Tag: EuroZone

The European Version of Too Big To Fail

Europe weighs up limited Spanish rescue

By Peter Spiegel in Brussels, Victor Mallet in Madrid and Ralph Atkins in Frankfurt

European officials are weighing up a bailout programme for Spain that would aid its fragile domestic banking sector while imposing only “very limited conditionality” on Madrid, a concession that could make a reluctant Spanish government more willing to accept international assistance.

Unlike earlier bailouts for Greece, Portugal and Ireland, the proposed Spanish rescue would require few austerity measures beyond reforms already agreed with the EU and could even dispense with the close monitoring by international lenders that has proved contentious in Athens and Dublin, according to people familiar with the plans.

EU support would instead be contingent on increased external oversight and accelerated restructuring of the Spanish financial sector to address lingering concerns about political interference and cronyism in the cajas, the regional savings banks that loaded up on questionable real estate loans during the housing bubble.

Mario Draghi, president of the European Central Bank, added to the pressure building on EU and Spanish officials on Wednesday, after he left interest rates unchanged and put the onus to solve the eurozone debt crisis squarely on the continent’s politicians. While saying the ECB stood “ready to act”, Mr Draghi insisted that most of the problems befalling the eurozone have “nothing to do with monetary policy”.

Spain Holds a Trump Card in Bank Bailout Negotiations

by Nicholas Kulish and Raphael Minder

The question has seemingly become one of when, and not if, Spain’s banks will receive assistance from European countries, with investors on Wednesday predicting an imminent rescue and pushing up stocks and bonds on both sides of the Atlantic.

Spain, the euro zone’s fourth-largest economy, is too big to fail and possibly too big to steamroll, changing the balance of power in negotiations over a bailout. Political leaders in Madrid are insisting that emergency aid to their banks avoid the stigma in capital markets that has hobbled countries like Greece, Portugal and Ireland after accepting tough rescue terms. They are also fighting to slow the pace of austerity and economic change that have pushed those smaller countries into deeper recessions.

Spain has the added advantage of seeking help in a changed political environment in which calls for growth have begun to outweigh German insistence on austerity. Unlike Greece, Spain’s government did not run large budget deficits before the crisis, giving it leverage to argue that European aid to its banks should not come weighed down with a politically delicate loss of decision-making power over its own economic and fiscal policies.

Yves Smith take on what to do about the teetering European Banks:

Although markets reacted as if a deal was imminent, the FT makes it sound as if quite a few details need to be ironed out. And no wonder: the ECB, the one institution that could act unilaterally, has indicated it will only play a limited role and is leery of making long-term loans to Spanish banks or buying their debt. In addition, Spain appears to be taking an unwise posture, of asking for as little money for its banks as it thinks it will need. Rumors from Spanish officials come in at €40 billion, while European officials are looking at numbers more than twice that large. The big rule of fundraising is always raise a good bit more than you think you need in the first round; it will be vastly more expensive if you need to come to the well later.

Given that the shape of a Spanish bank rescue is very much in play, posts by European experts may well influence the outcome. While some of these recommendations might sound like the banking versions of apple pie and motherhood, it’s important to recognize that few of these basic principles have been adopted in recent bailout programs.

Against Their Own Best Interests

Last week the Irish voted against their own (s)elf interest, which according to Yanis Varoufakis, professor of economics at the University of Athens, when they “voted in favour of the EU’s fiscal compact which specifies that which is both impossible to attain and catastrophic if it is attained“:

So, why did the Fine Gael-led Dublin government push so powerfully in favour of this piece of crippling idiocy? And why did the smart, decent Irish voters said Yes, despite their tradition of saying No to euro-silliness? The answer is simple: They were blackmailed. Ireland’s voters were told: Vote No and the flow of money from the troika will cease. And so they voted Yes, even though I suspect that no government minister, no rank and file Fine Gael or Labour Party member, no man or woman on the street believes that the Fiscal Compact they voted for makes sense. [..]

If on 17th June Greeks voted like the Irish did last week (that is, against their reasoning and guided by fear and blackmail), the Eurozone will become history, with terrible consequences for the global economy. This is not the case of the Philosopher Kings blackmailing the plebs to do what is right. This is the case of ‘madmen in authority’, to quote Keynes, who are not only steering the vessel toward the rocks but who are, in the process, punching holes in the life vests that may carry us to safety once the shipwreck is complete. [..]

To conclude, Europe’s peoples are being marched into a catastrophe. They know that this is their predicament. They can see their march is leading them off a mighty cliff. But they are too afraid to veer off, in case there are beaten back into line, in case they get lost in the woods, for reasons that sheep know best. However, the only way this hideous march can end is if someone summons up the courage and does it. And steps out, showing the others that this march can stop and must stop – for everyone’s benefit. Who is that someone? We, Europeans, do not have many options. As I wrote above, the Irish people had a chance but did not take it. In two weeks, the Greeks have their chance. Voting for Syriza would offer us (and by ‘us’ I mean all Europeans) a chance of this circuit-breaker. A chance to say: Enough! Time to change course in order to save the Eurozone, so as to prevent the Great Postmodern Depression which lurks once the euro-system fragments formally.

Varoufakis gives his reasons for supporting Sariza: first, that Sariza is the only party that understands that Greece needs to stay in the EuroZone and that the Eurozone won’t survive if it doesn’t give up austerity; second, the economic team that will negotiate on Greece’s behalf are good and persuasive with a clear understanding of the situation; and third, Syriza will not be the sole arbiter of the Greek government. It will be a coalition, so there is no need to fear the party’s extreme leftism.

I hope the Greeks’ come to their senses unlike the Irish and Wisconsins.

Austerity Is Economic Suicide

The economic crisis in Europe and the austerity response to it which has spread from Greece to other countries in Europe has dominated the news now for weeks. This past weekend the leaders of the G-8 met at Camp David where it was the main topic for discussion. While President Obama’s statement that encourages stimulus and growth as solutions to the EU problem, he did not discount austerity as one of the driving policies that has extended the downturn and caused social upheaval in Greece and now Spain. The reporting in the traditional mainstream media has been particularly lacking ion balanced analysis and, in some cases, some pretty sloppy and biased reporting.

William K. Black, an associate professor of economics and law at the University of Missouri-Kansas City, former litigation director for the Federal Home Loan Bank Board and a white-collar criminologist, takes reporters at the New York Times task for their profound ignorance on covering Europe’s financial, social, and political crises. He explains why they are so wrong:

Economists have known for roughly 75 years that adopting austerity in response to recession or depression will make the economic crisis grow and last far longer.  Austerity is to economics as bleeding was to medicine. [..]

The NYT article focuses on Alexis Tsipras, the Greek political leader whose party rose to prominence by promising to reject the loan-for-austerity program that the disgraced former Greek government agreed to at Berlin’s diktat. The article’s theme is that Tsipras is endangering all of Europe by demanding an end to austerity being imposed on Greece.  The reporters write, as if it were undisputed fact, that Tsipras has started “a high-stakes game of chicken with Europe’s leaders.”  But that reverses the facts.

The game that Berlin designed required the Greek to agree (1) to drive their economy off a cliff into a deepening Great Depression through increased austerity, (2) to force an enormous reduction in working class wages, (3) to sell Greek islands to private parties, and (4) to give up other aspects of sovereignty so that hostile, foreign, and private entities such as the IMF and the ECB could monitor its governmental actions.  The Greeks are now refusing to commit economic, political, and social suicide.  The Germans are demanding that they drive off the cliff because “a deal is a deal.”

If Greece were to drive off the cliff by adopting greater austerity it would likely destroy the EU.  Austerity would force Greece into a deepening depression, eventually lead to a default on Greek sovereign debt, and tear Greece apart.  Austerity has already generated a substantial neo-Nazi party in Greece.  Few Americans recall the Greek civil war between the right and the left that began in World War II and continued for several years after the war or the post-war coup.  Greeks recall the civil war and the coup and fear their resumption.  Proponents of the Berlin Consensus already have blood on their hands because of the suicides engendered by mass unemployment, small business failures, and hopelessness.  If the Berlin Consensus sparks a civil war or coup it could be fatal to the EU.

The EU crisis was also the topic of a heady discussion on this Sunday’s Up with Chris Hayes. Prof. Black was joined on the “Uppers” panel by Betsey Stevenson, former chief economist for the Obama Labor Department, Karl Smith, assistant professor of economics and government at the University of North Carolina at Chapel Hill; and MSNBC policy analyst Ezra Klein.

Eurozone in fragile balance

Mr Hayes’ assessment of the political situation in Greece was challenged by a commenter at his blog. Carol P Christ wrote with regards to the political and social responses to the crisis:

Since you are a member of the Progressive Left, you might reconsider calling Syriza the ‘far” Left in comparison to ‘far’ right Golden Dawn. There is no comparison between the 2. Syriza is a coaliton of parties to the left of centrist PASOk and to the “right” of KKE the Communist Party. You might be voting for them if you were in Greece, but you surely would NOT be voting for Golden Dawn. There is NO “comparison” between the 2. Continuing to compare the 2 parties makes it seem that all Greeks are irrational. There is nothing irrational about voting for Syriza. [..]

The “austerity” programs of the EU and banking systems have already destroyed our economy. To blame immigrants as Golden Dawn does is illogical. To ask voters to reject the terms of the second austerity package which is leading to massive unemployment and daily failures of small businesses is by no means irrational.

The Green Party is also against the austerity packages. And we are not “irrational” either.

The dualistic thinking of the west (ironically a legacy of Plato) leads to the demonization of the “other” as irrational. Unfortunately Greece has been portrayed as the “irrational” other within Europe for some time now.

Greece does need to change, but punishing the poor and middle classes is not a “rational” policy. [..]

Let me add that the European union and the Euro should not be confused. The Euro has only been in existence for 11 years. England with one of the largest economies in Europe is not a member of the Euro, nor is Sweden. They are still part of Europe and the European Union.

In Greece the Euro led to a massive rise in prices (a cup of coffee from $1 to $3-5, etc.) without a concomitant rise in wages. For example a tour bus driver makes E700 a month and a radiologist E1400, wages that are near poverty level in the US. depending on family size. Yet the cost of living is as high or higher than in the US, thanks to the price rises that the Euro brought. Gasoline is over $10 a gallon. Sales tax is 23%.

The European Union is a good thing, but the Euro was driven more by market forces and the desire to sell goods freely in Europe, than by a concern for world peace, the environmental protection, or any of the other good things the European Union is working on.

The Euro has not been a good thing for Greece, in my opinion.

(I have taken the liberty of posting most of Ms. Christ’s comments because I think they go straight to the heart of the misrepresentation that is taking place in the traditional news media.)

In another article at the New Economic Perspective, Prof. Black reports that the former head of the European Central Bank (ECB), Jean-Claude Trichet, thinks that by giving European politicians the power to declare a sovereign state bankrupt and take over its fiscal policy it would salvage the euro. To quote Prof. Black, “austerians have decided that since democracy is the problem, imperialism is the answer.”

Nor are fixing the problems of the euro a solution for the austerians:

Trichet, however, says that answer is impossible:  “For the European Union, a fully fledged United States of Europe where nation states cede a large chunk of fiscal authority to the federal government appears politically unpalatable, Trichet said.”  Democracy remains the stumbling block, but Trichet has an answer to that problem – crush democracy.  He proposes that the EU:

   “[T]ake a country into receivership when its political leaders or its parliament cannot implement sound budgetary policies approved by the EU. The action would have democratic accountability if it were approved by the European Council of EU heads of states and the elected European Parliament, he said.”

Of course, the “sound budgetary policies” he means are the suicidal, and failed policies of trying to balance the budget during a Great Recession.  He does not understand even now that a nation in a severe recession cannot simply decide to run a budget surplus.  It can try to do so, by cutting spending or raising taxes, but those policies are likely to reduce already sharply inadequate public and private sector demand, which increases unemployment, increases demand for public services, and reduces government revenue – all factors likely to increase the budget deficit.  I am sure that the Greeks will consider the loss of their sovereignty at the hands of hostile foreign powers who openly sneer at the Greek people to represent the epitome of “democratic accountability.”

And what was the reaction of Berlin to Trichet’s policy to force suicidal austerity on the Greeks and bleed their economy while removing their sovereignty and right to democratic rule?  You know the answer.

As Prof Black so aptly noted that that austerity is “a policy where you’re handed a gun and told to shoot yourself. Eventually people say, ‘Now exactly why should I do that?’. [..]

Whether Greece is the good or the bad, the policy is stupid.”

The United States is not Greece. It has its own sovereign currency and a bond market which it controls. We do not need to follow the EU and shoot ourselves with austerity.

The Mouse that Roared! Greece’s Struggle Against Austerity by New York Brit Expat

We live in interesting times … Those on the left following the  situation in Greece were treated to an interesting spectacle in the last election in Greece on May 6th 2012. As expected, those mainstream parties that supported the EU/IMF/ECB memorandum (http://www.reuters.com/…) imposing even more harsh austerity on the country were punished: New  Democracy’s (the conservatives, centre-right) votes from 33%-19%, PASOK’s (the Greek socialist party) share fell from 43%-13%, LAOS fell below the 3% needed for securing seats (right-wing nationalist party) all lost seats in the election (greek election results).  This represents in many senses a significant rejection of the mainstream political forces that have been ruling Greece since the end  of the rule of the colonels (1967-74, for a history of modern Greece  see, History of modern Greece) and particularly of the austerity that they have been imposing on the people of Greece over recent months.

Cheat Sheet (to keep track of the players):

SYRIZA: coalition of the radical left, led by Alexis Tsipras

New Democracy: Conservative, centre right neoliberals, led by Samaras

PASOK: Panhellenic Socialist Movement, Socialist party led by Venizelos

KKE: Communist Party of Greece

ANTARSYA: Coalition of Greek Anticapitalist Left, hard left

Golden Dawn: Chrysi Avgi, Greek Fascist Party, neonazis

DIMAR: Democratic Left, centre left to left wing, led by Fotis Kouvelis

LAOS: right wing nationalists

Independent Greeks: Right-wing split off of New Democracy, anti-austerity

Greece Edging Towards Euro Exit

Negotiations with party leaders to form a government in Greece fell apart again, as Greece inches closer to new elections in June that could usher in the left wing Socialist government opposed to the draconian austerity agreement with the European Central Bank, the International Monetary Fund and the Eurozone. Talks will resume on Tuesday but the moderate Democratic Left party in Greece says it will not join pro-bailout parties in a coalition without the more radical far-left Syriza. It doesn’t sound promising but technically President Karolos Papoulias has until Thursday when Parliament reconvenes:

Without the support of Democrat Left, a decidedly “pro-European” force which won 19 seats in parliament, the New Democracy party and centre-left Pasok party fall two seats short of being able to achieve a workable majority.

Syriza, an alliance of leftists and ecologists that emerged as the poll’s surprise runner-up – and has since seen its popularity surge on the back of anti-austerity sentiment – rejected the idea of participating in a government that it claimed was bent on “destroying Greece”. Alexis Tsipras, Syriza’s young firebrand leader, refused to even attend the negotiations. [..]

Syriza, whose popularity has risen on a platform of rejecting such measures, is projected to win the election with as much as 27%, according to polls conducted over the past week. Tsipras, an unabashed populist who counts Hugo Chávez among his heroes, has promised to renegotiate the painstakingly acquired bailout agreement Athens has signed with foreign lenders.

With the radical left fast dominating a political landscape whose traditional parties have been decimated for backing policies now blamed for record levels of poverty and unemployment, analysts believe it is only a matter of time before Greece is cut loose from Europe. The result, they say, will be a dramatic decline in living standards as the debt-stricken country, bereft of international rescue funds, slips ever deeper into poverty.

The markets reacted negatively with the prospect of a Greek withdrawal from the euro:

Financial and energy shares fell the most among 10 groups in the Standard & Poor’s 500 Index. JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) sank at least 2.6 percent as European lenders slumped. Alcoa Inc. (AA) and Schlumberger Ltd. (SLB) slid more than 1.5 percent to pace declines in commodity producers. Symantec Corp. (SYMC), the biggest seller of security software, retreated 1.4 percent after Goldman Sachs Group Inc. cut its recommendation.

The S&P 500 slid 1.1 percent to 1,338.35 at 4 p.m. New York time, the lowest since Feb. 2. The Dow fell 125.25 points, or 1 percent, to 12,695.35. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against S&P 500 losses, rose 10 percent to an almost four-month high of 21.87. About 6.6 billion shares changed hands on U.S. exchanges, in line with the three-month average.

Meanwhile, German Chancellor Andrea Merkel’s Christian Democratic Union was handed a defeat in Sunday’s election in Germany’s most populous state, North Rhine-Westphalia, receiving only 26% of the vote:

The outcome will be seen as a rejection by voters of the strict austerity policy promoted by Ms Merkel’s party at both local and national level, and a boost for the opposition. It will encourage the SPD and Greens to campaign all out for a “red-green” coalition at national level when Ms Merkel stands for re-election in autumn 2013. [..]

Opinion polls suggested that voters did not regard Ms Merkel’s national and European policies as relevant, and opted instead for the popular “red-green” coalition in the state, headed by Hannelore Kraft of the SPD, which had governed without an absolute majority for the past two years. The surprise election was caused by the defeat of Ms Kraft’s annual budget by the CDU, FDP and the far-left Linke party.

The defeat is the worst suffered by Ms Merkel’s CDU since the party lost control last year of the state of Baden-Württemberg in the wake of the Fukushima nuclear disaster.

Chancellor Merkel has chosen to ignore the defeat at home and stuck to her position on austerity agreement with Greece:

Merkel tells Greece to back cuts or face euro exit

Greece may be forced to leave the euro if the country refuses to implement spending cuts agreed with the European Union, Angela Merkel warned. [..]

Yesterday, Mrs Merkel raised the spectre of Greece leaving the euro. She is under increasing pressure in Germany to force the country out of the single currency to avert several more years of uncertainty. “I believe it’s better for the Greeks to stay in the euro area, but that also requires that we set out a path on which Greece gets back on its feet step by step,” said the chancellor.

“The solidarity for the euro will end only if Greece just says, ‘We’re not keeping to the [austerity] agreement.’ But I don’t expect that to happen. I do think they are making an effort. There are many, many people in Greece who actually want it.”

The worries over will happen to the Greek economy should they exit from the euro are really unknown. From Paul Krugman:

In particular, I keep reading that Argentina’s example is irrelevant, because Greece has hardly any exports.  [..]

What is true is that Greece doesn’t export a lot of goods. But it exports a lot of services – shipping and tourism (pdf). How might these respond to the devaluation of the new drachma? [..]

This isn’t a prediction that everything will be fine, but it is a caution that the pessimism about Greek prospects once the turmoil is past may be overdone.

If the left wing holds out and wins enough of a majority in June to form a new government, we’ll find out sooner than later who’s right about Greek prospects without the euro.

Roubini: Eurozone Is a “Slow Motion Train Wreck.”

US stocks continue to dip and oil fell to below the $100 mark as the Europeans are balking at austerity only budgets that have exacerbated the recession. Nobel prize winning economist, Nuriel  Roubini weighed in on the crisis in Spain and Greece.

“Greece is going to be the first country that’s going to restructure and exit,” he said. “Others will leave also.”

“By the end of the year Spain is going to lose market access,” Roubini said in a subsequent CNBC interview. “They’re going to require a bailout. That will keep them out of the markets for a year or two. That’s not going to work out – then maybe two years down the line then you have a restructuring of the debt…And eventually even Spain could exit the euro zone-but it’s not something that’s going to happen in 12 months.”

Roubini also predicted that Spain economic situation was similar to Greece and Portugal and would require a bail out but with caveats:

And yet despite the clear signs of failure in the existing bailout countries, the EU looks set to pursue an unchanged plan in Spain. But the crucial difference between Spain and the bailout countries is size. If things go wrong in Greece, Portugal and Ireland, a second bailout is affordable. But there can only be one roll of the dice for a country as large as Spain.

A bailout package would buy some time for Spain, but time will only help if it is used to generate economic growth. By making private claims on the sovereign junior to the claims of the troika (European Commission, European Central Bank and International Monetary Fund) even a bailout risks reducing the chances of it regaining market access. Moreover, with economic indicators showing Spain sinking further into recession, a turnround in the country’s economic performance would require a significant shift in policy: monetary easing by the ECB, a weaker euro, fiscal stimulus in the core, less front-loaded austerity in the periphery, more international firewalls and debt mutualisation.

Greece Succeeds In Averting Another Crisis

The Asia markets rose this morning after the news that Greece has reached a settlement with at least 90% of its bond holders:

The finance ministry said 85.8 percent of its 177 billion euros in bonds regulated under Greek law had been tendered, adding that the rate would reach 95.7 percent with the use of collective action clauses to enforce the deal on creditors who refused to take part voluntarily.

The result should clear the way for the European Union and International Monetary Fund to release a 130 billion euro bailout package agreed with Greece last month. [..]

The biggest sovereign debt restructuring in history will see bond holders accept losses of some 74 percent on the value of their investments in a deal that will cut more than 100 billion euros from Greece’s crippling public debt.

The unknown consequence of this agreement is that it may trigger the credit default swap (CDS) insurance that some investors hold on the bonds. Some economists don’t believe that this would be a problem:

Finance ministers from the 16 other countries that use the euro are to discuss the deal’s results in a conference call later Friday. The International Swaps and Derivatives Association said it would also meet to determine whether the deal would be deemed a so-called “credit event” – a technical default – which would trigger the payment of credit default swaps, which is essentially insurance against a default.

When the debt relief plan was first announced last year, eurozone leaders and the ECB worked hard to avoid a credit event, because they feared the a payout of CDS could destabilize big financial institutions that sold them.

However, since then a CDS payout has started to look less threatening. The ISDA, a private organization that decides on credit events, said that if they are triggered, overall payouts on CDS linked to Greece will be below $3.2 billion. That amount is spread over many financial firms and likely too small to significantly hurt any one of them.

However, the outlook for economic growth anytime soon is grim. The problems that have been inflicted on the average Greek citizen by the austerity measures of this deal still exist and it’s predicted, the situation for them will not be improving for years:

   It’s stunning here in Athens to see many traffic lights not working, to see beggars pawing through garbage for food, to see blackened ruins of shops burned in rioting. I was even greeted by a homeless man who spoke impeccable British-accented English.

   That man, Michael A. Kambouroglou, 35, claims that he studied English literature at Cambridge University and worked for years in the tourism industry, most recently at a five-star hotel. He told me that he had enjoyed a good life, visiting the United States and traveling around the world, until the day nearly a year ago when the collapsing economy caught up with him, and he was laid off.

   “To be honest, I never thought it could come to me,” he recalled. “It happened in a flash.” Kambouroglou says he goes out every morning, knocking on doors and looking for work, but in this economy it seems hopeless. The overall unemployment rate here is 21 percent – 48 percent among young people – and the European Union forecasts that the Greek economy (and all of the euro zone) will shrink further this year.

Without economic growth, the deal may only be buying a little time before it all goes back to square one. There are those who believe that this is just stalling the inevitable default and that the sooner Greece defaults the faster the pain for the Greek people will be relived:

Greece has defaulted five times since 1800, most recently in 1932.

Clearly, Greek’s own experiences reveal there is, indeed, life after default. So what’s the country waiting for?

Well, if its leaders are afraid a default won’t be tolerated in modern times, they need to consider the most recent examples set by Russia and Argentina…

In 1998, Russia defaulted on $40 billion in local debt. Within two years, its economy was growing by double-digit rates. And it continued to do so for the better part of a decade under Vladimir Putin’s leadership.

In late 2001, Argentina defaulted on $95 billion in debt. Yet, by the end of 2002, its economy returned to growth. And it continued growing for eight straight years. [..]

Bottom line: As Howard Davies, a former U.K. central banker and financial regulator, says, “It’s too late for Greece [to avoid default].” So let’s pull off the Band-Aid already and get it over with.

It won’t be painless or even remotely enjoyable. But it’s necessary if Greece ever wants to get its financial house in order and its economy growing again.

Greece: The Continued Slide Towards Default

It is almost inevitable that Greece will default but in the interim the Eurozone leaders are determined to force more austerity on the country in order to protect the hedge funds profits at the expense of the Greek people. Is America headed down this same road?

Freedom Rider: Greece: Your Money or Your Life

By Margaret Kimberly, editor and senior columnist at the Black Agenda Report

Greece is at the epicenter of an horrific assault on working people and on their democracy. As a result of corruption at the top of the Greek government and world wide finance capital, that nation is teetering on the brink of insolvency. The rescue cooked up by the same people who created the problem is in fact anything but.

The so-called bail out is a plan to destroy the last vestiges of the welfare state and the expectations of humanity that they can have any hope of being treated fairly in capitalist countries. The European Central Bank, the International Monetary Fund and the European Commission have descended like vultures, making it crystal clear where their interests lie. [..]

Beginning in 2008, Americans got a dose of some of the same medicine. We were told that our economy would implode if we didn’t give our money to bail out the very same banks which created the crisis. Four years and trillions of dollars later, we are still in a recession, unemployment remains high, ordinary people have lost their assets and our president and Congress bicker over how much they can cut government spending and ruin our lives even more.

The Greeks are ahead of the curve. At least they stood up and protested. Hopefully more people around the world will be like them instead of like passive Americans. Hopefully Americans will stop being passive before they end up like people in Greece.

The Greek Experiment

Michael Hudson: Greek crisis used to find out how far finance can drive down wages and privatize.”

Michael Hudson is a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971).

Transcript:

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington.

In Greece, the financial elites of Europe have gotten agreement from the Greek government to another round of what some people are calling savage austerity measures, for example, lowering the minimum wage by 22 percent, a new round of privatizations, and cuts to pensions and many other social programs. This is, I guess, an example of banks and a banking technocrat that now leads the Greek government directly intervening, calling government policy. So what does this tell us here in the U.S., Canada, and other countries that are watching this?

Now joining us to discuss all of this: Michael Hudson is a former Wall Street financial analyst, a distinguished research professor of economics at the University of Missouri-Kansas City, and he writes at Michael-Hudson.com. Thanks for joining us, Michael.

MICHAEL HUDSON, RESEARCH PROF., UMKC: Thank you very much.

JAY: So, Michael, what should we be learning from what’s going on in Greece?

HUDSON: Well, we should be learning what the European bankers are learning, and that is what is the result of a great experiment that’s going on. For the last five years in Latvia, they’ve-the neoliberals have lowered wages by about 30 percent. The basic premise of today’s model builders are: you don’t know how far you can lower wages and pensions until people begin to press back. Well, in Latvia they still haven’t begun to press back when they’ve lowered for 30 percent. Now they’re moving towards Greece on the way to Spain and Portugal and Italy, and they’re trying to figure out how much can we lower wages, how much can we drain an economy until there is pressure to come back.

And the right wing, who’ve essentially appointed, as you pointed out, a bank lobbyist, which is called a technocrat, in charge of Greece, is: let’s try the experiment to just see how much we can squeeze out-because they’ve realized that the left in Europe is completely fragmented. They don’t have a defense available, they don’t have a body of concepts available to say, wait a minute, this is crazy. When you’re lowering wages, you’re actually shrinking an economy. When you’re cutting the budget deficit, you’re reducing the amount of money that comes into the economy to promote demand. So in effect what Europe is doing is bleeding economies, very much like a medieval doctor would bleed blood on the ground, since this is going to make economies more productive.

Well, the only response that the Greek people have, not simply the left, but the right and the Greek people, is, look, if you think you’re going to increase the surplus, increase taxes by lowering our wages and cutting our pensions and cutting our health care, we’re going to do what the Egyptians are doing and what the Arab Spring is doing. We’re going to tear the economy apart, and there won’t be anything for you. And the PASOK, the socialist party that inaugurated this whole austerity program, now has an 8 percent approval rating in Greece. That’s even lower than Mr. Obama has for cutting wages here.

So what the Greeks are saying: look, when the premier said that they were going to have a referendum for whether we want to cut back the wages to pay the bankers, the first thing Angela Merkel said was, you can’t have a referendum. We’re going to suspend democracy, we’re going to impose a dictator on you, and we’re going to tell you what to do.

Well, under modern international law, if there’s no democratic commitment to pay, then the debt taken on is null and void. Well, the European common market, the European Union, has had its lawyers say, okay, we’re going to get the agreement of congress. Well, the Greek people can say, look, you can come down with bags of money and you can buy all the parliament members that you want to approve the deal, but as soon as there is an election, we’re going to throw them out, and they’re not acting on our behalf, and-.

JAY: Yeah, but it’s not clear by polling that the next election would actually elect a government that wouldn’t go along with this. Most of the parties that seem capable of winning elections in Greece have signed on to this deal. But can I go back to something earlier you said? Is not one of the big objectives here-’cause it’s hard to understand the logic of driving Greece into a decade of depression if you actually want any revenue that’s going to pay some of these debts back, which means, is not the real objective here not more about privatization, that if you can create so much chaos and dependency on the Greek government, on the European financial elites, they’re going to sell everything off? And apparently they’re talking now about selling airports and shipping-seaports, like, a whole ‘nother level of privatizations.

HUDSON: Not only that, but also the water systems, the sewer systems, real estate, the islands. You’re right. They think that if they can create a crisis, it becomes a grab bag area. And bankers and people who have a plan usually do much better in a crisis or a grab bag than people who don’t have a plan. So this indeed seems to be it. Finance today achieves what military invasion used to do in times past. So the new mode of warfare is financial, not military. It’s much cheaper and it’s much safer for the country doing the attack.

So you’re quite right: privatization is a big role. And that’s why yesterday the European Union said, wait a minute, we’re not even going to give you the money to pay us, namely, for us to pay our own banks that have bought your bonds, unless you spell out exactly what you’re going to privatize and commit to it now. And this is a sticking point. In the past, the Greeks have made promises, and thank heavens they haven’t privatized, because once they begin to sell things off, then there’s going to be a real squeeze and even more of an opposition. So you’re right. This is a property grab.

JAY: Yeah. We were joking off-camera. I was saying it’s amazing how the Europeans make Obama’s budget look good. And as critical as you and I and many people we’ve interviewed on The Real News have been critical of Obama, there actually does seem to be some kind of different approach between Wall Street (and, certainly, the sections of Wall Street that helped elect President Obama) and the Europeans. You can hear interviews with Wall Street representatives who actually say, no, you do have to have short-term stimulus before you have these kinds of austerity measures; you can’t force the world into a global depression. You hear that kind of language out of New York and out of President Obama, where the Europeans seem so committed to this severe austerity.

HUDSON: There are two reasons for that. Number one, from the very beginning, from the last century, America has already had in the private sector what was in the public domain in Europe. Europe had its power companies, electric and gas systems in the public domain. America privatized them, but as regulated public utilities. The public utilities were allowed-were regulated as to how much bond and equity they could get, what their rate of return would be. Europe has no body of law to regulate the prices or rent extraction the public utilities can charge, because they’d always had these in the public domain, just like Russia had no and the Soviet Union had no system like this. So the objective of privatizing in Europe, first of all, there’s much more property and public assets to grab in Europe than there were in the United States, and secondly, there is no regulatory body in Europe, because of the fact that in the past, power and sewer and water and public utilities were supplied either at cost or at subsidized rates to make the economy more competitive.

So the idea in Europe is not only that you cut wages by 30 percent, but you’re now going to raise the price of what you just mentioned, the access to water, sewers, transportation, everything else. You’re going to raise the price to put the real squeeze on wages. And the result in Greece will probably be the same as it was in Iceland, Latvia, and other countries. There’s going to be a large emigration of working-age labor. And the result will, of course, be to make the economy much less competitive.

And in this morning’s newspaper, when it turned out that Greece’s GDP fell at 7 percent annual rate, not the 5 percent expected, as usual the newspaper said, to everyone’s surprise, the situation is worse than projected. Well, of course it wasn’t really to our surprise, because we know that when you’re strangling an economy, of course it can’t cope very well. And they’re strangling the Greeks economy. And they’re using it, I think, as a laboratory experiment to say, what’s going to happen when we really just squeeze labor and squeeze labor? It’s like trying to feed a horse less and less and see whether it’s really going to be more efficient until it keels over dead.

JAY: And I guess it’s always-the way large-scale unemployment is always a good threat against the employed within a country, the more you can beat up Greece and Spain, Portugal, the more you can threaten the working class of France and Germany, where I guess the big targets eventually will be.

HUDSON: Well, if that happens, there’s going to be a renewed nationalism that’s going to cut the common market apart, and you’re going to have, all of a sudden, a realization that when Europe united, the whole idea of it’s united was so that it would never go to war again, military war. But now that it’s united under neoliberal bank rules, they think, wait a minute, we’re uniting and we are going to war. But it’s a class war. It’s an economic war. And this isn’t what we wanted. If the idea of uniting in Europe is for a class war under rules where we’re guaranteed to lose, then we’re saying no to Europe, just as the Icelanders have voted not to join Europe, just as other countries that had planned to join Europe, all the way to Turkey at the other end, are saying, wait a minute, if that’s the Europe that’s coming, an oligarchic Europe whose program is austerity and shrinkage, why on earth would we want to join?

JAY: Thanks for joining us, Michael.

HUDSON: Thank you very much.

JAY: And thank you for joining us on The Real News Network.

End

Greece is being forced out of eurozone, Venizelos claims

by Ian Traynor in Brussels and Larry Elliott of The Guardain UK

Greek finance minister says troika is shifting terms of €130bn bailout deal as part of move to force country out of eurozone

Greece rounded bitterly on its EU paymasters when the finance minister and socialist leader, Evangelos Venizelos, accused the eurozone of deliberately changing the terms of a proposed €130bn (£110bn) bailout because key players wanted to kick the country out of the single currency.

The charge that some eurozone countries were seeking to engineer a Greek sovereign default and exit from the euro deepened the rancour between debtor and creditors in the dangerous standoff.”There are many in the eurozone who don’t want us any more,” Venizelos declared at a meeting with President Karolos Papoulias. “We are constantly being given new terms and conditions.”

Papoulias went even further, denouncing Germany and Greece’s north European creditors after Wolfgang Schäuble, the German finance minister, said that Greece must not turn into a “bottomless pit” for eurozone bailout funds and that Europe was better prepared than when the crisis erupted two years ago to cope with a Greek sovereign default. [..]

Venizelos claimed the crucial debt swap with the banks – which technically requires three weeks to organise – will be announced on Monday provided the eurogroup signs off on the bailout.

The accord has to be in force well before 20 March when Greece is due to redeem €14.5bn of debt or face default.

Greece Is Burning

Greek Parliament Passes Austerity Plan as Riots Rage

ATHENS – After violent protests left dozens of buildings aflame in Athens, the Greek Parliament voted early on Monday to approve a package of harsh austerity measures demanded by the country’s foreign lenders in exchange for new loans to keep Greece from defaulting on its debt.

Though it came after days of intense debate and the resignation of several ministers in protest, in the end the vote on the austerity measures was not close: 199 in favor and 74 opposed, with 27 abstentions or blank ballots. The Parliament also gave the government the authority to sign a new loan agreement with the foreign lenders and approve a broader arrangement to reduce the amount Greece must repay to its bondholders.  [..]

But the chaos on the streets of Athens, where more than 80,000 people turned out to protest on Sunday, and in other cities across Greece reflected a growing dread – certainly among Greeks, but also among economists and perhaps even European officials – that the sharp belt-tightening and the bailout money it brings will still not be enough to keep the count

The killing of Greece

By Delusional Economics

What makes the situation completely surreal are the numbers. Greek debt in 2008 was approximately 260bn Euro. The first bailout was 110bn, the current one, that appears to be tearing the country apart, is 130bn. Add in the PSI+ haircut of approximately 100bn ( after sweetener deduction ) and you realized that Europe could have simply paid the entire bill in 2008 and saved itself 80bn Euro. Ok, that is an oversimplification of the problem but you can see my point.

However now, after 340bn Euros, Greece is still has an unmanageable debt, is in a far worse position than it was 3 years ago and it appears the country itself is coming apart at the seams.

So basically the Greek politicians and the other Eurocrats took a quarter of a billion euro problem and turned it into a existential trillion Euro one. Worst still their refusal to work cooperatively and misguided policies based around “expansionary fiscal contraction” have plunged Greece into a depression which threatens contagion to other weak economies. Yet at this point I can see absolutely no data suggesting the country is in any way more competitive than it was 3 years ago.

Greece – A Default is Better Than the Deal on Offer

By Marshall Auerback

Pick your poison. In the words of Greek Finance Minister Evangelos Venizelos, the choice facing Greece today in the wake of its deal with the so-called “Troika” (the ECB, IMF, and EU) is “to choose between difficult decisions and decisions even more difficult. We unfortunately have to choose between sacrifice and even greater sacrifices in incomparably more dearly.” Of course, Venizelos implied that failure to accept the latest offer by the Troika is the lesser of two sacrifices. And the markets appeared to agree, selling off on news that the deal struck between the two parties was coming unstuck after weeks of building up expectations of an imminent conclusion.

In our view, the market’s judgment is wrong: an outright default might ultimately prove the better tonic for both Greece and the euro zone.

The only questions that remain to be resolved are these: have all of the parties begun preparations to mitigate the ultimate impact of an outright default by Athens? And will the ECB be sufficiently aggressive in combating the inevitable speculative attacks on the other members of the euro zone periphery, which are almost certain to ensue, once Greece is “resolved” one way or the other.

Greek Bailout Deal, With More Austerity, Poised to Pass Parliament Amid Riots

I’m curious what record unemployment and poverty, bonfires and 100,000 protesters in front of Parliament is, then, if not uncontrollable economic chaos and a social explosion. And Papademos added, strangely, that the deal would allow Greece to return to economic growth in late 2013. I don’t know where this claim was pulled from. Austerity has only brought a deeper recession – and a higher debt-to-GDP ratio – thus far.

About 20 members of the coalition of parties – which control 236 of the 300 seats in Parliament – said they would not agree to the deal. But this leaves a healthy cushion for success. Three members of the Socialists resigned from their party after the bailout terms were announced.

European finance ministers would not agree to bailout terms until Greece passed them first in the Parliament, as they have run out of patience with the Greek’s ability to abide by prior deals. The deal would pave the way for a work-out with Greece’s creditors that would include a nearly 70% haircut on existing debt. European leaders hope this will be seen as a “voluntary” reduction and not a default event that would trigger credit default swaps, but leading rating agencies have already said they won’t see it that way.

Yes, this is a mess with wide ranging global impact.

Greece Still Creeping Towards Default

There is still no agreement on bailing out Greece as Greek Premier Lucas Papademos failed to get his government’s coalition parties to agree to the severe austerity terms set out by the European Commission, European Central Bank and International Monetary Fund:

After five hours of discussions, the three leaders of Greece’s national unity government had not accepted demands by international lenders for immediate deep spending cuts and labour market reforms as part of a new medium-term package.

Mr Papademos said the political leaders had agreed on some “basic issues”, including making spending cuts this year of 1.5 percentage points of gross domestic product, or about €3bn, according to a statement from his office. [..]

The talks with the three leaders of a national unity government came after the government failed to persuade the so-called “troika”- representatives of the European Commission, European Central Bank and International Monetary Fund – to ease conditions for the rescue deal.

Patience with Greek politicians has evaporated among its creditors. During a conference call on Saturday, eurozone finance ministers bluntly told Athens to deliver on its promises and agree to reforms or face default next month.

David Dayen at FDL News Desk points out that the Greeks are being asked to destroy themselves for a bailout and calls the terms “insane”:

The deal calls for Greece to run a primary budget surplus (not counting interest payments on debt) in 2013 of over 2% of GDP, rising to over 4% by 2014. That implies massive cuts to public spending in the middle of a 5-year recession, if not a depression. As Antonis Samaras, leader of the New Democracy Party, told the Financial Times, “They’re asking for more recession than the country can take.” Samaras also has highlighted that the troika seeks cuts in private sector wages as part of the deal, of up to 25%. There would also be a 35% cut in supplementary pensions.

Trying to pressure for a settlement that many Greek leaders feel would damage the Greek economy and prolong the five year Greek recession, French President Nicholas Sarkozy and German Chancellor Andrea Merkel issued statements and made a proposal that would reassure creditors:

Nicolas Sarkozy, French president, and Angela Merkel, German chancellor, also proposed that a special closed account be created for the interest due on Greek debt to reassure creditors that they would be paid.

“The situation of Greece has to be fixed once and for all,” Mr Sarkozy said after the two leaders met in Paris. He said the terms of a bail-out deal were “on the table” and called on all the main political leaders urgently to back them, adding “time is running out”.

“Our Greek friends must take responsibility and vote for the reforms to which they are committed. This concerns everybody – the prime minister, the leader of the socialist party and the leader of the [centre-right] New Democracy party.”

Ms Merkel added: “We want Greece to stay in the euro … but I also say there can be no new Greek programme if agreement is not reached with the troika [European Commission, European Central Bank and International Monetary Fund]. All those who bear responsibility in Greece must know we will not deviate from this position.”

She added: “Time is running short. A lot is at stake for the entire eurozone.”

The stalemate had its effect on stock markets today with US stocks taking a dip

The three major U.S. stock market indices retreated slightly on Monday as investors continued to await the outcome of a potential Greek sovereign debt deal with private creditors. At 2:30pm Eastern Time, the Dow Jones Industrial Average (DJIA) had lost 40 points, or 0.3 percent, to 12,822 while the NASDAQ Composite had backed down 0.2 percent to 2,899. Meanwhile, the S&P 500 was down 0.2% to 1,342 points.

The austerity measures have already caused a 6% drop in the GDP which increases the debt to GDP ratio. the last thing Greece needs, or for that matter Europe,is more austerity.

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