03 July 2015

Greece and Germany Debate Signalling Profound Changes in EU

The main feedback I got on my previous post on Grexit was along the lines of, "well it was a nice and tidy argument but you were too hard on Germany and besides, if any of your points contained even a germ of truth surely someone would have mentioned them."

I am not ashamed to admit that I was fairly hard on blond and blue-eyed Northern gods.

However, this is not because I believe in their innate propensity to push their swarthy neighbors into bankruptcy or worse; it is because, in this case, nothing else explains their behavior.

As for no one else mentioning my points, there are a few lone voices expressing similar concerns, but on the whole, it is true that the corporate media's verbose reporting is so devoid of meaningful content that it looks like a textbook case of Oh Dearism.

The early stuff about Varoufakis-the-bike-riding-bad-boy has now been replaced with Tsipras the- tieless-intransigent-ideologue-pinko. There are breathless tidbits about the President of the Commission's disappointment with that young man. And of course the perennial zombie lie about Greek people being lazy southerners who want to live off German tax payers underlines all discussion on the subject.

In short, when you read up on Greece you get the impression that austerity is the only thing that will cure the Greek economy, the IMF and members of the troika are doing their best to help the lazy, lying and stubborn Greeks and Germany is bending over backwards to accommodate the unreasonable demands of the lefty Greek government.

Let's review together the main issues to determine if, heaven forbid, I wronged the Aryan nations.

Austerity: Best Cure for the Greek Economy?

Roughly five years ago, the IMF, ECB and the EU Commission told the Greeks that they should accept austerity measures if they wanted to survive, fix their economy and stay in the Eurozone.

And so they did.

Take a look at the chart below. The line above is the IMF projection of Greek growth five years ago.

Now take a look at the line below. This is where Greek economy landed after five years of austerity measures. in fact, in the intervening years, the country's debt to GDP ratio worsened.

This is from the conservative and pro-market CNBC:
Urging a "Yes" vote, European leaders and their supporters in private institutions claim more austerity would reinvigorate the Greek economy and permit Greeks to keep the euro as their currency, but such claims simply contradict the facts.

Already, the Troika, led by German Chancellor Angela Merkel and IMF Managing Director Christine Lagarde, has imposed five years of budget cuts, higher taxes and labor market adjustments. The Greeks have endured a 25- percent contraction in GDP, 25-percent cut in private-sector wages and 25 percent unemployment.

Greece's debt-to-GDP ratio has soared to 180 percent from 130 percent of GDP, and that is an impossible burden to repay.
This is from a Nobel Laureate:
If you add up all the austerity measures, they have been more than enough to eliminate the original deficit and turn it into a large surplus. 
So why didn’t this happen? Because the Greek economy collapsed, largely as a result of those very austerity measures, dragging revenues down with it.
Actually, you don't even need a Nobel prize to make the point. There is a basic logic here. In the early days of the crisis, I quoted a commentator who said that asking Greece to pay its debt while shrinking its economy is like trying to milk a cow without feeding it.

This is from another Nobel Laureate:
Of course, the economics behind the programme that the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.
But what about the billions upon billions of bailout funds that the troika gave to Greece?

Glad you asked:
We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems.
And, from day one, saving German and French banks have always been the cornerstone of these bailout efforts.

Given these facts, why do you think the troika and Germany insist on austerity measures?

The Troika Negotiating Earnestly for a Fair Outcome?

The so-called troika is composed of the European Commission (EC), European Central Bank (ECB) and the International Monetary Fund (IMF).

This is how Paul Krugman sees them:
Don’t be taken in by claims that troika officials are just technocrats explaining to the ignorant Greeks what must be done. These supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way. 
Let's see how they did in all this.

European Commission

If you know a little bit about the EU institutions you know that the European Commission (EC) is a fairly powerless organization. Its predecessor in the European Coal and Steel Community (ECSC) had real power but once the Treaty of Rome was signed in 1957 and the EC institutions were subsequently "harmonized" the Commission became a toothless body.

While it is hailed as the executive branch of the EU system, it is more like the Secretariat of the Council of Ministers. Consequently, no Commissioner would dare to take on any minister and especially a Prime Minister of any member state, including Luxembourg's, their tiniest member.

Which makes the hostile, aggressive and downright insulting tone of the EC President Jean-Claude Juncker throughout these negoations unprecedented.

Look at the patronizing and cringe-inducing picture on the right. Have you ever seen a politician do this to another politician?

It is like Tony Soprano affectionately slapping one of his foot soldiers.

These are some of the recent headlines (if you Google "Juncker Tsipras")

Jean-Claude Juncker accuses Alexis Tsipras of lying
EU's Juncker snubs Greek PM after "absurd debt deal" rebuff
EU's Juncker rebukes Greece's Tsipras
Juncker spurns Tsipras meeting
EU Chief feels "betrayed" by Tsipras

I am pretty certain that no President of EC has ever called the Prime Minister of a member country a liar. But it is now an almost daily occurrence. And no one seems to object.

As the BBC put it:
It's hard to remember the last time a president of the European Commission used such blunt, undiplomatic and sometimes angry language about the government of a member state.
Moreover, the Commission intervened into the Greek debate to urge Greek voters to say yes to the austerity question. In fact, Juncker crossed another line when he claimed that a "no" vote would mean Greece would have to stop using the Euro and would have to leave the EU.

Neither of these propositions is true. No one can stop any country from using any currency. Liberia and Zimbabwe are doing it and Scotland and Quebec might have done it if they had voted for independence. And there is simply no mechanism to expel a country out of EU. It is blatant manipulation and fear-mongering.

European Central Bank 

Throughout the talks, ECB was providing a lifeline to Greek banks to keep them afloat. In fact, the support was seen by some as enabling the Greek government's stubborn stance. But ECB did not want to be the one to cause a major economic crisis in Greece.
"The ECB cannot be seen to be an agent of economic collapse in Greece," one source close to the ECB told me.

"It will bend over backwards to see if they can find a way to support the banks through the uncertain days before the poll."
Yet, as soon as Tsipras announced a referendum the ECB, which is supposed to be an independent institution, suddenly stopped its support to Greek banks.

This is what triggered the closing of banks and the imposition of capital controls.

And the latest opinion polls suggest that the 60€ daily withdrawal policy (triggered by the ECB move) is favoring the Yes vote.

International Monetary Fund

Under Christine Lagarde, IMF turned into an interesting organization that can promote contradictory positions at once. While it defends very strict austerity measures in Greece, IMF questions the soundness of austerity programs and argues for large stimulus policies everywhere else. Monetarist in Greece, Keynesian everywhere else.

How do you explain that contradiction?

Wouldn't you say that it is as if IMF is pushing Greece under the bus to do the bidding of some powerful countries and institutions? Actually, its rude and intransigent and terribly micromanaging conduct during the negotiations are unusual enough to lend support to such an hypothesis.

For instance, in early June the IMF team abruptly left the negotiating table and immediately flew home citing irreconcilable differences between the two sides. Do you know what that huge divide was?

Greek side agreed to IMF's surplus targets but the method they wanted to employ to achieve them was higher taxes instead of more spending cuts. And IMF walked because it preferred spending cuts to higher taxes.
This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.
Both the Commission and the IMF insisted that instead of higher taxes the Greek government should reduce pensions and salaries. In fact, the offer by Juncker which was presented as a last ditch effort to find a way out of the impasse was not about a new alternative but a minor tweak on poor people's pension:
The new offer is believed to have centred on a change in terms to Ekas - a top-up given to poorer Greek pensioners that Athens prefers to scrap by 2020, but Europe wants phasing out earlier.
 Here is Krugman's take on IMF behavior:
Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we’re not in high school here. And right now it’s the creditors, much more than the Greeks, who keep moving the goalposts. So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others?
Notice that he also thinks that IMF's stated goal could not explain its attitude and there must be a hidden agenda like breaking Syriza.

There is one more thing. Just two days before the proposed referendum, IMF hastily released a report stating that Greece might need an additional $50 billion because of the policy blunders of Syriza since January 2015.

It is as if they want Syriza out.

Germany Want Greece to Recover

As I mentioned in my previous post, Germany, first through its combative Finance Minister Woflgang Scahuble and later through Angela Merkel did everything humanly possible to block any loosening of the austerity terms, to humiliate Syriza and to undermine the Greek government.

In fact, Schauble is the first politician to openly call both the Greek Finance Minister and Prime Minister liars. This is the latest:
“Greece is in a difficult situation, but purely because of the behaviour of the Greek government … Seeking the blame outside Greece might be helpful in Greece, but it has nothing to do with reality.

“The Greek government is not doing its people any favours at all if it keeps making completely false statements. Nobody else is to blame for their situation.”
The German bad faith is such that when Alexis Tsipras came back with a counter proposal accepting most of the German imposed austerity measures in exchange for loosening some repayment conditions, first Schauble, then Merkel told him to take a hike.

They would not even look at the proposals or dignify it with an answer. They said that they would not negotiate since the bailout period has already expired.

When pressed Merkel reiterated her position that Germany would not negotiate with Greece and will reconsider new talks after the referendum.

To recap, let's stipulate that this is the current situation,
Yet, neither Germany's finance ministry, nor any other European government or competent private institution, has tabled a credible analysis demonstrating how more austerity and labor-market reforms (read more layoffs and wage cuts) will instigate growth and not result in even bigger losses for bondholders down the road.

Another round of austerity would only further pummel the Greek economy, and impose economic deprivation that European leaders should be ashamed to engineer.
Once again, why do you think Germany insist on more austerity?

Is it just to break Syriza in order to prevent a Podemos win in Spain?

Or is it to restructure EU to become a two-tier space with German and other northern economies at the center and debt-hobbled and dominated southern economies at the periphery?

If you agree that PIGS countries can never pay back their debt with the current austerity policies, you already have your answer.

When the Yes side wins and Syriza resigns, Aryan eyes will be smiling.

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