have argued in the past in the context of Latvia, the efficient way to restore competitiveness is to have small but persistent excess unemployment: a ‘short sharp shock’ is much more costly. The Troika imposed much too much austerity on Greece in a futile effort to avoid full and early default.
The process transferred the ownership of the remaining Greek government debt from the private sector to the public sector – other Eurozone governments and the IMF. The transfer to other European governments was wrong in two respects. First, it was another example of governments bailing out their own banks and other financial institutions with no costs to those institutions. Second, it made any subsequent restructuring of Greek debt much more difficult politically. If there had been full and immediate default there would have still been need for additional lending to Greece to give them time to adjust their public finances and avoid a large increase in unemployment, but that is what the IMF is for. If the Troika had not been involved, the IMF may well have gone for early and complete default.
So much for the past and guilt. What about what should happen now? The priority is for Greece to reduce unemployment as quickly as possible.
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