Tags: Europe, European Union, Eurozone, France, Germany, Greece
On June 3, when the President of the European Commission (EC), Jean-Claude Juncker conveyed the collective demands of Greece’s creditors—the European Central Bank (ECB), the European Commission, and the International Monetary Fund—to the embattled country’s Prime Minister, Alexis Tsipras, a member of his governing Syriza party said of the Greek delegation: “They came, they saw, and they had their balls handed to them.”
Five months after the anti-austerity party rode to victory in the Greek elections and had renounced efforts by previous Greek governments to impose austerity measures that had led the country’s debt grow from 124 per cent of GDP to 180 per cent and its unemployment rate soar to 25 per cent (and youth unemployment to 60 per cent) and its pensioners see their meagre pensions decline even faster, the German Chancellor Angela Merkel invited the IMF’s Managing Director Christine Lagarde and the President of the ECB, Mario Draghi to a previously scheduled meeting between herself, Juncker, and the French President Francois Hollande on June 1 to draft a common negotiating position among Greece’s creditors. Prime Minister Tsipras was notably not invited.
Papering over their differences, the 5-page demands Juncker delivered to Tsipras made some concessions to Greece—lowering the demand that the primary surplus for 2015 be 1 per cent rather than the 3-4 per cent that had been the earlier demand—but also included “red lines” that the Syriza-led government had vowed never to cross such as generating 2 per cent of the GDP from cutting pensions and raising VAT to a uniform level (except on food, medicines, and hotels), not to reverse the labor market reforms that the ‘troika’ (the ECB, the EC, and the IMF) had forced down the throats of previous governments, and even to establish an ‘independent’ tax and customs agency and thereby making its operations beyond the ambit of elected officials.
Yet, far beyond debates on primary surpluses and ‘red lines,’ the real struggle between Greece and its “European partners” is over politics. The positions are clear. Because of the single currency, an indebted country like Greece cannot devalue its currency and thereby cheapen its exports and with the increase in exports (and tourism) repay its debts. Hence the ‘troika’ (now renamed ‘the institutions’) were attempting to impose an ‘internal devaluation’ on Athens: forcing it to cut minimum wages and increase labor market ‘flexibility’ (making it easier to hire and fire workers and thereby also curb labor militancy) to force down the prices of Greek products to increase exports, to privatize government assets, improve taxation and efficiency in collecting taxes, and to sharply reduce government expenditures by severely cutting welfare programs and reducing public sector employment and pensions. Syriza and other opponents of the ‘austerity’ measures have argued that these measures actually impede Greece’s ability to repay its loans: if people don’t have money due to welfare cuts, job losses, etc., they cannot buy goods and hence more businesses fail. Indeed, Greece’s GDP has contracted by over 25 per cent in the five years of troika-mandated austerity and its unemployment remains high while its debt as a ratio of GDP has grown from 124 per cent to 180 per cent.
As Robert Preston, the BBC’s economics editor puts it:
But although for the pride of the creditors, the question of whether Greece is obliged to generate a surplus on its budget, excluding interest payments, of a bit more than zero or 3%, feels like a world of difference – it is a rounding error compared with the money Greece owes them, which is equivalent to 180% of Greek GDP.
In the highly unlikely event that Greece could generate a 2% or 3% surplus year-in and year-out without its economy shrinking further (which few economists would anticipate), it would take around half a century for Greek public sector debt to fall to a level regarded as sustainable. gett A half century of austerity? In what modern democracy would that be regarded as a realistic option?
Most egregiously, sharp cuts in expenditure has meant that in some hospitals budgets have fallen by 94 per cent. How can this be sustainable in a continent as rich as Europe?
It is clear that one way or another, as Nils Pratley wrote in the Guardian, there will have to be a debt write-down. What Greece’s European “partners” are unwilling to countenance is Syriza’s demands to reverse the “austerity” measures because they want to root out any left-wing challenge to the reigning neo-liberal orthodoxy. Once Greece caves in, subjects itself to ‘vasectomy’ in the words of one of its MPs, then debt-relief could be offered but not before. To offer a write-down of the debt is particularly terrifying to Spain where the governing party has already lost many local elections to a Syriza-like party, Podemos, which now controls the three major cities of Madrid, Barcelona, and Valencia. It is also threatening to other EU economies like Portugal, Ireland, and Italy which have been compelled to implement austerity measures.
Syriza has, however, done its cause no favors despite some eloquent posturing by its Finance Minister, Yanis Varoufakis. It has not demanded a write down of the debt—and we must remember that when the troika made the first loan to Greece in 2010, Germany and France explicitly demanded that the austerity not be extended to the military—and Greece has been the best customer of the German arms industry. How is the cutting of pensions and salaries to workers while maintaining higher than the EU average in military spending morally justifiable?
With Syriza maintaining the charade of negotiating with its European ‘partners’ over the last months, Greece’s position has rapidly deteriorated as frightened depositors have withdrawn their money from the banks and even transferred them outside the country. By the end of April, Greece’s bank deposits were at their lowest level since 2004 and by the end of last week deposits were being withdrawn at the daily rate of 1 billion euros.
Interestingly, the Speaker of the Greek Parliament, Zoe Konstantopoulou, has set up a Debt Truth Committee to report to parliament on June 18
is said to be on the point of finding some of Greece’s original bailout debt, from either 2010 or 2011, was unlawfully contracted. In addition, Ms Konstantopoulou is armed with a finding from experts that Germany owes Greece €350bn in war reparations – more than the whole of its debt to Europe.
This could open up a host of legal challenges even if Tsipiras was to finally cave into the troika’s demands. The question is whether the Left Platform within Syriza is strong enough to prevent a cave in when there is nothing the troika would like than to install a government of national unity with a rump Syriza. That would, temporarily at least till Spain’s November election, decapitate the European Left. Will it happen?
In the short run, if no resolution is found, Greece will be unable to make scheduled payments to its creditors and being declared to be in default would make its borrowing costs in private capital markets intolerable; Syriza’s reluctance to impose capital controls would lead to the swift collapse of its banking sector unless the government begins to issue a virtual currency against future revenues which could ease the liquify crunch domestically at least. But Greece cannot be thrown out of the EU without its consent as all decisions must be unanimous. Even if Greece were to exit the common currency—Grexit as it has been dubbed—it would call the whole European project into question. It is also unrealistic to expect a country as bankrupt as Greece to police its borders when hordes of refugees from Africa and the Middle East are streaming to Europe—and from Greece, they could move to any country in the Schengen area. Will this be enough for its European ‘partners’ to blink?
Tags: Eurozone, Greece, Political Economy, Portugal, Spain, world politics, World-economy
Earlier this week, confronted by massive street protests and criticism from his coalition’s junior partner, the center-right Portuguese Prime Minister, Pedro Passos Coelho, reversed his controversial plan for “financial devaluation.” When tax revenues fell by 3.5 percent in the first seven months of this year–due to unemployment rates spiking to above 15 percent–against a projected increase of 2.6 percent for the year, it became apparent that Lisbon would not be able to meet the budget deficit target of 4.5 percent of GDP imposed by the troika of the European Union, the European Central Bank and the Interantional Monetary Fund as a condition for disbursing the next tranche of the €78 billion bailout they promised.
Passos Coelho’s solution to this dilemma was to cut employer’s social security contribution by 5.75 percent and finance this by increasing workers’ contributions by 7 percent. This would have been tantamount to a currency devaluation by significantly reducing unit labor costs and was heralded as a “potential game changer” by the IMF’s Poul Thompsen.
In the continued decline of the country’s GDP and high rates of unemployment, this proposal was condemned by members of the prime minister’s own party as well as by the leader of the junior partner in his coalition–the conservative People’s Party–and by many business leaders as well as of course by more than half a million people who marched in Portugal’s cities in the largest demonstrations since the end of the Salazar dictatorship in 1974.
“We are not the children of the revolution.” their posters said, “We are the parents of the next revolution.” Meanwhile, in Spain, the miners of Asturias have been battling the police for months with rocket launchers, and protestors jn Madrid were met with a fusillade of rubber bullets. With over half the youth unemployed, and the government of prime minister Mariano Rajoy planning to implement deeper austerity measures in order to say that these were taken by their own volition rather than imposed by the troika as a condition for a bailout, the right and the left united in opposition. In recognition of this united opposition, the riot police in Madrid hid their identity badges:
A startling example of police culture came in a tweet from José Manuel Sánchez of the Unified Police Union (SUP). “We support them not wearing badges for violent demonstrators,” he said during the demonstration. “Give it to them hard.” Television pictures of baton charges and rubber bullets suggest they did exactly that.
And in Spain’s second city, a million and a half people led by the provincial government marched for Catalan independence–here it was not merely the demonstrators but the regional legislators who were challenging the post-Franco accord.
Athens exploded as well in a burst of flames as the unions called a general strike grounding flights, shuttering shops, museums, and monuments, and docking ships for hours as over 200,000 people demonstrated outside parliament protesting the new round of austerity measures the three-month old government of prime minister Antonis Samaras. Though details of the cuts were not made public, it was expected to slash pensions, wages and benefits even more.
All across Europe, these riots seem a repetition of the ‘anti-IMF’ riots that raged across Latin America and Asia in the 1980s and 1990s. As Ha-Joon Chang writes
it is ironic to see the European governments inflicting an old-IMF-style programme on their own populations. It is one thing to tell the citizens of some faraway country to go to hell but it is another to do the same to your own citizens, who are supposedly your ultimate sovereigns. Indeed, the European governments are out-IMF-ing the IMF in its austerity drive so much that now the fund itself frequently issues the warning that Europe is going too far, too fast.
Just as the IMF number crunchers did not take into account the people whose livelihoods would be crippled by the savage cuts being proposed by the troika and imposed by their puppets in Athens, Lisbon, Madrid. But as the Gurardian editorialized:
Amid all their talk of haircuts (on debt values) and tranches (of loans), European leaders have barely talked about the people who are bearing the brunt, first of the crisis and then of the throat-clearing that passes for firefighting in Brussels. This is not accidental. The euro project has relied upon draining the politics out of the inherently political: the very existence of a 17-nation economic union without a common treasury is testimony to that.
The protests are now inserting the politics back into the issue–demanding that those who had no part in the financial mess created by the collapse of housing bubbles, bad loans, and high deficits should not bear the price of these costly gambles made by bankers and politicians. it is not merely the question of bad financial regulations–it is the more the question of democracy that is at stake in Europe. The Portuguese reversal of its “financial devaluation” is the first step towards reversing the tide of neo-liberalism! A small step for Portugal, a giant leap for Europe!
Tags: European Union, Eurozone, France, Greece, Internnational Monetary Fund, NATO
In the Greek elections on Sunday May 6, 2012, the two main parties that had governed the country since the end of the dictatorship–New Democracy and Pasok–and both of which has subscribed to the stringent austerity measures imposed on Athens for a bailout suffered a stunning set-back. Used to dominating the polls, together they received just one-third of the votes. Two-thirds of the Greek electorate voted for parties–including a neo-Nazi party, Golden Dawn–that rejected the austerity measures, though most Greeks still want to remain within the Eurozone. Alexis Tsipras, the leader of the Syriza coalition of green and left parties that placed second in the elections, and was the big winner declared the austerity plan dead. That is certainly what the Greek voters indicated though the German Chancellor, Angela Merkel and the European Commission President, José Manuel Durão Barroso claimed that agreements are binding and cannot be negotiated after every election. By what perverted logic does this hold: last year, when the stringent bailout conditions were imposed on Greece by the ‘troika’–the European Union, the European Central Bank, and the International Monetary Fund–the then Greek Prime Minister Giorgios Papandreou wanted to hold a referendum. Merkel and French President Nicolas Sarkozy, forced him to rescind the referendum. The bailout agreement, then, was foisted on the Greek people not only without their consent, but on the explicit condition that their consent not be solicited. No such international agreement can have a shred of legitimacy and the Greeks voted, in their millions, to reject it!
It was, Albert Einstein I think who said that the clearest sign of insanity is to persist in doing something that has failed repeatedly. Clearly, austerity programs have not worked. In Greece, unemployment stands at 21 per cent and the OECD estimates that real wages have fallen by 25 per cent in the last two years.According to the IMF, this will be the fifth straight year of recession for Greece to be followed by a year of stagnation. Even if the Greek government were to implement the austerity measures, the IMF estimates that in 2017, the public debt to GDP ratio would be 137 per cent, higher than at the onset of the current crisis. And thus far, IMF projections have been overly optimistic!
None of this should be surprising! After all if incomes are slashed and taxes raised, people are not going to have the resources to buy as many goods and services as they did earlier. This will lead to a contraction of the market and greater unemployment–which in turn will lead to further contractions in demand and the economy will go into a tailspin. Even Antonis Samaras, leader of the conservative New Democracy party and one who adheres to the austerity pact acknowledges that fully a fourth of all Greek companies have closed their doors since 2009 and a further third of the companies do not pay their workers on time!
What is surprising is that by insisting that Greece implement further austerity measures–and even suspend the rights of collective bargaining–the ‘troika’ has excluded Greece’s military expenditures from the scalpel. As Paul Haydon reported in the Guardian:
In 2006, as the financial crisis was looming, Greece was the third biggest arms importer after China and India. And over the past 10 years its military budget has stood at an average of 4% of GDP, more than £900 per person. If Greece is in need of structural reform, then its oversized military would seem the most logical place to start. In fact, if it had only spent the EU average of 1.7% over the last 20 years, it would have saved a total of 52% of its GDP – meaning instead of being completely bankrupt it would be among the more typical countries struggling with the recession.
In the five years to 2010, Greece was the largest customer for Germany’s arms industry. And in 2010, when the first bailout was being negotiated for Greece, Athens spent 7.1 billion euros on arms even as it slashed 1.8 billion in social spending. Daniel Cohn-Bendit, the European member of parliament, even claimed that Papanreou had told him that German and French support for the bailout was specifically linked to continued military spending. In 2010, at 3 percent of its budget on military spending, Athens allocated a higher percentage of its spending to defense than any NATO state other than the United States.
While it is obvious why Germany and France don’t want Greece to cut its defense spending, why are Greek politicians not raising this as an issue?
Tags: European Union, Eurozone, France, Germany, Greece, Ireland, Italy, Spain, World-economy
Francois Hollande has defeated Nicolas Sarkozy to become the first Socialist president of France in 17 years. He campaigned on a platform to renegotiate the austerity package that the German Chancellor Angela Merkel and Sarkozy had championed, with the support of the British Prime Minister David Cameron and other ‘center-right’ politicians in Europe. The victorious Hollande argued that the way out of the fiscal crisis enveloping the Eurozone is to focus on growth rather than to reduce deficits. The austerity packages, by sharply curbing government expenditures not only leads to unemployment but also reduced payments to the elderly, the young, and the unemployed. They can therefore no longer consume at their previous levels leading to further unemployment as businesses curtail production and the economy continues its tailspin–as has already happened in Greece, Portugal, Italy, Spain, and Ireland.
But will Hollande be successful in reviving the Eurozone economies? Will this ‘marshmallow’ man (so-called because he hates fights) be strong enough to stand up to Merkel? His potential choice as prime minister, Jean-Marc Ayrault. has suggested that rather than reopening the draft fiscal treaty driven by Sarkozy and Merkel., Hollande will seek to incorporate a minor amendment on growth. This would not be surprising as Hollande’s previous experience in government was as an aide to the last Socialist president of France, Francous Mitterand, who in his second term initiated a wave of neo-liberal reforms that de-regulated much of the French economy.
Socialist and Labor parties in Europe, as political expressions of trade unions since the late nineteenth-century, have floundered as manufacturing has shifted to lower-waged countries and trade unions have suffered a tremendous erosion of memberships. After Margareth Thatcher defeated the miners strike in 1984, European unions have steadily declined in political and social significance.
What, too, is a ‘growth’ strategy has never been addressed except to say that it should not be based on austerity measures. As manufacturing is becoming increasingly automated–labor costs amounted to only $7.10 of a total production cost of $178.40 for Apple’s iPhone 4–high-paying jobs in industry are simply disappearing. In large, vertically-integrated industrial operations, workers going on strike in a singe shop can disrupt the entire assembly line and hence undermine corporate profits. If workers in a gear-box plant down their tools, the entire auto assembly line will soon grind to a halt. Workers in the service sector–in the fast food industry or tellers in banks–simply do not have this structural power and hence their ability to bargain for better wages are far more limited. And as industrial production relocates overseas, more and more workers enter the service industries.
With lower incomes, their ability to consume is more limited. And this makes it less profitable to produce more goods and so industrial production continues to plummet as capital is increasingly allocated to financial speculation. This has the strange effect that whenever an election is held, the first question asked by the talking heads on TV is what would be the reaction of the markets to the results–because after the de-regulation of capital controls, the flows of capital into and out of a country are crucial to its economy and there is not government mechanism to regulate these flows.
In these conditions, governments are compelled to maintain market-friendly conditions and this is not something Hollande is likely to change. So what does growth-oriented policies mean? This needs to be spelt out beyond saying that it is the opposite of austerity programs, How is the economy going to add well-paying jobs in a situation when manufacturing is being steadily downgraded in the hierarchy of economic activities?
Tags: 21st Century Capitalism, democracy, Euro, European Union, Eurozone, France, Germany, Greece, Libya, Spain, Syria, United Kingdom, World-economy
“A typical sight during the pre-election protests,” in Spain last year Katherine Ainger wrote in the Guardian, “was a respectable middle-aged man with a cigarette in one hand and a marker pen in the other going from municipal bin to municipal bin writing ‘Vote here’ on the lids.” A few months later, at the other end of the Eurozone, in return for loans from the European Union, leaders of all three major political parties in Greece were required to sign pledges not to rescind a savage austerity program cutting more than 3.3 billion euros from the budget, rendering these pledges concrete and irreversible regardless of the outcome of the general election in April 2012. If the ‘typical sight’ during last year’s Spanish elections suggested that all political parties are the same, the demand that the EU wrested from the Greek politicians proved that their general election, announced for May 6, was rendered meaningless as the victors could not implement a new program. Elections become meaningless.
Paradoxically, just as French President Nicholas Sarkozy and British Prime Minister David Cameron after a brief hesitation, abandoned their client dictators in North Africa–even violently overthrowing the Gaddafi regime in Libya and chafing at the bit to do the same to the Bashar al-Assad regime in Syria–Sarkozy and German Chancellor Angela Merkel abandoned all pretense of supporting democracy when they forced then Greek Prime Minister Giorgios Papandreou to cancel a referendum he had proposed on the harsh terms imposed by the European Union for a bailout to Athens in November 2011. Threatening to expel Greece from the Eurozone, they effectively forced Papandreou to resign two days later and for him to be replaced by a national unity government headed by a former Vice President of the European Central Bank, Lucas Papademos.
Reporting in the Guardian, Helena Smith wrote:
For a country not only burdened by debt but closer to default than ever before, his appointment at the helm of a transitional government in Athens would be widely welcomed. An avuncular figure, Papademos is well respected in the European Union. In the corridors of power in Paris and Berlin, the capitals that count in deciding Greece’s fate, he is seen as a safe pair of hands, more capable than most at navigating the crisis-hit nation away from the shores of economic Armageddon.
Yet, this ‘safe pair of hands’ was the very one who, as president of the Greek Central Bank cooked the books so that Greece could enter the monetary union–and he was helped in this creative accounting by the European division of the Goldman Sachs—which is to be headed soon by the current president of the European Central Bank, Mario Draghi—for a fee of $300 million. Northern European governments only feign ignorance of their Mediterranean neighbors’ debts and subsidies, as Wolfgang Streeck notes, because their surveillance agencies could not “have failed to notice how countries like Greece saturated themselves with cheap credit after their accession to the Eurozone.” In fact, as government subsidies slowed down in conditions of budget consolidation, it was private flows that made up the difference–and it profited the export industries of the north because of the improved purchasing power among the Mediterranean countries—the prosperity of the north was predicated on the indebtedness of the south! Despite the fact that Eurostat had disclosed in 2004 that billions of euros had been shifted off public records in Greece, Athens continued to enjoy triple-A ratings.
Even the money being borrowed by Greece may have been the money of wealthy Greeks sent abroad as the Greek upper classes were practically tax-exempt as Stathis Kouvelakis has pointed out. When PASOK took office in 1981, it began to institute a social welfare system but did not seek to enlarge the tax base and even the middle class and the moderately wealthy remained exempt. In a sense then it is the untaxed money of richer Greeks, recycled through European banks, that is the source of the Greek debt! Yet, precisely because these funds were recycled through European banks, a Greek default would undermine the whole European financial system.
It is no wonder then that Sarkozy and Merkel refused to countenance a referendum in Greece and not only installed their own man at the helm of the government in Athens but placed officials from the ‘troika’–the European Union, the European Central Bank, and the International Monetary Fund–to oversee the operations of the government. Unless the Greek government complied with the stringent terms of the agreement imposed on it, funds in the escrow account will be withheld from Athens: a 32 percent cut in the minimum wage for those under 25, a 22 percent cut for those above 25, a cut in pensions by 25 percent on top of the laying off of some 200,000 workers over the past 12 months.
Given that politicians are hand-in-glove with the banks–from Goldman Sachs helping the Papademos shift billions of euros off the books to the Greek police beat up its Greek citizens to impose order for banks and hedge funds–it is no wonder that citizens are turning their backs on the politicians!