Akritas Macedonian blog

Why Austerity Is a Dangerous Idea

2013-04-25T13:57:00.000+03:00

by Mark Blyth

The current debt and deficit panic is nothing new. It’s been a staple of American politics since the Republic’s inception. But this season it has taken a new turn. Congress, the fiscal arm of the government, is engaged in asymmetric siege warfare. On one side the Republicans want only cuts, on the other the Democrats want both cuts and tax increases. Both agree however that cuts are absolutely necessary; the only question is the timing and magnitude involved. Unfortunately, budget cuts are exactly the wrong thing to do at this moment. And before anyone throws up their hands and says “Keynesian claptrap,” there is nothing necessarily Keynesian in what I am about to say. Simple logic and arithmetic will suffice.

Austerity, the policy of cutting state spending to solve debt and growth problems, sells itself to us through a strange combination of morality and seduction. Its moral claim lies in the love of parsimony over prodigality that characterizes economic thought from Adam Smith onward. In this morality play, saving leads to....
investment, and investment leads to growth. Spending, in contrast, leads to consumption, and consumption leads to debt, especially when the government is involved. What we see in Greece therefore is simply the most egregious example of a secular trend toward overspending. We must cut to restore ourselves and not become Greece. So the story goes.

Austerity suggests that you can have your cake and eat it too, but only when you cut the cake first. Cuts are seen to be growth enhancing, not growth retarding. They restore that all-important “business confidence” necessary for the economy to function.

There is however a rather big problem with this line of thinking. The first is that for people to save, they need to have income from which to save. So if you are, for example, a state in the euro zone today, and every similar state saves at the same time by cutting spending, the result is the shrinkage of everyone’s economy since they are one another’s trading partners and sources of income. Perversely, their debt goes up, not down, relative to their (shrinking) GDP, which is what has happened to every European country that has undergone an austerity program since 2010. They now have more debt, not less.

Austerity, when everyone tries it at once, makes the debt bigger, not smaller. The E.U. is one of the two largest growth centers of the global economy. If the U.S., the other big one, decides to join in this “austerity binge” the result will be more, not less, U.S. debt and an even bigger growth crisis for the global economy.

So why then did so many countries in Europe do this? It’s about money all right, but not in the way you think. As we found out in the mortgage crisis in the U.S., you can’t have overborrowing without overlending, and core European banks (which are twice the size and three times as levered up as their “too big to fail” American counterparts) overlent to southern Europe on an epic scale, spending northern European savings in southern European bond markets and stuffing their balance sheets with those bonds in the process. Now that these bonds have gone bad, deprived of national currencies with which the governments responsible for these banks could bail them out (a side effect of the euro) European states are reduced to cutting, adding liquidity and praying while the situation goes from bad to worse. Cutting in such a world turbocharges the already bad shrinkage problem.

What about the theory that cuts will lead to greater confidence if only we lose our fear of the cuts and really go for it? The technical, and very non-Keynesian idea here is called the expansionary fiscal-consolidation hypothesis. It goes like this: when the government cuts spending in the middle of a recession, despite the economy falling about our ears with jobs and income evaporating around us, we will know that years ahead the state will be smaller and so we will pay less taxes relative to our lifetime income. Buoyed by this knowledge we will spend more today, despite the recession, thereby curing it. This is the mechanism that is supposed to make us all more confident and spend more. If you know anyone in the world who actually behaves like this, don’t lend them any money.

Given then that cuts lead to more debt and less confidence, does it follow that we can have whatever level of debt and deficit we like with no consequences? Absolutely not. And this is where a Keynesian idea is appropriate: that the time for austerity is the boom, not the slump. Countries that have successfully reduced debt have done so when others are expanding and their own economy is booming, which makes perfect sense.

This is why austerity is a dangerous idea: it doesn’t work in the world that we actually inhabit. In the imaginary world of austerity, cuts always happen to someone else. Sadly, as Europe is proving all too well, in the world that we actually inhabit there is no “someone else” to pass the costs on to as we all try to shrink to grow.

SOURCE: http://ideas.time.com/2013/04/18/why-austerity-is-a-dangerous-idea/#ixzz2RTGhAzJR

TWIN EXPLOSION: The Current Debt System has Reached it’s Expiration Date

2013-03-16T10:47:00.000+02:00

At the end of the millennium, a perfect convergence took place between the forces responsible for today’s looming storm: Indebtedness, the rise of neoliberalism, the collapse of communism, the information revolution, globalization and the «liberation» of the banking beast.

Surplus countries of the Euro-zone do not seem willing to either limit their excessive surpluses (by increasing the wages of their employees, so that domestic demand will increase), or to transfer «resources» to the members running a deficit, nor are they willing to «mutualize» public debt, or allow the transformation of the ECB into an actual central bank of the Euro-zone (Euro-bonds, direct purchasing of bonds from member states etc.).

As a result, the vicious cycle of banks «rescuing» states and, later on, states rescuing banks will perpetuate – thereby....
ultimately increasing the debts of both. It is therefore reasonable to assume, that the particular «un-natural» process has an expiration date.

In this context, it is justifiable to believe that, unless radical changes come into effect, sooner or later an unprecedented twin explosion will occur – an explosion of states and banks simultaneously, the size of which will be increasingly devastating the more it is being artificially postponed. The ones blamed are not going to be the economic elite – which essentially governs from the backstage.

While hoping to be proven wrong, concerning the above «predictions», it seems appropriate to go through some details again:

ANALYSIS

’’In the Nordic countries, Germany, the Netherlands and France, a different economic «mixture» was preferred after the mid 20th century. Its vision could perhaps be summed up in the idea that capitalism is the only system available that can work – but only with the strong presence of the government’’ (R.Heilbroner, 1919-2005, American economist and historian of economic thought).

Is capitalism in reality, one wonders, despite its promises to generate wealth for all, eventually making the rich richer and the poor even poorer? Can growth be achieved without the creation of inequalities – that is the widening of income differences between the upper and the lower «social layers», whether they are individuals or entire nations? Stated even simpler, can rich people get richer, without the poor becoming poorer – without the one side «growing» at the expense of the other?

Furthermore, does the vast majority really need a «smaller state» (reduced government interference), as many liberal economists believe it would be to the benefit of society, putting all their faith in the skills/uprightness of the private sector or would it rather benefit from a more qualitative, less costly or corrupt, and more transparent state, regardless of its size (especially when political power, is the only protection against financial power)?

And are economic crises, the frequency of which have increased dangerously, the necessary «companion» of the capitalistic process, as well as the «creative destruction» (Schumpeter, 1883-1950, Austrian American economist and political scientist), or is there a way to avoid this, by appropriately regulating the free market system? How much longer will humanity be able to withstand the markets «depressive» behavior, meaning the continuous rises and falls, the «oscillations» which expand more and more, from the lowest end (recessional debt downsizing) to the maximum end (development indebtedness)?

Finally, is it objective to believe, that the «invisible hand of the market» (as Adam Smith named it), if released, creates wealth in the real economy (Main Street), and brings destruction to the financial markets (Wall Street)?

It is obvious, that an honest answer to all these questions is not an easy task, as long of course one remains a supporter of the free market theory – both of the non-centrally directed, as well as that of the non-monopolistic. Especially when realizing that the circulation system of the economy, or otherwise money, is generated through credit – thus from the creation of debts, with all the problems this entails.

However, it is vital for these questions to be answered, even if the answers cannot be properly documented or the questions completely covered. Especially since it is by now clear that we are experiencing an unprecedented massive global economic war – with the ones «feeding» it being the financial markets, which seek their authoritarian establishment in global governance, with the complete privatization of power.

THE BIGGER STATE

Before the financial crash and the Great Depression of 1930, the levels of national income in the U.S. were, without any doubt, impressive in overall volume. But by taking a careful look, one would determine that the country benefited very unevenly from the distribution of this generated wealth. The approximately 24,000 families at the top of the social pyramid reaped three times more income compared with 6,000,000 families characterized as being part of the Pyramids base – while the average income of wealthy families at the top was 630 times larger than the income of families at the base (source: R. Heilbroner).

Unfortunately, this was not the only problem at the time. Forgotten on the sidelines of the excitement created by the belief that Capitalism was to generate unlimited prosperity («Everyone should become rich», were the words the President of the democratic party back then articulated), were two million unemployed citizens, while hiding behind their classical, marble facade, banks went bankrupt at a rate of two per day – for six whole years before the financial crash.

The average American back then, used his prosperity in a self-destructive manner. He had taken on too many loans, was also dangerously exposed to the market «sirens», buying products with installments and had sealed his fate by entering the stock market – engaging in stock purchases made not with his own money, but with bank loans. The tragic developments may have been inevitable, but even so not predictable, since rarely a day went by, without some personality of the days, assuring the nation for its prosperous condition – among them prominent economists, academics, businessmen and politicians.

Between 1930 and 1970, i.e. after the Great Depression (which unfortunately led to the second world war), income inequalities in «western» economies narrowed considerably – in complete contrast to the latest decades (after 1970). In 1928, the U.S. richest enjoyed 5% of the country’s total income – forty years later, in 1970, their wages did not exceed 1% of it (today, they have increased again, as a result of the «reverse» policy adopted in recent decades).

During the same period, the power of labor unions was increasing steadily, granting them the ability to continuously negotiate higher wages for workers – who in this way participated in the additional revenue generated both by the growth rate and an increase in productivity. This «conditions» where of course largely the result of government «provisions», which actively participated in both the redistribution of income and unemployment reductions – mostly through public investments (Keynes) and tax law reforms.

Governments generously increased spending on social services, funded to a great extent from income generated by the rich. In Great Britain, the highest tax rate was close to 83% – a rate more than double of that today, and much too excessive to hold. The state was making large investments in social care and education, while also funding college education.

In the contrary, as far as the financial markets are concerned, the situation was completely dampened – with minimal to nonexistent profit opportunities. The international flow of capital was strictly controlled, the financial «products» limited, while bank executives (the equivalent of today’s Golden Boys), were rarely earning more than their peers in other business sectors. At the same time, neither citizens, nor governments were seeking to engage in borrowing – since spending was not in excess of income.

Unfortunately, at some point logic was lost completely, driving the system to its limits. Tax rates increased excessively, while unions were demanding ever higher wages, which ultimately triggered an inflationary spiral circle – at the same time, continuously ongoing strikes undermined business operations, leading the economy to a dead-end.

On the other hand, with social benefits exceeding reasonable limits, unemployment benefits sometimes even surpassed salaries, reducing work incentives. In the end, the international currency system collapsed, leading to the «hatch» of the Chicago school – with the Nobel laureate economist Robert Lucas (born 1937, American, University of Chicago) demanding for the complete change of the system.

’’The redistribution of income, strict rules on markets and high tax rates, mean death to the free economy’’, as Robert Lucas documented his thesis, continuing: ’’Whoever is forced to be taxed on a large portion of his income, as well as whoever can rely on assistance from the state, has little incentive to work, invest or finance his college studies… Inequality is the basic prerequisite for growth and wealth generation while, by a dynamically growing economy, even the poor benefit… The tide lifts all boats’’ (note: the translation was based on Greek text, therefore minor variations to the exact words of Robert Lucas might be found).

A SMALLER STATE

Both R. Reagan and M. Thatcher based their policies on these theories, in an effort to «reduce the state» and to neutralize the unions. When they finally succeeded, privatizing enterprises and selling public property (British public property nowadays consists only of a bridge on the Thames, since governments have sold everything, but even so the country’s total debt exceeds 500% of its GDP), inequality soared – because the market never seeks for equality on its own.

So as it turns out, the markets dis-proportionally reward the rich, helping them, among others, to charge high interest on their capital. They also reward those with special skills, inherited or acquired, as well as those who have been fortunate enough to work in growing sectors. Essentially therefore, they are «punishing» all the others, which are characterized by limited skills, poor ancestors or who have been unfortunate enough to train in a profession for which there is no demand at the time.

Specifically, the period after the abolition of the gold standard (starting in 1971), was undoubtedly extremely profitable for the capital owners – for all of those who were considered to be rich or capable. Both their income and «portfolios» were constantly growing – as proven by the fact that, if in the 70’s an American had a total net worth equal to 75 Million Dollars, he belonged to the 400 richest people in the country, while today more that 1 Billion Dollars of net worth are required to fit that position.

In contrast, the same period was of rather neutral importance to employees, since the annual income of an average American worker was $ 45,879, remaining almost stagnant until today ($ 45,113, with data being «deflated»). In Germany, even during the period of high growth between 2004 and 2008, when corporate profits jumped dramatically, the average wages of workers significantly narrowed, instead of increasing (a situation that contributed to the improvement of the country’s competitiveness, to the detriment of its citizens and its European partners).

In Greece, wages were little changed after 2000, despite the country’s relatively high growth rate – which explains the sharp downturn that followed the arrival of the IMF. In Great Britain, special fees (Bonus) for executives in the financial industry surpassed all previous records, while the wages of all the other workers remained at previous year levels.

Of course in developing economies poverty reduced in absolute terms, but social differences increased dramatically – and once again the big loser’s here are workers, while the «winners» are those who had bet their income on capital «commissions». In China, 10 years ago, 50% of GDP was spent on wages and salaries – recently it was reduced to 40%. In India, mainly high income groups benefited from the economic reforms of the 90’s – while in Brazil, after the invasion of the IMF, the rich live in fortified areas and sheltered apartments, to protect themselves from the many poor. According to a recent study conducted by the IMF, ’’Inequalities have increased in all countries, except perhaps in the poorest nations of the planet’’.

The common «political» feature of this period was undoubtedly, as was mentioned in the beginning, the predominance of the neoliberal doctrine of the Chicago school, in the reforms that were carried out by R. Reagan in the U.S. and M. Thatcher in Britain.

Concluding, the «limiting» of the state and the privatization of all public enterprises, as well as the sale of state assets, predominated – with documented (historical) results being, the state and household indebtedness, keeping wages steady, the neutralization of unions, increases in corporate profitability, the emergence of monopolies (multinationals), continuous «attacks» by the IMF, as well as the omnipotence of the idle, speculative capital – meaning all kinds of financial «markets» by that.

THE DOMINANCE OF CARTELS AND BANKS IN EUROPE

The budget deficits of European countries have increased 8-fold in 2010, compared with 2007, reaching -581 Billion Euros, from -60 Billion Euros previously. Of these, -360 Billion Euros are attributed to the five most dangerous «countries of the South», which quadrupled their deficits in just three years. According now to the prevailing view of Euro-zone governments, accountable for these outcomes are solely the countries themselves, that were proven incapable of managing their own financial problems – despite the fact that in many of these countries, like for example Greece, the annual interest charges are now approaching nearly 30% of government revenues.

Continuing, the Euro-zone private sector in 2000, the multinational companies in particular, had reached a combined funding deficit of -202 Billion Euros. Ten years later, in 2010, the deficit had converted into a surplus of 82 Billion Euros – of which, 55 Billion Euros of surplus was attributable to German companies, which in 2000 had a deficit of -129 Billion Euros. Across the European Union as a whole now, the total deficit of businesses, around -346 Billion Euros in 2000, converted into a 300 Billion Euros surplus (source: Ringier AG, CH. Ringier is a major media company in Switzerland, Zurich It publishes over 120 newspapers/magazines. It was founded in 1833).

In 2000 now, European (multinational) companies were financing their investments in a natural way – partly from their equity capital, as well as from credit obtained by banks. Today, these companies are practically receiving 300 Billion Euros in excess of what they spend on their products, wages, taxes and investments – since their balance sheets show a surplus of this amount («over-charging» their products obviously). At the same time, they sell goods valued at 300 Billion Euros on credit.

Since these companies now have increased their receivables (company demands), and at the same time reduced their payable’s (debt), states or households then have either increased their debt levels or decreased their savings levels. In reality, household savings halved between 2000 and 2007 – from 170 Billion Euros to 84 Billion Euros.

Furthermore, since the beginning of the crisis, the private financial sector surpluses increased by 500 Billion Euros in the 27 member EU – with the corresponding deficits burdening the state coffers. This of course is not surprising, since governments, for the first time in history, took on the bad debts of banks (indirectly reinforcing the profitable ones), while at the same time funding efforts to reinvigorate the economy.

To conclude, this development did not work equally in all countries, since in those that experienced an increase in wage levels, along with an increase in productivity (Greece, Spain, etc.), effects on corporate profits were very little. On the contrary, in countries like Germany, where real wages dropped considerably, company profits increased, and so did the external account balance surpluses. At the same time, Germany increased its credit levels towards the importing countries of the South running a deficit – a situation that will be proven rather painful for the country’s economy in the future (bad debts).

INTERIM CONCLUSIONS

The global economy, despite the «treatment» it was put through by Reagan-Thatcher, did not grow faster compared with the previous period – meaning, it has not benefited from the privatizations, the liberalization of markets and the «opening» of closed professions.

And in stark contrast with the «new world order» of the Anglo-Saxon School, some of the richest countries of the world, Scandinavian, still maintain high tax rates and a large state – with public employees constituting up to 30% of the total work-force (about 12% in Greece). How do we justify this?

According to many, most people are not working for the sole purpose of generating money – but out of interest for their job, as well as for public «recognition», both of their personality and the work-service they provide, by the social environment. These same people believe that the «key» towards acquiring true wealth is access to a better education, social stability and the quality of infrastructure – elements far more important than incentives, that stem from the «hunt» for profit and from large income differences.

Also, quiet often one hears that the major technological progress, as well as globalization, are continuously generating inequalities. However, these conclusions are not as obvious as we had assumed in the past – especially since in countries with high technology and open borders, as for example in the «open societies» of Sweden and Finland, inequalities are very limited.

The use of machines, as well as the free exchange of goods and services without tariffs or other «state-imposed» obstacles, certainly contribute to the elimination of job positions – creating others though, in «new» areas. Of course the government can rightfully engage in actions, that would help avoid income inequalities – so that not only some citizens benefit from growth, but all together (Table I):

TABLE I: The «distribution» of income in selected European countries

Source: Eurostat

Table: V. Viliardos

Note 1: The development of income disparities between the richest 20% and the poorest 20% of citizens where, for example, the index 3.7 means that the income of the richest 20% of the population of a country is 3.7 times higher than the income of the poorest 20% (on average).

Note 2: The index for China was 8.34 in 2005 – 8.96 for Russia in 2007 and 8.42 for the U.S. in 2000 – in the EU-27, the average ratio was 10.13 in 2008, facts that highlight the huge imbalances between European countries (Source: F.E. Stiftung, the Friedrich Ebert Foundation, a German political foundation established in 1925).

Continuing, there are of course economists who also argue that the high concentration of wealth in few, is disastrous for the growth of an economy. The higher the income levels, the more one saves and the less the demand for consumer goods. According to Schopenhauer:

’’People who have not inherited a fortune, but manage to earn money using their personal abilities and skills, almost always succumb to the illusion that their talent is the capital stock and therefore the money they acquire through it the interest – and so they don’t save part of the acquired wealth, in order to generate a capital, but rather spend everything they earn. On the contrary, anyone who has grown up in inherited wealth, has learned to separate what is capital and what is the interest, safeguarding his property with his own life – and therefore remains neat, careful and thrifty’’.

Furthermore, the U.S. tried to fight the concentration of wealth in few (a phenomenon they themselves created, thus reducing consumption levels because of the low salaries the majority of workers earned), with the help of the «consumer» loans given mainly to lower income classes (instead of taxing heritage and the rich). But as we all know, these efforts led to the enormous global crisis we are experiencing today, which began with the purchase of property on credit, aiming at reselling it at a profit, so that consumption would increase – until real estate prices collapsed, making it impossible to pay-off the loans to banks.

So one can only wonder today, whether the massive «attack» against the welfare state was necessary from an economic standpoint – or whether a simple correction of the 1970′s excesses would have been enough, excesses largely caused by labor unions.

Either way, it has been historically proven, that capitalism can survive both under a larger and a smaller state. The question or better stated the issue of the ideal income distribution, is therefore essentially not relevant to the economy, but to Politics – although today’s politicians do not seem to be able to assume their responsibilities.

THE FINANCIAL MARKETS

After the prevalence of the «smaller state», that we described earlier, the «invisible hand of the market» was released from its «bonds» and began moving undisturbed/unobstructed, the same way it did before the 1930s, in the financial market.

Shortly after, two devaluations of the dollar followed, with the famous «oil shocks» of 1973 and 1979 – accompanied by intense, devastating recessions. The interest rate levels exceeded the growth mediums, while modern financial products, namely derivatives of all kinds, but all the other «products» as well (credit cards, consumer loans at loan shark rates above 20% etc.), led to the «trend towards higher profit hunting», i.e. from the production of products to speculation. Table II below is typical:

Table II: The development of the U.S. public debt in Trillions of Dollars, Public debt as a percentage of GDP, deficit/surplus in Trillions of Dollars

*U.S. government predictions.

Source: Spiegel, Germany

Table: V. Viliardos

Note: The household debt of the country approaches 14 Trillion Dollars (100% of GDP), and has increased 20 times, compared with the 1970′s.

The industrial groups, which marked the growth after the 1930′s, focusing on the production of real products, «mutated» into financial «beasts». The banks, that up till then were at the service of the real economy, transformed into «money alchemists». Simply stated, the «miracle» of economic growth after 1980, took place in the financial world – with increased lending, as well as with the constant shrinking of «real world business», i.e. the businesses that produced goods and services (a gap that China eventually filled – the country that is currently being characterized as the production engine of the West).

The theoretical explanation of this undoubted fact, according to which the «invisible hand of the market» generates wealth in the real economy, but causes destruction in the financial (economy), is rather obvious. For example, when demand for a product increases, its price rises – as well as the profit motive for the «manufacturer». What happens next, is that the entrepreneur increases the quantity produced (or new businesses enter the market, because of the positive profit outlook), the supply that is, and therefore the price decreases – while the balance between demand and supply is restored.

But when demand increases in financial markets (equities etc.), followed by higher prices, supply cannot be increased – since the quantity of shares is usually limited (of course markets use certain «tricks», such as «splitting», i.e. the production of two or more shares from one initial – the company though remains the same). Also, when demand for shares increases, brokers and financial advisers usually recommend a «buy» – so, instead of an increase in supply (as would happen in real products), demand increases even further, and with it, the prices once again.

These conditions result in twisted price developments of stocks, raw materials, interest rates and currencies, developments that eventually lead (mid to long-term) to upward or downward financial markets – in other words to depressive price fluctuations, instead of normal and balanced ones.

The second reason Adams Smiths’ «invisible hand» operates destructively in financial markets is, that in these markets no products are created nor any real value – but there is simply a redistribution of business generated value, among participants. In this «game», those who have the most information available (Goldman Sachs, BIS, Hedge Funds, etc.), let alone «internal/insider» information, always win, while the rest usually loose – from amateur «investors» to large pension funds.

The financial markets make it possible to effectively disperse risks, those they themselves generate. And with the ever-faster speculation tools (online trading – casino) available, they eventually manage to destabilize stock prices, commodity prices etc. –selling at the same time new «investor insurance» products (CDS etc.), that are supposed to protect «investors» from dangers they themselves cause, thus obtaining double profits. The developments in Greece and Ireland (many others are to follow, like for example Spain, Belgium, Britain, the U.S. etc.), are «exemplary»:

The markets, by «betting» on Greece’s bankruptcy, caused an increase in the country’s borrowing rates (above 10%). In this way, the chances of a bankruptcy magnified – so the «markets» now, not only gain from higher interest rates, but also from products they sell (CDS, etc.), to «protect» their clients from the risk they themselves create. At the same time, they borrow money from the ECB at a rate of 1% – and use that money to buy government bonds, with yields close to 10%. Now if they happen to lose their money, then they simply ask for state assistance – i.e. financial aid «billed» on taxpayers, the same people they just tried to rob.

Finally, the funds gathered from citizens of indebted countries, i.e. from workers and businesses, with wage reductions, taxes and other sacrifices, eventually go, through interest rates, to these financial beasts – and as a result, public debts continue to grow.

In reality therefore, the problem are the «loan shark» interest rates – as well as the willingness of «people in charge», to compensate the «markets» for dangers they themselves create, in order to speculate. The political elite do not seem to understand, that the «invisible hand of the market» generates «falsified» prices in the financial system – since, in stark contrast to the real economy, it is unable to work in balance, i.e. to obey the laws of supply and demand.

This twisted functioning of the financial markets further increases insecurity, to the detriment of business initiatives – while all the turmoil and the economic crises since 1970, are directly linked to the instability these unregulated markets as well as the monopolistic, multinational hyper-businesses, generate.

CONCLUSIONS

The only solution to the systemic crisis we are experiencing today, as far as the «markets» are concerned, is the regulation and limiting of the financial sector – in order to drive back the healthy tendency towards profit generation in the real economy and businesses, that produce real products, vital for both our survival and the betterment of our quality of life.

An even better solution would most certainly be the nationalization of the markets – namely, the nationalization of both large banks (first and foremost the Bank of International Settlement/BIS, which is an international organization that serves as a bank for central banks and is currently not accountable to any single national government), as well as national stock exchanges. This would ensure the proper functioning of the financial system (flow of funds to the real economy, rational consumption, realistic borrowing etc.) and would radically confront the dependence of states on greedy, dangerous and depressive markets.

As far as the multinational monopolistic businesses are concerned (cartels), which are also responsible for the current systemic crisis, since they drain off national economies, it is necessary to set limits on their sizes – in principle, with the proper operation of the commissions responsible for issues relating to fair competition, which have rather weakened, if not distracted completely from the original purpose of their establishment.

Moreover, governments should not privatize in any way public utilities (electricity, water, telecommunications, etc.), which ought to remain in their property – operating of course with absolute transparency (Financial Statements posted online etc.), so that they can be controlled by responsible citizens.

Closing, we must point out to workers, that a smaller state (privatizations etc.), means limited social benefits, as well as lower wages for them. On the contrary, a bigger state, translates into higher wages and more social benefits – up to the point, of course, when their demands would «threaten» to overpass the capacity of businesses, opening the «Pandora Box» (as happened 40 years ago and we still continue paying our dues for it).

Therefore instead of wasting their energy on criticizing the state deficiencies, essentially playing the game the «markets» set for them (setting various social groups into opposing camps and dominating, by means of «divide and conquer»), it is rather wiser to contribute actively to the good functioning of the state – without excessive demands from companies and states, but also without allowing the extremely dangerous privatizations to take place/continue, which would ultimately make them slaves of the financial markets and of monopolies (or, perhaps, colonies of the planets strongest economies).

Either way, the exit from the current, national and global crisis, cannot come from the economic elite, but from Politics – which must be restored to power, assuming the responsibilities for its proper functioning: by requiring a more direct and effective democracy, with the help of new institutions.

Vasilis Viliardos

http://viliardos.com

The Advent of Berlin (Part 2 of 2)

2013-01-14T11:48:00.001+02:00

by Vasilis Viliardos

NEO-MERCANTILISM

Mercantilism was ultimately rejected by the liberal and British Adam Smith, who also refused to wade into monetary policy – believing that products, people and institutions constitute the foundations, on which general well-being can be built on peacefully, and under conditions of freedom and democracy.However, many economists believed that mercantilism, in some cases, is not erroneous.

The most important among them was J.M. Keynes, who incorporated some elements of mercantilism in his theory – stating that the money supply, the foreign trade balance and prime interest rates are very important for an economy (believes that where later used to set the grounds for modern monetarism).

Adam Smith rejected the sole focus on production mercantilists thought to be the key – believing that consumption is the only way to develop an economy. In contrast, Keynes considered both the production and the consumption as being equally important for economic growth – recognizing also, that... at the then modern times, the pursuit to increase reserves in precious (noble) metals was a reasonable goal.

His ideas were based on the fact that, before the introduction of paper money (1973), an increase in gold reserves was the only way to increase money supply – with the help of which productive investments and consumption could be reinforced (today, an increase in money supply is achieved by simply «printing» more paper money – either by the central or commercial banks).

Now, because the U.S. in the early 1930’s withdrew their money from abroad, due to the great recession it faced at that time, while many countries-debtors were unable to pay off their obligations (over-indebted economies) (something similar is happening with Germany and the South today), Keynes realized the importance of the balance of trade deficit.

He also understood that, when all the over-indebted countries try to increase their exports, while minimizing at the same time their imports, to be able to pay off their debts, as well as to enhance their internal labor market (similar to what is happening today, at least to some extent), Germany would not be able to achieve a surplus balance, so that it could pay off its obligations (reparations of World War I).

So he tried to convince the lenders of Germany to scale down their demands (claims), to avoid the creation of explosive conditions in Europe – unfortunately without success, resulting in the rise of Nazism through the Weimar Republic and ultimately to the initiation of the Second World War (a fact that Germany does not seem to understand today, planning in creating indebted colonies, in which it wants to establish cheap labor industries that offer unbeatable costs compared to that of Asia – with an apparently Utopian goal, to first dominate the EU, and then the whole world).

So, in contrary to Adam Smith’s free market theory (laissez-faire), Keynes, because of the then global crisis, brought back to the forefront the mercantilistic idea of government intervention on the economy – which later led to the «new deal» policy in the US by President Roosevelt (massive employment boost by means of the state), a policy adopted by many other countries up until the 1970.

The similarities now between Keynesianism and the theories that «emulate» it, as well as the precedent mercantilism, led follows of them to be called «neo-mercantilists» – while other economic systems, that incorporate some mercantilistic attributes, such as the highly protective economic system of Japan (less that of Germany), are called neo-mercantilistic.

To conclude, it was during the period of mercantilism that most of today’s economic institutions were created – such as stock exchanges, modern banking systems and insurance organizations. In general terms, «mercantilists» were mainly either businessmen or government officials – in no case works.

GREECE

From the very beginning of the crisis, everyone has been making references to the viability or not of Greece’s current debt levels – while at the same time any efforts to limit or/and pay it off gradually are hampered, although «inhuman» austerity programs and over-taxations are being enforced (economic genocide).

At the same time, propaganda, both within the country and abroad, literally thrives – targeting to manipulate the masses and in victimizing them, so that they will continue accepting without protests the looting of private and public property, the abolition of their basic rights, impoverishment etc.

As part of this propaganda, even lists of potential tax evaders (real or fictitious) are used, so that Greek and global media can seize the opportunity and accuse Greece’s citizens, as well as its politicians, as sole perpetrators of the country’s bankruptcy – even though it is neither the first nor the last country affected by corruption and/or that has faced difficulties in debt payoffs (with Germany of course being also among these countries). Especially when it happens under circumstances of a global financial crisis, with asymmetries both in Europe and worldwide, resulting in major geopolitical upheavals.

Regardless of the above, after the criminal PSI came into effect, Greece’s public debt was limited by 106 Billion Euros. As a result, the country’s total public debt was reduced to 262 Billion Euros from 368 Billion Euros in 2011 – to which, if we add the deficit of 2012, amounting approximately to 13 Billion Euros (as indicated in the government budget), the public debt in 2012 would normally be 275 Billion Euros (and not 343 Billion Euros as reported, with the arbitrary addition of aid to banks, funds etc. which paradoxically do not «pass» through the deficit).

Now, the solution available to Greece’s government, if it had the ability to negotiate properly, and if it truly wanted to make the country’s debt sustainable, without waiting for a divine miracle to happen (through the policy of subordination to the German chancellor), is to demand for the following:

(a) The time extension for the repayment of the 275 Billion Euros of public debt, with amortization installments equal in size to the country’s budget surpluses, so that its debt can actually be payed off – at least with respect to the loans of the EU, as well as those of the ECB and the IMF, which haven’t undergone any write-offs.

(b) An interest rate slightly above the ECB’s basic rate, since normally it should not be possible for European «partners» to speculate through loans to their peers. In the case of Greece and for about 175 Billion Euros of the agreed on loans from the EU, the IMF and the ECB (individuals cannot be forced into yet another loss), if the country was to be charged with 1% interest rate, rather than 5%, the budget savings would be around 7 Billion Euros – while it would be burdened with an annual interest charge of 1.75 Billion Euros to its European peers, the IMF and the ECB, as well as with 4.25 Billion Euros to individuals (a total of 6 Billion Euros, compared to 13 Billion Euros today – in which case Greece’s deficit levels would be within 3%).

(c) The write-off of that amount from the ECB, for which it has not paid via buying government bonds from the secondary market. This amount is to be around 20 Billion Euros, since it bought 50 Billion Euros in Greek bonds, reduced by 60% in value on average (30 Billion Euros). If that was to happen, both the interest and the amortization payments would be reduced accordingly.

(d) Recapitalization of banks by the ESM (as already planned for Spain, Ireland etc.), so as to avoid a further increase in Greece’s public debt – provided of course that the banks will have to pay back the amount within 5 years, in order to avoid their de-hellenization (a feasible plan, if public confidence is reinstated and the country’s citizens restore their deposits – of around 100 Billion Euros).

If the Greek government can negotiate properly all of the above (German repayment of past obligations remain a standard requirement), then Greece’s debt will become sustainable, limited to 255 Billion Euros or at 131% of GDP (if the GDP is to fall further to 195 Billion Euros). At the same time, however, budget deficits will almost reach zero, so that the debt can be serviceable – a state that will allow confidence to be restored, deposit repatriation, optimism, investments to take place, consumption increases etc.

As a result, the GDP will start growing again, gradually limiting the percentage of debt to GDP – while at same time government revenues will climb, slowly allowing Greece’s living standards to be restored.

If now Greece’s government fails to negotiate this solution, even though what it would be asking for is honest, feasible and reasonable, then it should have at least refused the «dose of shame» (the 2013 loan package now in effect) – choosing a direct halt of payments within the Euro-zone (nobody can actually expel Greece without its own will), since it is completely dishonest and unworthy for someone to borrow money, knowing in advance that there is no possibility for repayment.

The impact of such a decision would of course be the immediate need for Greece to survive on its own, relying solely on its own strength and without any borrowing – something that is highly possible, considering the limited primary deficits of the country. There will be of course significant difficulties, the banks perhaps may need to be nationalized, it is likely for certain public debt payments to be serviced with promissory notes (like in the case of California) and several other, but these will not be the end of the world for Greece – especially if public confidence in the state is restored and proper preparations are made.

Now Greece should avoid any further borrowing, accepting the risk of a possible default – a condition that is in any way not avoidable, if of course the country does not agree in becoming a German protectorate.

In any case, it is better for the country to suspend payments to creditors today (although it would have been preferable to have chosen to do so in 2010), no matter how distressful the consequences might be, rather than postponing it further – which would eventually drive it into bankruptcy, but like a «juiced out» lemon cup (that is, completely looted, impoverished and with degraded citizens).

CONCLUSION

What anyone should calmly consider, both the supporters of the Troika policies, as well as the critics of it, is whether Greece is currently in a better position compared to 2008 or compared to the year of the invasion of the IMF and Germany to the country. If correct steps had been made, no matter how painful, and even under the policy of austerity, citizens should have had voted «positively» – without any hesitation. Yet, as data reveal, no correct steps had been made (with the IMF and Germany both failing to succeed in their «plan», yet media only seems to be blaming Greece for the negative outcomes).

In this context, Greece’s public debt in 2008 was 262 Billion Euros or 113% of GDP – while its budget deficit did not exceed 5%, with public and private property being completely intact, standards of living under normal conditions, and with viable banks, pensions, wages etc.

Today, both the business environment or the competitiveness of the country’s economy, and the rule of law, were and are in the same situation – meaning that they haven’t in any way improved, despite the rapid decline in consumption and GDP, the dramatic increase in unemployment, poverty, crime levels etc. At the same time, the drop in the GDP by as much as 40 Billion Euros (mainly because of the austerity policy), has reduced government revenues by 10 Billion Euros, equal in value to the additional property taxes imposed (and with a projected income from state owned business privatizations calculated only at 13 Billion Euros).

So today, after a devastating recession, after the loss of Greece’s national independence, as well as after a 106 Billion Euros debt write-off which humiliated the country worldwide, destroying at the same time its banks and welfare funds, the public debt of Greece is placed (arbitrarily) at 345 Billion Euros or 175% of its GDP – and there seems to be no prospect for the future.

At the same time, scandalous frauds take place at a large scale, the Greek stock market has collapsed, the real estate market as well, the profitable state owned utilities are scheduled to be privatized at a minimum price, banks have gone bankrupt, small businesses are closing down one by one, young Greeks migrate, Greece has completely lost its dignity, as well as so much more, painful enough for someone not to be able to mention all this without feeling any grief.

Finally, I must remind that freedom needs virtue and boldness – as well as painful sacrifices, if a nation wishes to maintain its national independence, pride and dignity. And this must be understood by Greece, as much as by Spain, Portugal, Cyprus, Italy, Ireland, France and even England. Because the «European Dream», a dream of real unity, cannot hold true, if its nations are not willing to fight for their freedom, since the European Union should not be a union of submission, but a union of mutual prosperity.

Back to: The Advent of Berlin – Part 1 of 2

http://viliardos.com/2013/01/13/the-advent-of-berlin-part-2-of-2/

The Advent of Berlin (Part 1 of 2)

2012-12-28T00:51:00.000+02:00

The escalation of the war, the correlation of forces, neo-mercantilism, the zero-sum policy, the sustainability of public debt, Greece’s negotiation capabilities, and the currently available solutions for Greece

‘’In broad terms, the swift attack against a nation and the instantaneous prevalence, keeps the environment under control and paralyzes or overwhelms the opponent’s senses, affecting one’s ability to understand the facts. The purpose of the method «shock and awe», is to make the opponent completely unable to function – let alone resist’’.

‘’Mercantilism is a centralized, systematic economic policy, where government revenues are necessary for the maintenance of a costly state power, and the functioning of its expansionistic character. Its key elements are:

a) Targeting an increase in product exports, b) the reduction of product imports, c) the creation of a «strong fleet» for the transportation of the products and the avoidance of war conflicts, d) the creation of a road-system, e) the establishment of colonies, achieved through a supported cooperation of the «attacking» country with its strongest businesses (corporations) – in which case the colonies are to remain under absolute dependence to the metropolis.’’

ANALYSIS

It’s obvious that the German danger was severely underestimated by the US, which had focused its attention mainly towards China, and secondly towards Russia (the failure of the IMF, during the Russian default, to work to the benefit of the US, is one of the biggest mistakes in its recent history – compared to Germany, which managed to utilize correctly and to its benefit the sudden collapse of the Soviet Union, buying back its reunification at low cost).

As a result, the «neo-mercantilistic» economic invasion of Germany in the Euro-zone, and its continuous expansion to the rest of Europe, seems to have been crowned with success – let alone the fact that Berlin has almost entirely replaced Brussels. Perhaps the only «flaw» of the whole process is the invasion of the IMF in the Euro-zone, an act though that Germany itself provoked –in order to replace it later on with the ESM, since it used the «Fund» on the one hand to take on the «dirty work», and on the other hand to exploit it, learning from its past experiences and gain knowledge (learning the «technology» of the newest economic weapon the IMF possesses and has used many times in the past).

If Great Britain eventually withdraws from EE, despite the fact that it realizes where the continent is heading, and taken together with the proven inability of France to face Germany (already the Chancellor has formally stated that ‘’it worries about the economic condition of France’’, with an obvious intent of setting the markets against it), Germanys plans will be fulfilled – whether the Euro collapses or not.

In the first case, the German onslaught will continue, with the formation of «satellites» (Netherlands, Austria, Finland, etc.), as well as «economic zones» of complete submission to the country (Greece, Spain, Portugal, etc.), directly dependent on its industry (industrial products). In the second case, that is if the euro will eventually not collapse, Germany will become the undisputed ruler of Europe – with the submission of all its partners to the its desires and plans (and as already stated by the Chancellor publicly, ’’it is not possible for a country that owes more than 90% of its GDP, to demand for its national independency’’).

In our opinion Italy, which faces major economic problems, and as a result has to deal with the danger of being «locked out» of the markets (funding), cannot confront Germany on its own – especially when Spain is on the verge of economic collapse, which threatens to have a domino effect throughout the entire South.

On the other hand, we expect Poland to be selected to replace France as the «partner» of Germany – with the criteria of both the size of its economy, as well as the acceptance of German supremacy on its behalf, and the influence Poland has on countries of the Former Soviet Union that dislike Russia.

The only possible danger Germany faces, is Russia – which has already openly stated its willingness to offer economic aid to Greece and Cyprus, an action that would allow Russia to create a docking system in the Mediterranean for its war navy, and would also open a window for the utilization of the rich undersea energy deposits of the two countries. Apart from that, Germany’s dependence on Russia to cover its energy needs is one of the biggest drawbacks of Berlin – a situation that may prove disastrous in the future.

Furthermore, Germany’s major weapon, is the European Central Bank – with the help of which Germany has the ability to impose itself on other countries, since it dominates the ECB, and through it controls Europe’s banking system (that is currently extremely fragile). Let’s not forget here the words of M.A. Rothschild: ’’Allow me to freely issue and control the money supply of a nation, and I wouldn’t care about who votes its laws’’.

An additional weapon of Germany, one that is not yet in full operation (when it will, it will transform into a German IMF), is the ESM – through which Germany will acquire the banking systems of its «partners», who not only will pose no resistance, but will actually plead instead for it to happen (as is already the case with Spain, Ireland, Greece and so on, which in order to avoid taking on the banking systems bad debts and increase their public debt, push for the recapitalization of their banks via the ESM).

Continuing, China is undoubtedly a very important competitor of Germany, with access both to Greece, Italy and elsewhere. Although both countries are organized under a state (authoritarian) capitalistic structure (as is Russia), a kind of modern National Socialism better stated, with «neomercantilistic» foundations, cooperation between them is not easy to be achieved.

Furthermore, Japan is also broadening its activities in Europe, by acquiring German companies – a behavior that does not seem to bother Germany though, which faces Japan more like a partner (targeting most probably in a cooperative concentration against a common enemy, China, to which the entry to the production of high technology products will not be allowed without resistance).

In this context, with Turkey visiting Germany, practically «begging» for its inclusion in the E.E., it’s hard to any one not to notice certain similarities to the past – since the former allies of the Second World War seem to be coming together once again. Greece on the other hand, if it stops re-enacting the Trojan horse under the command of the U.S., and based at least on the unilateral policy adopted by its government, seems to have chosen the German side this time – with a government that puts all its hopes to the Chancellor.

Concluding, the major difference between the U.S. and Germany (China, Japan, Russia), as well as countries that follow the «example» of the one or the other, from an economic standpoint, is that the U.S. are characterized by a balance of trade deficit, while Germany runs a surplus.

Table I below, demonstrates the weak spot of the U.S. being its trade balance, compared to Germany, China and Russia (whose export trade is not as safe or mercantilistic as that of the others, since it is based on energy and raw materials):

TABLE I: The five countries with the greatest surplus and deficit, based on the balance of trade – in million $, in 2010

Country	Surplus	Country	Deficit

Germany	201,737	U.S.A.	-689,932
China	182,725	Great Britain	-152,830
Saudia Arabia	152,000	India	-106,540
Russia	151,621	France	-85,325
Japan	77,218	Turkey	-71,598

Source: WP

Table: V. Viliardos

From a political viewpoint now, in the U.S. the state is at the service of the individual (liberalism and neo-liberalism), while in Germany (China etc.), the individual is at the service of the sate (state capitalism or a type of National Socialism) – with the economic police today playing the role of the once existent «security battalions» (SS, Schutzstaffel), especially regarding the implementation of the terrorize tactic.

As a result, the private property of the US is enormous (about 38 trillion $), and so is its public debt (15 trillion $), as well as its the budget deficits – while in China, the opposite stands true, since the property of its citizens is low, and the country’s public debt is negligible. As far as Germany is concerned, it seems that the country has changed course, targeting a direct and accelerated reduction of its public debt, increasing constantly its tax revenues, that will exceed 600 billion € in 2012 – while at the same time reducing expenses/spending, with the help of its «partners» (zero interest rates, etc.).

Finally, when such «imbalances» are being formed in the global economy, wars are inevitable – as demonstrated historically throughout the centuries when mercantilism dominated. We should note here, that when we write about Germany, we do not mean the German citizens, but the country’s political leadership (which acts under the orders of an industrial establishment of international reach, with Prussian characteristics and authoritarian foundations).

MERCANTILISM

Although we have talked about mercantilism briefly before, it seems appropriate to analyze some of its important features, so we can better understand the «neo-mercantilistic» policy that Germany seems to follow (with some variations of course, «attuned» to the current economic conditions).

Specifically, in terms of the needs of authoritarian states during the 16th-19th century, for consistent and ever increasing government revenues, so that the army can be sustained, as well as the constantly growing public sector (government officials/employees), a political and economic system was created in most European countries, which was based on the almost complete government intervention on the economy. The key feature of this system was to achieve surpluses in foreign trade – or to elaborate, to expand exports, while at the same time reducing imports, so as to magnify the money reserve (gold at that time).

The export of raw materials was prevented, targeting the production and sale of finished/processed goods, which could be sold at much higher prices, create more jobs, etc. The exports of precious metals were strictly prohibited, especially gold, and the high interest rates on deposits where set in order to entice savers not to put their money elsewhere.

At the same time, exports strengthened with the re-exportation of products, that where initially imported at low prices from countries with low cost labor – a policy that Germany is currently implementing which, with the help of the strong Euro, and also due to the country’s high liquidity, pushes down prices of imported goods from Asia and elsewhere (products that Germany then re-exports to its European «Satellites»).

On the other hand, due to increased support to investments made in manufacturing industries, a dramatic drop in lending rates was observed –currently a prevailing situation in Germany, assisted by the increasing influx of money from the surrounding regions, caused by depositors need for security (after previously accomplishing, unfortunately with the help of US rating agencies, to create conditions of insecurity in the southern countries – resulting in a massive outflow of deposits from the banks there, with their ultimate destination largely being Germany).

We should note here, that the intentional reductions in imports at that time, were accomplished with the imposition of tariffs on foreign products – today, with the reduction of domestic consumption, the «management» of which is actualized with the help of payroll policy adjustments (salaries lower than productivity, salary increase adjustments lower than inflation, wage freezes – methods Germany has been using, after entering the Euro-zone, aiming at total control over Europe).

The wars at that time, as well as the constantly growing hostility between states, was the result of this policy, mainly because mercantilism «defined» foreign trade as a «zero-sum» game – a transaction that is, in which the one side wins and the other looses, since the total revenues are given and constant.

Continuing, a policy which all followers of mercantilism find themselves agreeing on, is the oppression of the working class. Both industrial workers and peasants, where forced to live close to their survival limits – so that the products produced could cost the minimum. The goal was to increase the output to its maximum, at the lowest possible cost, while completely disregarding the living standards of workers (their quality of life).

According to the then prevailing view (similar to Germanys view today, an idea of what should be imposed on Germany itself and on its «partners»), only a country that would be able to offer its employees the minimum means for survival through hard work, could achieve the highest possible production levels, with the minimum possible cost.

Furthermore, always according to the theory of mercantilism, higher wages, leisure time or the education of lower income classes, would increase costs for businesses, reduce competitiveness, push employees towards «laziness», and generate large losses to the state.

http://viliardos.com/2012/12/24/the-advent-of-berlin-part-1-of-2/

EXCEPTIONAL REASONING

2012-11-26T14:59:00.000+02:00

To vote on austerity measures equal to 11.5 Billion, while taking on bank debts of 49 Billion Euros is rather silly – although silence is what justifies the collective submission of a nation that was once proud.

“Exploding debt in 2012 at 340.6 Billion Euros, compared to an initial estimation of 316 Billion Euros; these numbers where revealed by the Greek Statistical Authority (ELSTAT) and the General Accounting Office to Eurostat, during the interim Excessive Deficit Procedure.

The same data show that the deficit for the year 2012 is expected to be around 13.4 Billion Euros, a target level that will most likely be achieved through heavy public spending cuts. Specifically, from a central government perspective, the deficit target is set at 11.4 Billion Euros.

GDP is also projected to decline to 194.7 Billion Euros, from approximately 232 Billion Euros (the GDP before the ΄΄invasion΄΄ of the IMF in Greece).

Furthermore, according to data of.....

ELSTAT, the deficit in 2011 was 9.4% of GDP or 19.7 Billion Euros – with the deficit in 2010 being 10.7% (approx. 24 Billion Euros), and 15.4% in 2009 (approx. 36 Billion Euros).

In its statement, ELSTAT admits that the deficit and the public debt surpassed expectations, partly because additional government expenditures were found, and because the Agency revised the levels of the GDP. And because GDP is the basis for measuring debt, the debt levels have increased!”

Article

Regardless of the above lightly formatted text (published by media), in general, the year by year increase in public debt of a country can be found, if the year-end deficit (loss) is added to the previous year’s total debt. With this in mind and using as our source the debt report of the Greek Ministry of Finance, we get the following:

TABLE I: Development of the central government debt, approximate budget deficits, year to year public debt increase (in million Euros)

Year	Central Gov. Debt	Deficit	Debt Increase

2008	262,070.75	-	-
2009	298,525.20	36,000.00	36,453.45
2010	340,286.00	24,000.00	41,761.80
2011	367,978.00	19,700.00	27,692.00
2012	343,230.00*	11,400.00	69,825.00

*PSI: 105,973 Million Euros

Source: Debt report, budget draft 2013 (Greek Ministry of Finance)

As seen in Table I, in 2009, just before the invasion of the IMF, the Greek debt increased by 36.453 Billion Euros – that is, by as much as the “swollen” deficit had increased, which was determined by the then newly formed government (following irrational processes).

The next year however, although the deficit dropped to 24 Billion Euros (it has been revised so many times that it is hard to find the exact number – but it’s certainly possible), Greece’s debt increased by 41.7 Billion Euros. Furthermore, in 2011, although the deficit of the country was 19.7 Billion Euros, its debt increased by 27.7 Billion Euros.

The year 2012 now, was known for the notoriously criminal debt write-off (PSI), amounting to around 106 Billion Euros – at least as publicly announced. Therefore, compared to 2011, the debt in 2012 should normally decrease by 106 Billion Euros, and increase by the years (2012) deficit – that is by 11.4 Billion Euros.

As a consequence, the total debt ought to stand at 273.405 Billion Euros (367,978 – 105,973 + 11,400) rather than at 340.6 Billion Euros announced by ELSTAT or 343.3 Billion Euros according to the budget – a huge difference, amounting to 69.8 Billion Euros!

Now, baring in mind the reduced GDP that was announced (194.7 Billion Euros), the total debt (343,2 Billion Euros according to the budget) will almost reach 176% of GDP – when before the IMF (2009) and the debt write-off (106 Billion Euros), the total debt was at 129.4% of GDP (113.0% in 2008, compared with a GDP of 232.9 Billion Euros).

Perhaps we should note here that, because of the dependence the general government revenue has to the levels of GDP (revenue of 52.85 Billion Euros, compared to a GDP of 215.09 Billion Euros – 25% of GDP), only due to the drop of the GDP by 38.1 Billion Euros compared to 2008, approximately 9.52 Billion Euros in revenues are lost annually.

Adding on top of that the government expenses that are piling up due to the recession (unemployment etc.), the total revenue losses will compound to more than 15 Billion Euros – a loss that comes as a consequence of the imposed austerity policies (policies that accomplish only one purpose, the substantiation of an economic genocide).

To carry on with our discussion on public debt, it is obvious that its disproportionate increase compared with the deficit of the country, is due to some specific causes – causes that need to be publicly announced by the Greek government so that all its citizens can be aware of them. Unfortunately, as usual, this has not happened.

If we take a look at the budgeting program of 2013, we will see that the public debt of 2012 was burdened (in addition to the deficit of 13.3 Billion Euros) with 11 billion Euros in losses of local governments and other governmental bodies, with 49 Billion Euros from the recapitalization of banks, with 3.5 Billion Euros from the repayment of expiring liabilities to the private sector, as well as with various other amounts to meet the needs of the first quarter.

The Greek citizens therefore, in 2012, paid 49 Billion Euros to Banks (a total of 109.1 Billion Euros have been approved for the Banks through the FSF) and 11 Billion Euros to social funds, as well as various other amounts, for which they were completely unaware of. These facts fully justify that with the PSI, Greece «put a bullet to its own feet».

To sum up, up until January 2012, Greece has received a total of 73.2 Billion Euros (20.3 Billion Euros from the IMF and 52.9 Billion Euros from the Member States) – while waiting for the «doze» of shame (31.5 Billion Euros). Against this amount, the damage done to the country because of the recession, unemployment, income reductions, the stock market collapse, business bankruptcies, falling prices in properties and so on, has surpassed in value the amount of 800 Billion Euros.

It is obvious, that based on the above handlings, the public debt of Greece will never be viable - as it will grow over time and at will, with the help of the Chicago fella’s. Under this context, to vote on 11.5 Billion Euros in austerity measures, while taking on debts of 49 Billion Euros to recapitalize Banks (and 60.1 Billion Euros more to come) is a reasoning that defies intelligence.

Without expanding further into details, from the concentrated information of this article we can see Greece being completely looted by the IMF – with the artful use of statistical data, manipulation and propaganda.We also realize what could happen to Spain or Italy, if the IMF was to invade, and use the same methods it used on Greece.

Precisely for this reason, both Spain and Italy avoid it by all means. On the contrary, the Greek government in 2010 allowed the IMF to enter without any resistance, making it the Trojan horse for the invasion of the Euro-zone (while today’s government continues tolerating the invaders, adopting the submissive policy of «bowing»).

THE METHODS OF THE IMF

From one of our older articles, we recall the IMF’s attitude towards the invaded countries – which are being abandoned like juiced out lemon-cups, after their public and private properties have been plundered.

“The Asian «tigers» in 1997, were forced to seek «help» from the firefighters of the IMF, who of course worked to the benefit of the country that caused the fires. As natural, the«Fund» reacted positively at start, and provided the demanded loans – since the true purpose behind this act, was to protect banks, pension funds, investment funds, private speculators etc., that had invested in the Asian real estate bubble, from going bankrupt. These investors later on (after getting liberated from their former destiny) put all «bets» in the «bursting» of the bubble, a move that would cause a sharp devaluation of the Asian currencies.

In agreement with the IMF, the first loans were provided to be used by the governments of Indonesia, Thailand and South Korea, for the repayment of foreign speculators. Shortly after, with speculators having been payed off completely, the «shock therapy» followed. Local populations where forced to follow a catastrophic austerity policy that led to a deep recession. Salaries were cut to extreme low levels, spending on healthcare and education was limited to a minimum, and lending to small businesses was stopped almost entirely.

From South Korea to Indonesia, hundreds of thousands of workers lost their jobs, driven into unemployment, while rules where set that prohibited states from providing any kind of assistance to the affected citizens. Many schools were closed, medicines in hospitals were hard to find, people were dying in the streets, and crime surpassed even the most morbid imagination. At the same time hunger and starvation maxed out. The entire middle class sector – the winners of the previous decade – now ceased to exist.

As always, the weak lower social classes suffered the most, while the looting of private property (buildings, land, etc.), through excessive taxation (a technique currently implemented in Greece), exceeded all expectations. Many utilities«denationalized» (so did the banking system), passing on ownership to foreign multinationals at bargain prices. The cost of living soared, and public property fell into the hands of the invaders – always publicly presented as completely legal and transparent business transactions.

The onslaught of the IMF had finally nothing to envy compared to a conventional war – since it managed to leave behind human wrecks and societies that will never recover from the shock of absolute misery and destruction. In any case, the residents of the wider Asian region, will never forget the torturing they suffered in the hands of the bloodthirsty mercenaries hired by loan sharks, and who do not have any kind of moral barriers when executing the incredible commands of their «shadowy» leadership” (currency effects).

FISCAL POLICY AND GDP

Also from one of our older articles, we note that as far as the debt is concerned, according to the IMF, austerity programs are now having different effects in Europe than they had in the past. These effects are calculated by a multiplier, that reveals the relationship between the fiscal policy and the respective GDP (that is the effects the policy has on GDP).

In previous years, the multiplier was around 0,5 – an index that shows that when the state cuts spending by 1 Billion Euros, the GDP shrinks (recession) by 0.5 Billion Euros.

Today however, the IMF believes that the multiplier is between 0.9 and 1.7. To elaborate, when the multiplier is greater than 1, the total GDP declines more than the budget deficit does (in the case of Greece, the deficit declined by 25 Billion Euros while the GDP shrank by more than 30 Billion Euros – leading to a vicious cycle that will eventually push the country into bankruptcy, if the implementation of austerity measures is not immediately stopped). Table II will give us some insights:

Cuts in Spending	Multiplier	GDP decline	Revenue loss*

1,000,000,000	0.5	-500,000,000	-166,500,000
1,000,000,000	0.9	-900,000,000	-299,500,000
1,000,000,000	1.7	-1,700,000,000	-566,100,000

*Total revenues of Greece are estimated to be 33.3% of GDP, compared with 32.9% in Spain and 29.8% in Ireland.

Note: In the case of Greece, it seems that the IMF had initially estimated a rate of 0.5, but in the process the rate ended up being between 0.9 and 1.7.

The table above reveals to us, that when a policy that focuses on austerity (similar to the one imposed on the Euro-zone members running a deficit) is implemented, the debt to GDP increases over time rather than decreases – a hypothesis that has been documented many times in Greece.

PS: Greece erased (write-off) debts of 106 Billion Euros, thus hurting its image worldwide and scaring away investors without any real benefit, since most of the debt erased came from its interior – Greek banks, social security funds, private investors and other Greek organizations.

Due to the debt write-off (PSI), Greece now has to recapitalize its banks and funds – for which it has signed a loan agreement, equal to the amount of 109.1 Billion Euros (more than the 106 Billion Euros of the write-off).

Furthermore, if the recapitalization is done through the ESM, then it is very likely that Greek banks will end up in foreign hands, and in the process will transform into small branches selling financial products –along with the dismissal of thousands of bank employees. If this is not the zenith of stupidity, how else can it be described?

Athens, 26.11.2012

Translation of original: Dennis Viliardos

http://www.casss.gr/PressCenter/Articles/2752.aspx

Greece flirts with tyranny and Europe looks away

2012-11-06T22:55:00.000+02:00

Greek democracy is in peril and much of the fault lies with the EU's hard stance

Nick Cohen

The Observer, Sunday 4 November 2012
When those madcap Scandinavian satirists awarded the Nobel peace prize to the European Union, they let everyone in on the joke by praising its commitment to "reconciliation, democracy and human rights". If the committee's 2012 citation were anything other than a spoof, you would have read denunciations of the rise of oppressive state power and neo-Nazism in Greece from concerned Euro commissioners long before now.
The EU denounces threats to freedom of speech in Viktor Orbán's Hungary with vigour. European politicians worry with good reason about the fate of independent institutions that stand in the way of the rabble-rousing regime. They notice the fascistic element in the new Hungarian right's flirtations with antisemitic and anti-Roma hatreds and its willingness to indulge the revanchist fantasy that Hungary can regain the lands it lost after the First World War. On the fate of Greek democracy there is silence, however, although there is much that Europe's leaders might talk about.

You spot the pressure points of a failing state by looking at what it censors. In the case of Greece, the authorities' prosecution last week of....
Kostas Vaxevanis showed that he had hit a pressure point with the accuracy of a doctor sticking a needle into a nerve. While Greeks live with austerity without end, while Greek GDP has shrunk by 4.5% in 2010 and 6.9% in 2011, and will shrink by a predicted 6.5% this year and 4.5% in 2013, the list of the names of 2,000 Greeks with bank accounts in Switzerland Vaxevanis published, suggested that the well-connected were escaping the burdens that fall on the masses.

"Instead of arresting the tax evaders and the ministers who had the list in their hands," thundered Vaxevanis in a call to arms that stirred the blood, "they're trying to arrest the truth and freedom of the press."

His acquittal on privacy law charges, though welcome, was less important than it appeared. It did not mean that freedom of the press was secure in Greece. Even in good times, independent journalism has rarely been a force in the land. Most Greek TV stations and newspapers are owned by either the state or plutocratic corporations, neither of which likes seeing corruption exposed. The leftwing daily, Eleftherotypia, which for all its faults and flirtations with terrorism at least challenged the oligarchs, filed for bankruptcy last year.

Few of the employees of the remaining Greek news organisations reject the notion that they should keep quiet in the interests of holding on to their pay cheques. The state is hounding too many of those who do. "We still have freedom of expression recognised by the law at a theoretical level," said Asteris Masouras, one of the free speech monitors at Global Voices. "On a practical level, well..." And he proceeded to give me a list of instances of menacing forces intimidating reporters that would go on into the New Review section if I ran it in full.

Where to begin? How about the self-defeating austerity policies the troika of the European Central Bank, European Commission and International Monetary Fund have forced on Greece? The authorities used an old warrant to arrest Spiros Karatzaferis, after the journalist threatened to reveal confidential emails, that might have explained how the troika's alleged "rescue package" had pushed the country into depression.

Police brutality is another pressure point, undoubtedly. The Greek left makes persistent allegations of collaboration between the supposed forces of law and order and the thugs in the neo-Nazi Golden Dawn movement. The Guardian ran reports that the police had beaten up anti-fascist demonstrators after they had confronted Golden Dawn. Yes, I know leftists call everyone "fascists" from headteachers to their mums and dads, but as Golden Dawn is building a mass movement while marching under a swastika, the term is correct on this occasion. The following day, Greek state TV replaced Kostas Arvanitis and Marilena Katsimi, the presenters of its morning news show, after they told managers they planned to follow up the Guardian's claims. Another state TV reporter, Christos Dantis, has joined the ranks of the vanishing journalists. His editors assigned him to cover the celebrations of the centenary of the liberation of Thessaloniki from Ottoman rule. He was about to report on popular protests against the presence of the Greek prime minister and president in Greece's second city when his masters turned off the camera and cut to a more amenable hack.

All the Greek journalists I spoke to emphasised that Athens was not Beijing or Tehran, but they described how the liberal certainties they once held now appeared flimsy. Helena Smith, our superb Athens correspondent, says that she feels as if she is standing on shifting sands. If the centrist coalition fails, and the troika's punitive demands have condemned it to failure, then the left opposition in Syrzia will probably take over. After that, Golden Dawn, maybe? No one knows. Nothing is unthinkable in a climate of fear and hopelessness.

One can say with certainty that old alliances between extreme political and extreme religious movements are reviving. Hence, last month Christian fanatics and neo-Nazis (and the difference between the two is fine) protested against a "blasphemous" play with a homosexual theme in Athens. The theatre's management duly pulled it. Greek television cut a scene from Downton Abbey that featured a gay kiss. No one can explain why but a country that censors Downton Abbey on any grounds other than literary taste is in grave trouble.

British Eurosceptics do not understand that the European Union once offered an escape to a liberal future for the peoples of Europe. When I visited Athens in the early 1980s, the old could remember fighting the Nazi occupation and the young had grown up in and on occasion fought the military dictatorship the colonels imposed. Joining the European Union meant saying goodbye to all of that. Now poverty, fear, suppression and state intimidation are back.

You can blame the corruption Greek society tolerated. You can blame the bankers for the crash. But you must also apportion blame to Europe's politicians and bureaucrats who accepted Greece (and the rest of southern Europe) into a single currency area that has put them at a permanent competitive disadvantage and refused to write off debts Greece can never repay.

No wonder they stay silent about the abuse of the human rights the Nobel prize committee insisted European integration guaranteed. Greece is the Eurocrats' very own Weimar on the Aegean. They helped build it.

http://www.guardian.co.uk/commentisfree/2012/nov/04/nick-cohen-greece-democracy-in-peril

Austerity has never worked

2012-10-02T23:21:00.001+03:00

It's not just about the current economic environment. History shows that slashing budgets always leads to recession.

Last week saw a string of bad economic news reports. The eurozone leaders seem unwilling or unable to change from their austerity policies, even as Greece and Spain fall apart and the core eurozone economies contract. Britain watches on as its economy is heading for the third consecutive quarter of contraction, with an unexpectedly sharp fall in manufacturing. Last week's jobs figures confirmed that the US recovery is stuttering. The largest developing economies that have so far provided some support for world demand levels – especially India and Brazil but even China – are slowing down too. Four years after the financial crisis began, many...

rich capitalist economies have not recovered their pre-crisis output levels.

Even more serious is the unemployment problem. The International Labour Organisation estimates there are 60 million fewer people employed worldwide than if the pre-crisis trend had continued. In countries like Spain and Greece, overall jobless rates are approaching 25%, with youth unemployment over 50%. Even in countries experiencing "milder" unemployment problems, like the US and the UK, between 8% and 10% are out of work. If we include those who have given up looking for jobs or those who are forced to work part-time for want of fulltime opportunities, "real" unemployment could be easily over 15% even in these countries.

The remedies on offer are well known. Reduce budget deficits by cutting spending – especially "unproductive" social welfare spending that reduces growth by making poor people less willing to work. Cut taxes at the top and deregulate business (euphemistically called "cutting red tape") so that the "wealth creators" have greater incentives to invest and generate growth; and make hiring and firing easier.

It is increasingly accepted that these policies are not working in the current environment. But less widespread is the recognition that there is also plenty of historical evidence showing that they have never worked. The same happened during the 1982 developing world debt crisis, the1994 Mexican crisis, the 1997 Asian crisis, the Brazilian and the Russian crises in 1998, and the Argentinian crisis of 2002. All the crisis-stricken countries were forced (usually by the IMF) to cut spending and run budget surpluses, only to see their economies sink deeper into recession. Going back a bit further, the Great Depression also showed that cutting budget deficits too far and too quickly in the middle of a recession only makes things worse.

As for the need to cut social spending to revive growth, there is no historical evidence to support it either. From 1945 to 1990, per capita income in Europe grew considerably faster than in the US, despite its countries having welfare states on average a third larger than that of the US. Even after 1990, when European growth slowed down, countries like Sweden and Finland, with much larger welfare spending, grew faster than the US.

As for the belief that making life easier for the rich through tax cuts and deregulation is good for investment and growth, we need to remind ourselves that this was tried in many countries after 1980, with very poor results. Compared to the previous three decades of higher taxes and stronger regulation, investment (as a proportion of GDP) and economic growth fell in those countries. Also, the world economy in the 19th century grew much more slowly than in the high-tax, high-regulation era of 1945-80, despite the fact that taxes were much lower (most countries didn't even have income tax) and regulation thinner on the ground.

The argument on hiring and firing is also not grounded in historical evidence. Unemployment rates in the major capitalist economies were between 0% (some years in Switzerland) and 4% from 1945-80, despite increasing labour market regulation. There were more jobless people during the 19th century, when there was effectively no regulation on hiring and firing.

So, if the whole history of capitalism, and not just the experiences of the last few years, shows that the supposed remedies for today's economic crisis are not going to work, what are our political and economic leaders doing? Perhaps they are insane – if we follow Albert Einstein's definition of insanity as "doing the same thing over and over again and expecting different results". But the more likely explanation is that, by pushing these policies against all evidence, our leaders are really telling us that they want to preserve – or even intensify, in areas like welfare policy – the economic system that has served them so well in the past three decades.

For the rest of us, the time has come to choose whether we go along with that agenda or make these leaders change course.

Do we want a society where 50% of young people are kept out of work in order to bring the deficit down from 9% of GDP to 3% in three years?

A society in which the rich have to be made richer to work harder (at their supposed jobs of investing and creating wealth) while the poor have to be made poorer in order to work harder?

Where a tiny minority (often called the 1% but more like the 0.1% or even 0.01%) control a disproportionate, and increasing, share of everything – not just income and wealth but also political power and influence (through control of the media, thinktanks, and even academia)?

Maybe we do, but these choices need to be made consciously, rather than by default. The time has come to choose the kind of society we want to live in.

Ha-Joong Chan

http://www.guardian.co.uk/commentisfree/2012/jun/04/austerity-policy-eurozone-crisis

Money's Troika goes to the Banks and not to Greece!!!

2012-05-30T21:30:00.000+03:00

Its membership in the euro currency union hanging in the balance, Greece continues to receive billions of euros in emergency assistance from a so-called troika of lenders overseeing its bailout.

But almost none of the money is going to the Greek government to pay for vital public services. Instead, it is flowing directly back into the troika’s pockets.

The European bailout of 130 billion euros ($163.4 billion) that was supposed to buy time for Greece is mainly servicing only the interest on the country’s debt — while the Greek economy continues to struggle.

More in the NYT.

How a Radical Greek Rescue Plan Fell Short

2012-05-10T21:56:00.003+03:00

By MARCUS WALKER
10 May 2010
WSJ

ATHENS—Two years after Europe bailed Greece out to protect the euro, the rescue has become a debacle that threatens to unravel the common currency.

After Greece's May 6 elections left pro-bailout parties too weakened to govern the country, more elections are likely in June, with no guarantee a stable government will emerge. By next month, Athens must identify €11.5 billion, or $15 billion, in fresh spending cuts or face suspension of the international loans it needs to pay pensions and run schools. If it doesn't get the money, it would eventually have to print its own.

Greece's growing turmoil is the culmination of a radical austerity experiment and botched economic overhaul that have pushed the nation to the brink of social and political breakdown. The story of the ill-fated bailout suggests that forcing deep austerity on individual member states won't save the euro and may worsen its crisis.

Above all, Greece's example illustrates the...

conflict between Germany's tough terms for aiding other euro members and the amount of pain other societies can bear. Greece's fate shows that what it takes to sell bailouts to a skeptical German public can be politically calamitous in Europe's indebted south.

"The program is suicidal, not only for Greece but for the euro," says Louka Katseli, a former Greek economy minister. "In Spain, Portugal, Italy—everywhere, the same mistake is being made," she says, referring to the European Union's insistence on slashing spending in a recession.

Germany reiterated on Wednesday that Greece needs to stick to its austerity promises; euro-zone governments decided on Wednesday to postpone part of Greece's next aid payment as a warning to Greek politicians.

Greece's bailout by the EU and International Monetary Fund is the costliest financial rescue of a nation in history, with paid or pledged loans totaling €245 billion. It has already involved the biggest-ever sovereign-debt default, a debt restructuring that wiped out more than €100 billion of Greek bond debt.

Yet the restructuring left Greece with two mountains to climb: curbing a still-rising debt more than 1.5 times the size of its economy, while forcing down wages and prices to make the country competitive.

Straining to keep Greece afloat, the EU and IMF doubled their bet in March, greatly expanding the loan program despite the country's deepening political paralysis.

Responsibility for the mess, many of those involved in the effort say, lies with a Greek political class that couldn't or wouldn't reform the country, an unrealistic program that assumed a quick economic recovery despite draconian austerity and crushing debts, and growing mistrust between Greece and its creditors.

"It was almost a mission impossible," says George Papandreou, the luckless Greek premier who negotiated the original bailout and then was forced out by a party revolt last fall.

Mr. Papandreou says that when he asked German Chancellor Angela Merkel for gentler conditions in 2010, she replied that the aid program had to hurt. "We want to make sure nobody else will want this," Ms. Merkel told him.

Greece's economy has already shrunk by 14% in the past three years, and IMF officials privately expect a further 6.5% contraction this year. Something has to give, and it could be the boundaries of the euro.

Europe fears that a Greek exit from the euro could spur massive capital flight from Portugal, Spain or other struggling euro members. Some European officials argue privately that the euro could cope with a Greek exit because markets understand that Greece's debt crisis is uniquely severe.

Others worry that by triggering runs on banks and government-bond markets it could endanger the currency itself. That would present Germany and Europe's north with a terrible choice: to watch the centerpiece of Europe's decades of political integration collapse or to rush into a deeper fiscal union, including common bond issuance, to save the euro. k of social and political breakdown.

The story of the ill-fated bailout suggests that forcing deep austerity on individual member states won't save the euro and may worsen its crisis.
When the IMF and European countries banded together in May of 2010 to offer Greece a €110 billion rescue, leaders believed they had acted boldly to avoid calamity.

The deal required Greece to get a grip on public spending and tax collection while revamping a bloated bureaucracy and jungle of laws that had rendered its economy internationally uncompetitive.

While everyone accepted that Greece needed fiscal retrenchment, the IMF argued for giving structural changes priority and making the spending cuts gradual, to protect the economy.

Germany said no: Structural reforms would take place at the same time as drastic austerity to bring down the budget deficit—15.8% of gross domestic product in 2009—to under 3% by 2014. The timetable proved unrealistic: Spending cuts and tax increases pushed the economy into such a deep recession that the deficit got stuck at around 10% of GDP.

Usually when the IMF imposes austerity, it makes a country devalue its currency, in the hope its cheaper exports will offset falling domestic demand.

"Voter fatigue was obvious," says Haris Pamboukis, a cabinet member at the time.

Mr. Papaconstantinou found himself increasingly isolated in cabinet. The U.K.-trained economist was an outsider in Greek politics. He couldn't get other ministers to shut loss-making state industries and pointless army bases, or to ax thousands of civil-service jobs created in return for votes. Nor could he reduce Greece's chronic tax evasion, abetted by corruption among tax inspectorS.

But Greece no longer has a currency of its own to devalue. Its downward spiral bears increasing resemblance to Argentina's a decade ago. Argentina tried to maintain a fixed exchange rate to the dollar even as IMF austerity drove it deeper into recession, ending in social unrest and political breakdown.

From the start, Greece's surfeit of debt undermined its chances. Mr. Papandreou's financial adviser, Lazard Ltd., told him the country's bond debts were unsustainable and needed restructuring.

The head of the IMF at the time, Dominique Strauss-Kahn, was open to it. But Europe wasn't. France and the European Central Bank feared that a Greek default, even via a negotiated restructuring of bonds, would undermine trust in other euro members' debt. Germany thought debt forgiveness would relax the pressure on Athens to make other changes.

"I'd like to cut my debt in half too," Ms. Merkel told Mr. Papandreou during a meeting at the Berlin chancellery, according to the Greek premier.

Despite Greece's concerns over the plan, its efforts to change began strongly. Polls showed solid public support for taming bureaucracy, corruption and tax evasion, and scrapping the privileges various interest groups had won over the years. Lawyers, taxi drivers, railroad employees and many other groups enjoyed protection from competition or special tax or pension perks, creating cartels and waste.

Finance Minister George Papaconstantinou attacked the budget deficit. Sharp spending cuts and tax boosts brought the deficit down to 10.6% of GDP in 2010. But change quickly fell victim to party politics.

Firebrand opposition leader Antonis Samaras, head of the conservative New Democracy party, denounced the tough bailout terms and declared that local elections in November 2010 were a referendum on the ruling Socialist party, known as Pasok. Mr. Papandreou called on Greeks to back him or sack him. Pasok won the elections, but by a much smaller margin than before.

He did what he could: cutting pensions and public-sector pay, while raising sales taxes. But that sapped consumer spending. Shops and small businesses failed. Unemployment surged. Public hostility grew.

Civil servants facing pay cuts went on strike, including at the finance ministry. "It was a case of 'you pretend to pay me, I pretend to work,' " one minister says.

In spring 2011, austerity and collapsing business and consumer confidence pushed the economy into free fall. Protests rocked the center of Athens. There wasn't enough support in Parliament to pass the next set of austerity measures.

In June, Mr. Papandreou replaced his finance minister with the premier's biggest rival, Evangelos Venizelos. Europe's ebbing trust in Greece soon plunged.

Mr. Venizelos, who has been described as one of the most eloquent Greek orators since ancient times, took the finance job reluctantly, fretting that the unpopular task could destroy his political ambitions, colleagues at the time say.
Many Greeks hoped he would be a tough negotiator with Europe and the IMF. Mr. Venizelos's first foray was at a finance ministers' meeting in Luxembourg.

His long speech hit all the wrong notes.

He told his euro-zone peers they needed to relax Greece's austerity targets, citing the growing political difficulties. He called privatization goals unrealistic and blamed EU law for making asset sales complicated. He suggested Europe had no choice but to lend more money because a Greek bankruptcy could destabilize the euro zone. Greece's crisis "is a European problem," he said.

Other ministers reacted with fury. To them, it sounded as if he was trying shirk hard decisions while blackmailing his creditors. They lambasted Mr. Venizelos until 2 a.m., saying Greece had to rebuild its credibility before it got any more aid.

Instead of releasing a quarterly loan payment as planned, the ministers put it on ice until Athens enacted more austerity.

As the meeting ended, the bruised Mr. Venizelos tried once more to secure the money, to allow him a political victory at home. "I'm here for the first time," he pleaded, according to people who heard him. "It would be a bad signal if the tranche is not released." Jan Kees de Jager, the equally burly Dutch finance minister, erupted in anger.

Part of the government's problem, Europe knew, was that Mr. Samaras was assailing the austerity measures, and his conservatives had overtaken Pasok in opinion polls as a result.

Ms. Merkel and other heads of European conservative parties summoned Mr. Samaras to Brussels on June 23. For three hours, they pressed him to back the program. Mr. Samaras told them the program would fail. "Then you will need a plan B, and I'm the one who can bring it about," he said.

Ms. Merkel asked Mr. Samaras what he proposed. He said he agreed with cutting the budget deficit—but he wanted to do it by cutting taxes to spur the economy.

A tax cut would create a bigger budget shortfall, other conservative leaders said. Only Viktor Orban, Hungary's maverick premier, sided with Mr. Samaras.

"Some understand that we are right," the unbending Mr. Samaras told reporters after the meeting.

Mr. Venizelos tried again to force a relaxation of the bailout terms in September. At nighttime talks in his finance ministry, inspectors from the EU and IMF pressed him to lay off civil servants and shut loss-making state enterprises.

Mr. Venizelos refused. "I don't want to enter into a technical discussion with you. The issue is political," he said, according to people present. (Mr. Venizelos didn't return messages requesting comment.) The inspectors told him they couldn't offer any political concessions, and left town without recommending the release of Greece's next slice of aid.

The finance ministry had less than €1 billion left in its coffers. The monthly bill for public wages and pensions was around four times that. Greece's government avoided bankruptcy only by not paying its suppliers.

Mr. Venizelos had to appeal again to European finance ministers, who met in Wroclaw, Poland, in mid-September. The night before the meeting, Germany's Wolfgang Schäuble collared Mr. Venizelos in their hotel's cellar bar and made it clear over a bottle of fine wine that Europe was getting fed up with Greece.
"If you want to stay in the euro, you have to act," Mr. Schäuble said.

Greece did want to stay in the euro, Mr. Venizelos said.

Mr. Venizelos became more cooperative, euro-zone officials say. But the Greek program was badly off track. The government had made little headway on its long list of promised changes to reduce red tape, increase competition and attract investment.

In October, the IMF, now under the more stringent leadership of former French Finance Minister Christine Lagarde, forced Europe to recognize reality: The numbers didn't add up.

That forced European leaders to grant Athens debt relief. An EU summit on Oct. 26 led eventually to a 53.5% "haircut" in Greece's bond debt, coupled with more aid loans. But by this time most of Greece's debt was owed to euro-zone authorities and the IMF, rather than to private bondholders. A bond restructuring that could have worked at the outset had a limited effect: Greece's debt fell from €356 billion in 2011 to a projected €327 billion this year.

Ms. Merkel and other euro-zone leaders thought the haircut-and-new-loans deal had settled the Greek question. But in Athens, the government was falling apart.

Amid rising social unrest and fraying support in parliament, Mr. Papandreou proposed a referendum on the expanded bailout.

Ms. Merkel and French President Nicolas Sarkozy, angered by Greece's unpredictability, told the Greek premier in the French Riviera resort of Cannes on Nov. 2 that the referendum should make the choice facing Greeks clear: Implement the bailout program or leave the euro. He agreed.

On the government plane home that night, Mr. Papandreou suggested getting some sleep and rolled onto his side. Mr. Venizelos stayed awake, took out a sheet of paper and scribbled a news release denouncing the referendum.

"Greece's position within the euro area is a historic conquest…that cannot be put in doubt," he wrote. On landing in Athens at 4:45 a.m., he released the statement without informing Mr. Papandreou.

Lawmakers close to Mr. Venizelos came out against Mr. Papandreou. His referendum and his majority were history. He resigned days later.

Euro-zone leaders' open talk of expelling Greece shocked the country.

Consumer and business spending nearly came to a halt. Savers queued at banks to take their cash home.

Mr. Samaras, too, was shocked. After months of denouncing the program, he joined a bipartisan coalition supporting it. Messrs. Samaras and Venizelos became reluctant partners, propping up a new prime minister, former central banker Lucas Papademos.

But Mr. Papademos, a cautious former ECB board member, lacked the political clout to push the overhaul of Greece's economy and state through a reluctant Parliament. Instead, most reforms were on ice until the May elections.

It was Mr. Samaras who insisted on holding early elections. He rejected Pasok's entreaties to let Mr. Papademos govern until the parliamentary term ended in late 2013. Mr. Samaras was confident his New Democracy party could win. His advisers didn't believe the opinion polls, which showed collapsing support for both major parties—his and Pasok—and rising votes for Communists, neo-Nazis and other radical groups.

On May 6, New Democracy and Pasok fared even worse than opinion polls suggested. The nation blames the two established parties for getting Greece into a debt crisis, and for destroying it in the attempt to escape.

Those Revolting Europeans

2012-05-09T01:33:00.001+03:00

By PAUL KRUGMAN

The French are revolting. The Greeks, too. And it’s about time.

Both countries held elections Sunday that were in effect referendums on the current European economic strategy, and in both countries voters turned two thumbs down. It’s far from clear how soon the votes will lead to changes in actual policy, but time is clearly running out for the strategy of recovery through austerity — and that’s a good thing.

Needless to say, that’s not what you heard from the usual suspects in the run-up to the elections. It was actually kind of funny to see the apostles of orthodoxy trying to portray the cautious, mild-mannered François Hollande as a figure of menace. He is “rather dangerous,” declared The Economist, which observed that...
he “genuinely believes in the need to create a fairer society.” Quelle horreur!

What is true is that Mr. Hollande’s victory means the end of “Merkozy,” the Franco-German axis that has enforced the austerity regime of the past two years. This would be a “dangerous” development if that strategy were working, or even had a reasonable chance of working. But it isn’t and doesn’t; it’s time to move on. Europe’s voters, it turns out, are wiser than the Continent’s best and brightest.

What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills? One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.

Moreover, there seems to be little if any gain in return for the pain. Consider the case of Ireland, which has been a good soldier in this crisis, imposing ever-harsher austerity in an attempt to win back the favor of the bond markets. According to the prevailing orthodoxy, this should work. In fact, the will to believe is so strong that members of Europe’s policy elite keep proclaiming that Irish austerity has indeed worked, that the Irish economy has begun to recover.

But it hasn’t. And although you’d never know it from much of the press coverage, Irish borrowing costs remain much higher than those of Spain or Italy, let alone Germany. So what are the alternatives?

One answer — an answer that makes more sense than almost anyone in Europe is willing to admit — would be to break up the euro, Europe’s common currency. Europe wouldn’t be in this fix if Greece still had its drachma, Spain its peseta, Ireland its punt, and so on, because Greece and Spain would have what they now lack: a quick way to restore cost-competitiveness and boost exports, namely devaluation.

As a counterpoint to Ireland’s sad story, consider the case of Iceland, which was ground zero for the financial crisis but was able to respond by devaluing its currency, the krona (and also had the courage to let its banks fail and default on their debts). Sure enough, Iceland is experiencing the recovery Ireland was supposed to have, but hasn’t.

Yet breaking up the euro would be highly disruptive, and would also represent a huge defeat for the “European project,” the long-run effort to promote peace and democracy through closer integration. Is there another way? Yes, there is — and the Germans have shown how that way can work. Unfortunately, they don’t understand the lessons of their own experience.

Talk to German opinion leaders about the euro crisis, and they like to point out that their own economy was in the doldrums in the early years of the last decade but managed to recover. What they don’t like to acknowledge is that this recovery was driven by the emergence of a huge German trade surplus vis-à-vis other European countries — in particular, vis-à-vis the nations now in crisis — which were booming, and experiencing above-normal inflation, thanks to low interest rates. Europe’s crisis countries might be able to emulate Germany’s success if they faced a comparably favorable environment — that is, if this time it was the rest of Europe, especially Germany, that was experiencing a bit of an inflationary boom.

So Germany’s experience isn’t, as the Germans imagine, an argument for unilateral austerity in Southern Europe; it’s an argument for much more expansionary policies elsewhere, and in particular for the European Central Bank to drop its obsession with inflation and focus on growth.

The Germans, needless to say, don’t like this conclusion, nor does the leadership of the central bank. They will cling to their fantasies of prosperity through pain, and will insist that continuing with their failed strategy is the only responsible thing to do. But it seems that they will no longer have unquestioning support from the Élysée Palace. And that, believe it or not, means that both the euro and the European project now have a better chance of surviving than they did a few days ago.

http://www.nytimes.com/2012/05/07/opinion/krugman-those-revolting-europeans.html?_r=1&ref=paulkrugman

I am Hellene

2012-04-24T14:57:00.002+03:00

Bravo Katerina

Resistance to austerity stirs in southern Europe

2012-04-02T00:24:00.000+03:00

(Reuters) - Most of the people of southern Europe have stayed surprisingly stoical up to now in the face of some of the most painful budget cuts in living memory, but signs are stirring that patience may soon run out.

An unexpectedly broad general strike in Spain on Thursday and mounting opposition to Prime Minister Mario Monti in Italy are among indicators that resistance is growing in a region at the center of concerns about a resurgence of the euro zone debt crisis.

Portugal remains very subdued for the moment and even Greece, scene of repeated violent street protests, has quietened recently. But there are signals that political leaders will soon be directly in the firing line across Europe, especially if more cuts are required to reduce sovereign debt.

The atmosphere seems a combination of two opposite tendencies - acceptance of the message that deep cuts are the only way to save their countries from economic catastrophe, and a mounting feeling that greater pain cannot be borne by populations suffering deprivation and misery.

The problem for politicians like...

Monti and Spain's Mariano Rajoy is that the very austerity measures imposed to cut debt under pressure from euro zone leaders could deepen recession and create a need for even more severe cuts.

Investors are starting to show concern again about both economic difficulties and political uncertainties in Spain and Italy, with bond yields starting to climb after being brought under control earlier this year.

"There is a kind of resigned acceptance, but this resigned acceptance is not a stable equilibrium position. People do get fed up with being made to feel guilty for their horrible situation," said Professor Erik Jones of Bologna's Johns Hopkins University.

He said populations were prepared to suspend judgment on their politicians and accept sacrifice if they believed there would be long term gain, but not indefinitely.

ONLY MONTHS LEFT FOR BENEFITS

"We have only got about six months to run before voters start looking at their politicians and taking off the rose-tinted glasses.

"Once that happens, we are going to find not just a rapid turnover in incumbent governments that happen to go to the polls, but also an increase in the general level of disquiet that will be expressed in the form of strikes and other forms of social disobedience," Jones told Reuters.

Jean-Paul Fitoussi, an economics professor at the Sciences Po institute in Paris, told reporters at a business conference in northern Italy on Friday that austerity measures were "a dangerous approach that could trigger social unrest".

Many Spaniards seem resigned to fierce belt tightening from Rajoy, whose conservative government was elected in a landslide last November in the full knowledge that he planned austerity.

On Friday the government announced savings of 27 billion euros ($36 billion) from the central government budget, equivalent to 2.5 percent of gross domestic product.

A recent poll showed half of Spanish adults would accept cuts in treasured healthcare and education services if that was what it would take to put the economy back on track.

Unions represent only a fifth of workers and many people crossed picket lines on Thursday in fear of losing their jobs.

However, the strike had a much bigger impact than a previous stoppage 18 months ago in a sign that patience may be wearing thin in a country with the European Union's worst unemployment.

Hundreds of thousands attended protest marches and factories and ports ground to a halt. There were brief outbreaks of violence on the streets.

"A lot of people accept austerity and economic reforms like some kind of divine punishment. But when the high unemployment drags on, I am convinced the social protests will take off," said Jose Antonio Garcia Rubio, economic secretary for the United Left, a minority leftist party that did well in the November general election.

Rajoy also suffered an unexpected setback in a regional poll in Andalucia on March 25, another sign that his room for maneuver is not as big as previously thought.

MONTI'S HONEYMOON ENDS

In Italy, former European Commissioner Monti has won wide plaudits from Europe, America and elsewhere for his economic expertise and swift action to head off the debt crisis.

But he too has recently run into trouble over a labor reform that is at the center of his program to jump start Italy's chronically stagnant growth.

Trade unions are planning protests and a general strike, his approval ratings have dropped and he has got involved in a messy row with the political parties he depends on to pass laws.

The political problems are partly a function of local polls in May; politicians are anxious to move out of the shadow of technocrat Monti and improve their woeful public esteem levels ahead of a general election next spring.

Politicians are also likely to be punished in Greece, where a general election is expected on May 6 after the country was obliged to swallow even bigger cuts in pensions, wages and services in exchange for a second international bailout.

Apart from a violent protest in February when shops and banks were set on fire, Greece has been comparatively quiet recently in contrast to almost daily demonstrations last summer by tens of thousands of people outside parliament.

Greeks appear to be waiting to punish the thoroughly discredited political class in the election, with nearly a third planning to abstain or cast blank ballots, according to polls.

"Last year, I spent the whole summer protesting outside parliament but nothing changed. No one is listening," 58-year old Angeliki Koutsioumba told Reuters.

"Damn them all. We must punish them with our vote in the elections," she said, adding that she suffered a heart attack last year after a bank refused to give her a loan.

The Portuguese have been the most resigned to the pain of austerity following an international bailout, and a general protest strike on March 22 had little impact on the economy.

"This kind of strike does not help anyone, they are not the solution. It is all about hard work, only that will take us out of this hole," designer Filipa Almeida told Reuters in Lisbon.

But Antonio Costa Pinto, research professor at Lisbon's Institute of Social Sciences, said the mood of resignation would not last forever.

"Discontent is there, so if there are no signs of a turnaround, if the European slowdown prevents the Portuguese economy from starting to recover towards the end of the year, this acceptance will be hard to sustain, especially if more austerity measures are needed," he said.

That is the picture across Europe. "Socially and politically, people are accepting austerity but you need to have light at the end of the tunnel," said American economist Nouriel Roubini--nicknamed Dr Doom after predicting the subprime crisis.

"Growth, jobs, income, otherwise the political and social backlash; that is demonstrations, strikes, weak governments failing," he told reporters at a business conference at Cernobbio on the shores of Lake Como.

(Additional reporting by Lisa Jucca in Cernobbio, Daniel Alvarenga and Andrei Khalip in Lisbon, Renee Maltezou in Athens; editing by Philippa Fletcher)

SOURCE:http://www.reuters.com/article/2012/04/01/us-europe-patience-idUSBRE83004X20120401There may only be a few more months left for reforms to start producing benefits before populations either retaliate in electoral tests or take to the streets in increasing numbers.

Annual Greek Parade in Boston!

2012-03-22T11:02:00.001+02:00

Save the Greeks from their Saviors!

2012-03-14T22:58:00.000+02:00

February 22, 2012
by Alain Badiou, Jean-Christophe Bailly, Étienne Balibar, Claire Denis, Jean-Luc Nancy, Jacques Ranciere, Avital Ronell

At a time when one Greek youth out of two is unemployed. Where 25,000 homeless wander the streets of Athens. Where 30% of the population has fallen under the poverty line and where millions of families are forced to place their children in the care of someone else in order for them not to die of hunger or cold, where refugees and the new poor compete for trashcans at the public dump, the “saviors” of Greece, under the pretext that “Greece is not trying hard enough”, impose a new aid plan that doubles the lethal administered dose. A plan that abolishes the right to work and reduces the poor to the most extreme misery, at the same time as it makes the middle class disappear.

The goal is not about “saving” Greece. All economists worthy of this name agree on this point. It’s about gaining time in order to save the creditors at the same time it leads the country into deferred collapse. Above all it’s about making a...

laboratory of social change out of Greece that, in a second generation, will spread throughout all of Europe. The model experimented upon Greece is one where public social services, schools, hospitals, and dispensaries fall into ruin, where health becomes the privilege of the rich, and where vulnerable populations are doomed to a programmed elimination while those who work are condemned to the most extreme conditions of impoverishment and precarity.

But in order for this neo-liberalist offensive to achieve its ends, it is necessary to install a regime established an economy of the most basic democratic rights. Under the injunction of saviors, we see throughout Europe technocratic governments installing themselves with disregard for popular sovereignty. This is a turning point in the parliamentary system where we see the “representatives of the people” giving carte blanche to the experts and bankers, abdicating their supposed decisional power –A kind of parliamentary coup d’etat, which also uses an amplified arsenal against popular protest. Thus, when members have ratified the convention dictated by the troika (the European Union, the European Central Bank and the International Monetary Fund), diametrically opposed to the mandate for which they had received power, without any democratic legitimacy, it will have committed to the future of the country for thirty or forty years.

Meanwhile the EU is preparing to establish an account which would be paid directly to aid Greece but only so that it is used for servicing the debt. The revenue of the country should be the "absolute priority" devoted to repay creditors, and, if necessary, paid directly to the account managed by the European Union. The agreement stipulates that any new bond issued under it shall be governed by English law, which involves material guarantees, so that disputes will be adjudicated by the courts of Luxembourg, having Greece waive in advance any rights to appeal against an entry determined by its creditors. To complete the picture, privatization is assigned to a fund managed by the troika, where the title deeds of public goods shall be placed.

In short, it is the widespread looting, characteristic of financial capitalism which here offers itself a really beautiful institutional consecration. To the extent that sellers and buyers sit on the same side of the table, we have no doubt that this enterprise of privatization is a real treat for the buyers. But all the measures taken so far have only dug Greece into deeper sovereign debt. With the help of rescuers who lend at exorbitant rates, it has literally exploded into free fall in approaching 170% of GDP, while in 2009 it represented more than 120%. It is likely that this cohort of rescuers - whenever presented as "final" - had no other purpose than to weaken further still the position of Greece so that, deprived of any opportunity to propose itself the terms of a restructuring, is reduced to yield to all its creditors under the blackmail of "the disaster or austerity."

The worsening of the artificial and coercive debt problem was used as a weapon to attack an entire society. It is proper that we speak here of terms related to the military: we are indeed dealing with a war conducted by means of finance, politics and law, a class war against society as a whole. And the spoils that the financial class wrestles away from the "enemy", are the social benefits and democratic rights, but ultimately it is the very possibility of a human life that is taken. The lives of those who do or do not consume enough in terms of profit maximization strategies, should be no longer be preserved.

Thus, the weakness of a country caught between speculation and endless devastating bailouts, is the backdoor through which a new social model erupts conforming to the requirements of neoliberal fundamentalism. A model destined for all Europe and maybe elsewhere. This is the real issue and why defending the Greek people can not be reduced to a gesture of solidarity or abstract humanity: the future of democracy and the fate of European nations are in question. Everywhere the "pressing necessity" of "painful but salutary" austerity will be presented to us as the means to escape the fate of Greece, while it really leads us right into the middle of it.

Up against this attack against society, faced with the destruction of the last pockets of democracy, we call our fellow citizens, our French and European friends to speak loudly. Do not leave the monopoly on speaking to the experts and politicians.
Can we remain indifferent to the fact the German and French leaders in particular have requested Greece to be banned from elections?
Does the systematic stigmatization and bashing of a European people not deserve a response?
Is it possible not to raise ones voice against the institutional assassination of the Greek people?
And can we remain silent in front of the establishment of a forced march towards a system that outlaws the very idea of social solidarity?

We are at the point of no return. It is urgent to fight the battle of numbers and the war of words to counter ultra-liberal rhetoric of fear and misinformation. There is urgent need to deconstruct the moral lessons that obscure the actual process at work in society. It becomes more than urgent to demystify the racist insistence on the " Greek specificity " that allegedly is the supposed national character of a people (laziness and cunning at will) the root cause of a crisis in global reality. What matters today is not the specifics, whether they are real or imaginary, but the common: the fate of a people that will affect all others.

Numerous technical solutions have been proposed to overcome the alternative of "either the destruction of the society or bankruptcy" (which we see today really means "and the destruction and bankruptcy" of the society). Everything must be brought to the table as food for thought for the construction of another Europe. But first you must report the crime, bring to light the situation in which the Greek people is because of "rescue packages" designed by and for speculators and creditors. When a movement of support is woven around the world, where Internet networks buzz with initiatives of solidarity, are French intellectuals the last to raise their voices for Greece? Without further delay, multiply articles, media appearances, debates, petitions, demonstrations. For any initiative is welcome, any initiative is urgent.

As for us, this is what we propose: quickly move towards the formation of a European community of intellectuals and artists in solidarity with the Greek people in resistance. If we can’t do this, then who will? If we don’t do this now, then when?

SOURCE: http://www.egs.edu/faculty/alain-badiou/articles/save-the-greeks-from-their-saviors/

Social and Human Costs from the Troika program

2012-03-09T18:03:00.001+02:00

One of the biggest and worst social costs of the current program is the enormous loss of jobs. As noted above, unemployment hit a record 20.9 percent in November.[At the present the record is 21%] By 2016 it is still projected to be at 17 percent, far above the 7.7 percent pre-crisis level, and a level that is generally seen as a national tragedy.[10]

Another way to see these losses is to look at employment. Figure 3 [see the picture on the left] shows employment as a percentage of the working age population. By 2011 it had fallen to below its level of 1994, almost six percentage points below its 2008 peak.

The government has committed to cut 150,000 jobs from public employment for 2010-2015, about 22 percent of public employment. The IMF notes that:

…these reforms would bring general government employment to 12 percent of the labor force, 3 percent below the OECD average (2008), and given the planned wage reforms, would reduce the public wage bill to about 9 percent of GDP, matching some of the lowest spending OECD countries (e.g. Czech Republic and Slovakia).[11]

The current negotiations appear to have reached agreement on a cut of 22 percent in the minimum wage, with 32 percent for workers under the age of 25.[There is already agreement] The minimum wage in Greece is about €880 euros a month[was €750 and now is €586]. This will hit these wage earners quite hard, and have a significant impact on income inequality and poverty. It will also affect many other wage earners, since changes in the minimum wage are often used as a reference for other wages up the income ladder.[12]

Greece’s agreement with the IMF/troika also contains measures designed to weaken collective bargaining, which the IMF Fifth Review refers to as a “flagship reform.”[14] The measures are to weaken sector-level bargaining by unions, in order to “allow wages to fall below existing sectoral floors,” according to the IMF.[15]

The recession and budgetary measures also appear to be having a significant impact on health and other social indicators. From the U.K. medical journal, The Lancet:

Suicides rose by 17% in 2009 from 2007 and unofficial 2010 data quoted in parliament mention a 25% rise compared with 2009. The Minister of Health reported a 40% rise in the first half of 2011 compared with the same period in 2010 […] Violence has also risen, and homicide and theft rates nearly doubled between 2007 and 2009.[16]

The authors also find evidence that there has been reduced access to health care as well as a 52 percent increase in HIV infections from 2010 to 2011. Since most of the data is from the first year or two of the crisis, it is likely that some of these statistics have worsened with the accelerated downturn of the last two years.

SOURCE: Mark Weisbrot and Juan Antonio Montecino, More Pain, No Gain for Greece, Center for Economic and Policy Research, February 2012, pages 7-9

10 The IMF projections are based on the EU harmonized unemployment rate, which tends to be lower than the national

estimates.

11 IMF (2011a), p. 16.

12 See Du Caju et al. (2009).

14 IMF (2011a), p. 9.

15 IMF (2011a), p. 25.

16 Kentikelenis et al. (2011).

You can blame the Greeks – but they have been betrayed by their leaders

2012-02-28T10:32:00.000+02:00

by Jason Manolopoulos

Shocking examples of kleptocracy by the political elite explain the ferocity of the reaction. And it is this which has repercussions for the rest of Europe.

Thieves! Thieves!" cry the protesters outside the Greek parliament in Syntagma Square, although thief is not the most colourful allegation being levelled at the Greek ruling class.

The scenes are now familiar to TV viewers across the world: the angry banners, the scuffles or sometimes more serious violence, the petrol bombs and tear gas, the world's media, including battle-tested war reporters, descending.

The latest wave of Hellenic protesters call itself Aganaktismenoi, in the spirit of the Spanish indignados, a broad-based and non-party-political movement. The silent majority is, at last, finding a voice. Around me, in Athens, the fear, outrage, despair are palpable. But there is also a profound sense of bewilderment at a situation from which there appears no escape, and to which the only response is a call for more economic pain made by some of the same people who created the fiasco.

How did it come to this? How fair is this charge of "Thieves"? Did Greek politicians simply loot their own country, and EU taxpayers, for personal gain? There is truth in this tale, but...

like any Greek tragedy, there are multiple narratives, none of them pretty. The protesters' cry of "We don't owe anything, we won't pay" doesn't impress German taxpayers, who feel they are bailing out the country, but for some sections of Greek society, it's an understandable reaction.

It helps to recognise that Greece is very different from other Western European societies. There are, in fact, more similarities to states run by political oligarchies than anyone in the EU hierarchy would like to admit. Shocking examples of kleptocracy by the political elite certainly form part of the explanation for the ferocity of the reaction we are now seeing on the streets of Athens. And it is this ferocity which has intensified the risk of a default, the repercussions of which would reverberate throughout Europe and threaten the existence of the euro as we know it.

Greece is not a mature democracy, nor does it have a flexible economy. Up to 1974 it was either a colony or a dictatorship. Greece has had a clan-based rather than a class-based structure, and a public sector accustomed to giving favours to family or other interest groups. Its politics is characterised by cronyism, restrictive practices, bureaucracy and corruption. In researching my new book, I found that joining the EU and the single currency, and gaining access to huge inflows of global capital, actually exacerbated these unhealthy dynamics, rather than bolstered Greek democracy.

The Siemens bribery scandal was the most notorious. Investigators found that the company's Greek branch had an annual slush fund of some €15m to pay "commissions" for politicians who helped secure contracts. There have been arrests and prosecutions – but by authorities in the US, Switzerland and Germany, not in Greece.

The political class, meanwhile, benefits from Article 62 of the constitution, which means parliamentarians accused of crimes have to be tried by fellow parliamentarians. Payment of taxes is erratic, with some individuals hit hard with demands, while others escape almost entirely. Domestic Greek interest groups are not without blame. From 2001 to 2009, trade unions seized their opportunity for annual pay rises without links to productivity. With easy access to borrowing hard currency, and a big incentive to buy votes, both the left-wing Pasok and its right-wing counterpart New Democracy duly indulged. As long as they had access to easy loans, they could buy enough social peace to deflect attention from scandals and mismanagement. Now the money has run out.

Cronyism has meant that much government wealth stayed within ministerial families. The assiduous Leandros Rakintzis, head of a public spending watchdog trying to rein in the excesses, has uncovered shocking cases. In one example, a retired former culture ministry employee was found to have had €9m in his bank account that he was unable to justify according to his income.

Ordinary private sector workers, on the other hand, benefited from none of this orgy of borrowing or debt; they have lost most and are being asked to pick up the bill. They have some of the lowest wages and longest hours in Europe; they pay high taxes yet they receive limited public services. A recent study by Patrick Artus, chief economist of French bank Natixis, showed that they worked much longer hours than workers in Germany, countering a recently expressed view by German Chancellor Angela Merkel.

Living standards for most Greeks have collapsed. Regulated and controlled markets with no competition combined now with higher taxes have led to some of the highest petrol and supermarket prices in the continent. Greece has the third highest prices at the pump, behind only Denmark and the Netherlands. Lack of full competition in supermarkets mean that the typical shopping basket is about 25 per cent more than the European average.
This all adds to the sense of betrayal. The misconduct of the elite means that, just as the pain of IMF-dictated austerity is intensifying, there is little or no sense of social solidarity. As in Spain, youth unemployment is high, further eroding a sense of hope. Violent crime, once rare in Athens, is on the rise.
Yet my country's politicians and senior officials are not the only villains. Europe's leaders may well lament that chaos in Greece is putting the very peace and stability of the EU at risk. But it was they who refused to learn the lessons of Argentina's currency peg or the European exchange rate mechanism, and proceeded with monetary union before economic convergence. Goldman Sachs colluded with Greek politicians to make the deficit in 2001 appear smaller than it was, in a manoeuvre that simply passed the debt into the future – and made it more expensive.

At the same time, a wave of deregulated capital came in search of easy gains. With eurozone interest rates kept low to prevent overheating in Germany, vast amounts were loaned to property developers, especially in Ireland and Spain. And searching for a bit of extra yield on government bonds, much went to the Greek government. Investors were reassured by official statements that the euro could not be allowed to fail, so the belief grew that the loans were as safe as Germany's, only with a higher yield. This is how a small, semi-developed economy came to borrow an unsupportable €300bn. As recently as 2009 and even early 2010, serious voices in Brussels were denying the unsustainability of the ballooning sovereign debt in the eurozone's periphery. In early 2009, the then economics commissioner Joaquin Almunia claimed the Greek economy was "the strongest" in the EU. There is still a refusal by EU officials to admit that economic convergence was never achieved, and that the euro was mis-sold to its citizens. It was a good idea, not done badly, done very badly. So the demonstrators venting their outrage at the Greek parliament tell a part of the story, but not the whole story. Some are innocent victims; others have had a hand in creating this economic, social and political catastrophe.

But their voices will have to be acknowledged, because the high-decibel volume reflects the scale of the crisis that confronts us all. As Thucydides observed, justice will not come to Athens until those who are not injured are as indignant as those who are.

'Greece's Odious Debt', by Jason Manolopoulos, is published by Anthem Press

SOURCE:http://www.independent.co.uk/opinion/commentators/jason-manolopoulos-you-can-blame-the-greeks-ndash-but-they-have-been-betrayed-by-their-leaders-2299318.html

Liberal Democracy dying in Greece and in EU

2012-02-19T23:43:00.001+02:00

Today, Greek society is suffering both from the crisis and the responses to it, which have reached a dead-end. Major social and political institutions that were created with enormous struggles and sacrifices in post-War Greece – social security, the public health care system, public education, public transport, the natural and urban environment, the right to live a safe existence, and various elemental goods and services that underwrite the very existence of an already curtailed and devalued Greek state – are all being utterly dismantled so that Greek society is now dying of asphyxiation.

Troika(IMF, ECB and German EU leadership "Frau Nein" Angela Merkel and "Baron Austerity" Wolfgang Schäuble), are the main architects of Europe’s disastrous mismanagement of the euro-zone debt crisis, can keep pretending that harsher doses of fiscal austerity will restore Greece and Europe’s other troubled debtors to economic health. These dead-end responses rest on the blackmailing dilemma: austerity or hard default? Yet, this is hardly a dilemma – it is rather a negative aggregate: both austerity and hard default. The tri-monthly threat to expel Greece from the Eurozone constitutes an ethical alienation and an economic catastrophe, precisely because it strengthens the profound recession, turning the whole of Europe into an agent of uncertainty, financial instability, and...

proliferation of the crisis. It is Europe itself and specific "Frau Nein" and " Baron Austerity", that is producing the conditions that make it impossible for Greece to fulfill its debt obligations.

The crisis is not experienced by those who exploited the state and public interest for decades, but by the most vulnerable social constituencies. Greece and Europe is confronted with an unprecedented initiative of an upwards redistribution of wealth and power that subverts the European social model by exacerbating the most extreme economic and social inequities, while simultaneously empowering the return of pre WWII nationalism and the intensification of racism and xenophobia.

Greece is sinking into a co-dependent crisis that demonstrates, not only the institutional weaknesses of the EU but the unacceptable crisis management by neoconservative national leaderships with neoliberal statutes and projections. Today, Greeks are being humiliated, tomorrow other European peoples, in a process of spreading suspicion and hatred among all. We are facing a catastrophic moment in European history.

The euro crisis is killing the European dream. The shared currency, which was supposed to bind nations together, has instead created an atmosphere of bitter acrimony. Troika demands for ever-harsher austerity, with no offsetting effort to foster growth, have done double damage. They have failed as economic policy, worsening unemployment without restoring confidence; a Europe-wide recession now looks likely even if the immediate threat of financial crisis is contained. And they have created immense anger, with many Europeans furious at what is perceived, fairly or unfairly (or actually a bit of both), as a heavy-handed exercise of German power.

As Greek and citizen of a European Union, my dream was, is and will be to bring together people from a multitude of political domains with the objective to restore the real meaning of words against an abusive language of self-interest, to help produce more creative modes of communication among social spaces and citizens with different affiliations, who share the elemental values of justice, solidarity, and democracy, in other words, the constitutive identities of citizens in a liberal and democratic polity.

What Europe loses if Greece is forced out

2012-02-17T12:37:00.000+02:00

By Nikos Chrysoloras
Guardian UK/Kathimerini GR

Germany should look to its past and ensure that Greece does not face a humiliating exit from the eurozone.

Many in Europe – particularly in Germany – wonder why they should continue providing financial support to a country that has failed to honour its commitments to its partners; a state which is an international laggard in all major indicators, including competitiveness, innovation and transparency. Such objections are understandable but mistaken. Europe stands to lose as much as Greece itself from an exit of the latter from the eurozone.

It is not just the spreading of the virus of uncertainty to the other countries of Europe's southern periphery, the repercussions on the northern European economies and the impact on...

the process of European integration that began from the ruins of the second world war. If Greece falls, Cyprus will, too, due to its exposure to the Greek economy, and Europe will lose two outposts in the eastern Mediterranean, which have lost none of their significance on the international power chessboard.

Greece is also Europe's first barrier to the tidal waves of illegal immigration originating in Asia. It has lifted the burden for everyone, with very little assistance. If the EU thinks that we are not really doing a great job guarding its frontiers, wait and see the chaos that will ensue when Greece is out of the way.

A third good reason to bail out Greece is to prevent its Balkanisation, which would result from the extreme poverty and the inability to import medicines, fuel, and food after a disorderly default. Unlike Argentina, Greece does not have its own currency to devalue. We will have to introduce a new currency from scratch, with no exchange value whatsoever, and no means to support it, since Greece is not a net exporter of raw or manufactured goods. The political system will collapse and even democracy will be in danger. The EU and Nato would derive no benefit from a new source of tension in the Balkans, which they have fought to stabilise in recent decades. It would be a grave mistake.

Moreover, our European partners should not forget that certain syndicated interests that may have succeeded in preserving their privileges and tax evasion may still be rife in Greece, but the majority of the Greek people have made huge sacrifices, in order to shoulder the harshest fiscal consolidation programme ever implemented in a developed country. A Greek exit from the EU would be tantamount to betrayal of all those who have foregone so much.

The same goes for a large part of the political system. Greek politicians may have proved incompetent but no one can accuse them of ulterior motives. The two-thirds majority of MPs who voted for the new economic memorandum knew they were signing the end of their political careers. Papandreou and Samaras, the leaders of the two major parties, have risked their dissolution by backing the country's stay in the eurozone, against populist voices promising that everything will be solved if Greece starts printing valueless drachmas. All opinion polls show that Greeks, despite their sacrifices, vow to remain in the eurozone. The images of riots and violence relayed to the end of the world by the media are the work of a small minority and police incompetence. When the world sees 100,000 rallying in Athens, what they don't see is the 4 million other Athenians who are not rallying, or burning, or rioting; just trying to survive and make ends meet, in a country where nothing really works anymore.

Europe can bypass the proven incompetence of Greek politicians with safety valves, such as the broadening of the powers of its Task Force for Greece, the provision of technical aid or the tying of the disbursement of bailout instalments to tangible progress in reforms. From a purely realist point of view, this is a much better choice than letting the country go down.

But there is also an ethical argument: modern Europe exists thanks to ancient Greece and modern Greece exists thanks to the European powers that guaranteed its independence in the early 19th century. Since then, Greeks have more than repaid their debt. They fought to defend western ideals and interests in every corner of the world – from the trenches of Europe, to the hills of Korea and the deserts of the Gulf. When Germans fell into the darkness of Nazism, when the empires of old (Belgium, Netherlands, France) surrendered within days, only Greeks and Brits were left standing. Ask those who were cowering from the pounding of Luftwaffe in the tube stations of London, during the long winter of 1940, and they will tell you that the only pieces of good news they were getting for months, were coming from the Greek mountains.

Germany knows full well that national humiliation can backfire and ought to remember that when it found itself in need, its own debt underwent a haircut and its mistakes were forgiven. The Germans are not known for their diplomatic and political foresight and have paid for this dearly in the past. Let them not drive all Greeks, conservatives and liberals, supporters and opponents of austerity, innocent and culprits, to unite against them.

SOURCE:http://www.guardian.co.uk/commentisfree/2012/feb/16/what-europe-loses-if-greece-forced-out

German Twin: "Frau Nein" and "Baron Austerity"

2012-02-15T21:44:00.002+02:00

Pr. Krugman, 3 years ago wrote that the German chancellor Angela Merkel is the “Frau Nein” because her and hers economic officials were the biggest obstacles to a much-needed European rescue plan.[1] Nothing has changed since that year regarding the German financial policy. The only that have change since then, is Mrs. Merkel’s finance minister. In 2008 was Peer Steinbrück and at the present is Mr. Wolfgang Schäuble, the “Baron Austerity”.

"Frau Nein" and "Baron Austerity", are the main architect of Europe’s disastrous mismanagement of the euro-zone debt crisis, can keep pretending that harsher doses of fiscal austerity will restore Greece and Europe’s other troubled debtors to economic health. They can recognize that only a combination of greater fiscal breathing room and pro-growth reforms — like opening up closed labor markets, breaking up state monopolies and streamlining bureaucracies — can achieve the desired result. But slashing wages, jobs and public spending across the board, as Europe demands, will only deepen recession.

The irony is that the leading architect of the austerity programme in Greece, the IMF senior employee Poul Thomsen has admitted that...

its emphasis on fiscal consolidation has failed to work, and said economic recovery will only come if the crisis-hit country changes tack and focuses on structural reforms. [2]. And what is the suggestion changes from the IMF; NONE
The oxymoron is that the new bailout program that created from troika (IMF, ECB and EU), doesn’t contain a single line or word regarding the growth or structural reforms(as the digitalization of the tax system). They have only austerities applications and recommendations.

But the aim of the German twin us one: the expulsion of Greece from Eurozone and the making of the German EU. Together in this course is the axis of the AAA EU states like Finland and Holland.

[1]- http://www.nytimes.com/2008/12/15/opinion/15krugman.html
[2]-http://www.guardian.co.uk/business/2012/feb/01/imf-austerity-harming-greeve

CAUTERISE AND PRINT: GERMANY’S NEWEST PLAN A

2012-02-14T18:32:00.000+02:00

by Pr. Yanis Varoufakis
yanisvaroufakis.eu

While Greece burnt, and the Parliament of the Hellenic Republic was insincerely accepting impossible conditions for implementing yet another unworkable fiscal adjustment plan, the buzz in Frankfurt’s financial district was an exciting, fresh German Plan A.[1] For the first time in two years, since the euro Crisis began, Germany’s captains of finance could be seen to have re-discovered a spring in their step. The new optimism stems from a new Plan which is predicated upon a long delayed recognition and two strategic choices: Germany’s belated epiphany is that, without a major redesign of the euro architecture, a number (>1) of eurozone member states are irretrievably insolvent. As for the two strategic choices, the first is Berlin’s conclusion that German politics have no stomach for, or interest in, a structural redesign of the euro system.[2] The second choice involves a massive bet in attempting to save the eurozone by shrinking it forcefully while, at the same time, authorising the ECB to print trillions of euros to cauterise the stumps left when the states earmarked for the chop are severed.

The detail not...

yet ‘worked out’ concerns the identity of the countries to be shown the door. The consensus opinion in Frankfurt was that Greece and Portugal are certainties. Few expressed the view that Portugal is too close to Spain to cauterise effectively while others went against the grain of majority opinion suggesting that Ireland ought to be liberated too. My impression is that, current thinking, has settled on Greece and Portugal, with a questionmark over Ireland.

But let’s take matters one at a time:

The epiphany: It is the insolvency, stupid!

Granted that there is a grey zone separating an insolvency from an illiquidity problem, Europe’s denial that Greece has been insolvent for two years now will go down in history as the ultimate (though powerfully motivated) error. It did not have to be that way. Had Greece been given debt relief (of the sort that is now taken for granted) back in January 2010, and had Europe focused on the mess of its banking system (instead of putting all its eggs in the austerity-plus-loans basket), things might have turned out quite differently. But, it was not. Instead, Greece was forced to shed 15% of GDP while taking an additional 20% of debt on its weary shoulders. This sealed its fate once and for all. As for the much debated reforms, their fate was sealed at that time too: no reforms can be effected meaningfully in an imploding social economy.

Recall how, at first, Germany was insisting that there would be no bailout, no debt restructuring, no interest rate relief. One by one these holy cows were slaughtered. Then came the notion of interest rate reductions, the debt restructure (euphemistically named PSI), more loans. It was too little, too late. When this cascade of German ‘concessions’ failed to stem the inexorable movement to insolvency, a few days after the October 2011 Summit (where the latest PSI and Bailout Mk2 were agreed), Germany ceased to deny that Greece may be forced out of the euro. It was at that point that Germany also began making noises that Greece is a special case. Today this litany has ended too: Portugal is quietly put in the same ‘too hard’ basket. Perhaps Ireland too, even though this is a point of contention: many within the German elite insist that Ireland, though also insolvent, ought to be kept within the ranks as a reward for having ‘internalised’ the austerian ‘logic’ even before the powers that European be imposed it upon the Emerald Isle…

In effect, two years of the wrong, poisonous, medicine has forced the surplus countries into an impasse. Instead of reassessing the medicine that is causing the eurozone’s gangrene, they are now turning to their last resort treatment: Amputation of the worst affected limbs, followed by ECB-administered cauterisation. The only pending issue, as far as they are concerned, is how much of the eurozone to amputate.

Cauterisation and the Weimar trauma

My Frankfurt interlocutors, upon being challenged on the realism of containment following the traumatic events which will undoubtedly follow the severing of ‘gangrenous limbs’, admitted that cauterisation would cost trillions and would involve unremitting money-printing by the ECB. In their view, the ECB would have to attempt: (a) to keep afloat the banks of Italy, Spain, France, Belgium, Germany and Holland, and (b) to smooth the severed countries’ tortuous path to oblivion (by keeping at least some banks functional during the tumult that will surely follow).

The remarkable part of this new consensus is that it shows that Germany’s fear of inflation-inducing money-printing has vanished in the face of the euro Crisis. Or perhaps that it was always a mirage. That the supposed Weimar-trauma had nothing really to do as such with the money supply getting out of hand, with hyper-inflationary effect, and everything to do with a penchant to retain maximum control over the eurozone’s economic policy. For if it transpires that Berlin will indeed give the green light to the ECB to print trillions as a means of cauterising the eurozone stumps, as well as preserving in a state of suspended animation countries like Greece and Portugal, it is clear that the hitherto presumed German conviction that such an infusion of freshly minted money will prove disastrously inflationary was never genuinely entertained.

The key to this new Plan, and the optimism it has inspired within Germany’s financial community, is twofold: First, it shows that Germany is certainly unwilling to re-design the eurozone’s flawed architecture, in view of its revealed preference for, God forbid, inflation over the institution of a surplus recycling mechanism plus a unification of the eurozone’s banking system. Secondly, it suggests that Germany is not yet ready to ditch France.

This second point is crucial. My German sources acknowledged that France is not up to Germany’s strict standards as a monetary union partner. They consider France to be a chronic laggard, a fundamentally deficit-oriented economy, a state whose ambition constantly, and irritatingly, overreaches its potential. But they feel that there is a political need to give the eurozone, i.e. the Franco-German axis, one last chance. France is, therefore, still tolerated. And with it Spain and Italy will also be given another chance, courtesy of as many LTROs (i.e. oodles of ECB-printed money for Italo-Spanish banks) as it takes.

If they pull it off, they hope they will have managed to salvage the European political project (which they will try to argue is on track, with promises that the countries amputated are always welcome to rejoin once they have their houses in order) and to avert the massive drop in exports that would be inevitable were Germany to cut loose all countries except similarly surplus countries.

Will it work? Three reasons it won’t

Any Greek or Portuguese or Irish government that serves its people’s interests would point-blank refuse to play ball. The idea that exiting the eurozone is a simple matter of devaluing is dead wrong. It confuses the correct view that Greece and Portugal and Ireland would have been better off outside the euro with the quite different, and catastrophically erroneous, view that exiting is the optimal strategy. In this sense, our governments have no reason to go along with Germany’s amputation strategy. But then again, the Greek government had no reason whatsoever to choose the Bailout Mk2 agreement, and the strings that it came attached with, over a simple default within the eurozone (which I was advocating; along with Wolfgang Munchau). And yet it did. Why? Because the politicians of the Periphery have neither the stomach nor the interest in disobeying orders issued from the North. Why that is is a matter for historians and psychologists. For now, we must take it for granted, unfortunately. Which leads me to the sad conclusion that, even though Germany has no way whatsoever to force certain countries out of the eurozone, the moment the Greek, Portuguese or Irish PMs get their marching orders, they will immediately start marching their way out of the eurozone.

But will it work out for Germany the way that Frankfurt financiers currently hope it will? That massive ECB-money printing can create circumstances which shield the rump eurozone from banking sector tumult, following two or three ‘exits’, there is little doubt. After all, the ‘markets’ held steady for 48 hours after Lehman’s was ‘amputated’. And then? Similarly, Germany’s new Plan A is doomed. Here are three reasons:

The first reason is that, in the short, run, just like in the case of Lehman’s, the Frankfurt optimists are assuming that they know the unknowable (just like, prior to 2008, they assumed they had created riskless risk). The interconnections between the Portuguese banks with those of Spain, and of the Greek banks with those of France and Germany, are of the sort that will only see the light of day when disaster strikes. And when they do appear in full Technicolor their sight will be terrifying.

The second reason is that the massive liquidity injection into the Italian and Spanish banks, not to mention the French and German ones, will operate like large cortisone doses injected into a cancer patient. They will cause temporary relief but, at the same time, they will give the underlying malignancies time to grow nastier, bigger and deadlier. In short, the remaining eurozone’s banking sector will turn into a monster version of Japan’s zombie banks of the 1990s, brewing en masse the next banking crisis and embedding the virus of recession everywhere, from Spain to Germany, from France to Italy.

The third reason is structural. The eurozone’s troubles stem from the lack of a pan-European system of supervising the banks, of managing public debt and of planning for aggregate investment. None of these three constituents of the Crisis will be dealt with if Greece, Portugal and possibly Ireland are amputated – even if the stumps are effectively cauterised. This means that on the Morning After, Italy will be the next Greece and Spain will be the new Portugal. The internal imbalances of the eurozone, after a brief lull, will start rearing their hideous heads again, and, in conjunction with the zombie banks and the recessionary environment, it will not be long before another round of amputations will become ‘inevitable’.

Epilogue

Clueless for so long, Germany now has a Plan. According to this New Plan, some deficit countries will be amputated in order to give the Franco-German axis a final chance. The price Germany is willing to pay for this is the ditching of its ‘psychological’ rejection of hyper-energetic money-printing on behalf of the ECB. Thus cauterised, the festering wounds of Greece et all will cease to threaten the eurozone or to give rise to suggestions for a fundamental re-design of monetary union.

When will this Plan come out of the shadows and be discussed in public? After Mr Sarkozy, on whom Mrs Merkel has invested much, wins the French Presidential election, was the answer I was given. Then, Germany will ‘suddenly’ realise that the impossible conditions the Greek government pretended to accept have not been met. And then the ball will start rolling. Tragically, it will keep rolling well past the point willed by Berlin and Frankfurt. Even if contagion is initially arrested by Super Mario, the deeper causes of the eurozone’s current troubles will continue to work unimpeded and, before too long, Germany will realise that the amputations must go on until all is left attached to its economy are the rest of the surplus countries. Then, just like it has now accepted inflation as the price to pay for implementing this New Plan A, Germany will accept the need for deep deflation, following the loss of export markets, that will come as part and parcel of the next-next Plan: of ditching France.

Why not do as I and Munchau suggested instead? Because they prefer this to recapitalising their banks and because deep down they know that without a SRM it is all hopeless. They hope against hope that Italy and Spain… They may even be willing to issue Eurobonds with them but not with the likes of Greece.

They err in a number of ways. First, cauterisation will not work. The gangrene will spread. Secondly, even if it works, Italy and Spain will eventually Evoke the new Greeces of the rump euro one. Thirdly, the LTRO is setting the euro one up for the next Crash.

The recent LTRO, and its forthcoming extension, is the blueprint.

Germany had done what it could for Greece. The time has come to cut losses. To identify the countries that are still potentially solvent, and act swiftly. How? First, by smoothing the path back to their own currencies of the chronically insolvent

--------------------------------------------------------------------------------

[1] This post could be entitled ‘Letter from Frankfurt’. Over the past three days I was in Frankfurt, filming a documentary on the Crisis for Channel 4. This post’s contents reflect the impression I got from talking to people in the financial establishment.

[2] Such a major re-design would involve bank recapitalisations and the unification of the european banking sector; thoughts that fill the soul of German bankers and financiers with horror. Germany’s politicians, in view of the expected backlash, thus have no interest in re-designing anything…

20 popular fallacies concerning the Greek debt crisis

2012-02-10T01:00:00.000+02:00

It’s that time again! Greece needs more loans and the governments in Europe are arguing about whether it’s really necessary and who should foot the bill.
There is widespread opinion in Germany that Greece itself is to blame for the problems it now finds itself in.
It first of all cheated its way into the Eurozone, then the government spent too much and the governed worked too little, many believe.
Latently nationalistic patters of interpretation of this kind have been nourished by German politicians and the media, who have no end of proposals for how to «solve» the crisis.
For example, the Greeks should save more, work more and sell their public property – and if all of these measures do not help, then Greece will just have to leave the Eurozone or declare itself bankrupt.
The stupid thing is, neither are the causes of the crisis that have been named actually correct, nor will the proposed ways out of the...

crisis achieve their goal.

DEBTOCRACY

2012-02-09T00:37:00.000+02:00

For the first time in Greece a documentary produced by the audience. "Debtocracy" seeks the causes of the debt crisis and proposes solutions, hidden by the government and the dominant media.

It's Time To End the Greek Rescue Farce

2012-02-07T22:34:00.000+02:00

By Stefan Kaiser

Whether it be an escrow account or a budget commissioner, the latest demands by Germany show just how absurd negotiations over Greece's future have become. It is high time to bring an end to this tragicomedy.

For the past two years, Greece has wrangled with the euro-zone states and the International Monetary Fund (IMF) over its so-called "rescue." Austerity measures have been agreed to, aid has been paid and private creditors have been forced to accept "voluntary" debt haircuts. Despite all this, Greece is in even worse shape today than it was then. Its economy is shrinking, the debt ratio is rising and the country and its banks have been cut off from capital markets. There isn't even the slightest sign that the situation might improve. Something has gone very wrong with this rescue.
But none of the protagonists seem to have grasped this. They continue to negotiate as if things are business as usual, they let one "final ultimatum" after the other pass and they persistently fail to realize that their discussions have started to verge on the absurd. It would be a lot better to end this farce.
For weeks now, the Greek government has been...

negotiating with private creditors and the troika comprised of the IMF, European Union and European Central Bank (ECB) over a second bailout package. But it is already clear that this aid package will not save the country. It appears it will only delay a Greek insolvency -- and it will serve to create new hardships for the country's population.
It is time for politicians to admit that their carrot and stick strategy has failed. The idea that the country can be freed from its debt quagmire though austerity programs and aid pledges tied to conditions just isn't going to work. It won't even work if private creditors forgive part of the country's debt.

Broken Promises

For months, Greek government politicians as well as the so-called rescuers in Berlin, Paris and Brussels have all been deceiving themselves. Each supposedly final rescue package is followed by yet another, and austerity pledges aren't being adhered to.
That has a lot to do with domestic political considerations. German Chancellor Angela Merkel and French President Nicolas Sarkozy must convey to their voters that they have the situation and, especially the Greeks, under control. Meanwhile, the government in Athens must, out of self-preservation, limit the burdens to its own people as much as possible.
That's why both sides repeatedly agree to promises that everyone knows they will not be able to keep. The current rescue package, for example, officially agreed at the euro summit at the end of October, already has to be improved because it has become too small.
The Greek economy is shrinking faster than assumed. And the austerity plan Greece approved last summer under pressure from its euro-zone partners is also failing to live up to expectations. That's no wonder, either, because €50 billion of the €78 billion in total savings pledged was tied to proceeds from privatizations that, not surprisingly, have failed to generate the profits expected.

Out of Thin Air

The truth is that it must have been obvious to all parties concerned, including the Germans, that the figures were pulled out of thin air. What kind of investor would invest so much money in a country that, for the foreseeable future, will be stuck in a serious economic depression?
The supposed rescue efforts have culminated in the latest German proposals. The German government would like to send a "budget commissioner" to Athens to keep an eye on the Greeks. If that doesn't work, then the Germans also want, at the very least, to be able to impound Greek accounts if they don't pay back their debts through an escrow account.
The suggestions have justifiably provoked outrage. Quite apart from the humiliation these measures would entail for the Greeks, Athens would almost certainly find a way to circumvent them. In the end, Germany would wind up turning an entire nation into its enemy without even gaining anything.

Greece Must Go Bankrupt

Perhaps, the Greece rescuers on both sides of the negotiating table should try being honest for a change. Here's the truth: If the country is to lastingly reduce its mountain of debt and, at some point, be able to borrow money on the capital markets again, then it needs a comprehensive debt haircut. In other words, it needs to go bankrupt.
And it's not just private creditors who will have to forego a large part of their outstanding Greek debts. It is also other European countries and the European Central Bank. That would be expensive for taxpayers across Europe, and it would also be economically risky. Indeed, no one knows what consequences a Greek bankruptcy would have for other crisis-ridden countries like Portugal, Ireland or Italy. But at least it would be an honest solution.
Of course, things wouldn't stop there. The euro-zone states would also have to build a bigger firewall around the remaining crisis countries in order to prevent contagion. They would have to help some banks that get into trouble as a result of a debt cut. And they would have to provide Greece with a real opportunity to get back on its feet and start growing under its own steam -- in other words, a kind of Marshall Plan.
All this would be very expensive, and German taxpayers would also be forced to do what they have feared from Day One -- which is to pay for Greece. But this solution has two major advantages. The payments would be limited, and they would actually help Greece.
And unlike everything that has been negotiated up until now, the solution would also be worthy of being called a rescue package.

SOURCE:http://www.spiegel.de/international/europe/0,1518,813919,00.html

The Greek Vise

2012-02-07T16:30:00.005+02:00

by Paul Krugman

The current plan calls for Greece to move into large primary surplus — that is, surplus not counting interest payments on the debt:

That’s a huge swing — and it’s supposed to happen in the face of a deeply depressed economy. Here’s what it implies for real government spending:

Can I say that this looks basically inconceivable?

And here’s the thing: when this started, Greece was running a large primary deficit — which meant that even if it repudiated all its debt, it would still have been forced to make a major fiscal contraction. This is no longer true. So we’re now looking at a scenario in which Greece is forced into killing levels of austerity to pay its foreign creditors, with no real light at the end of the tunnel.

This is just not going to work.

SOURCE: http://krugman.blogs.nytimes.com/2012/02/06/the-greek-vise/

Thats what Merkozy and IMF demands threatening that other way let Greece default.They ask for a reduce in wages of private sector of 25% whith exuse of competitiveness, remove of labor contracts, further reduce of pensions and all these in an enviroment of 20% unemployment, 4years depression in a row, duplication of taxes (which the majority of people can not afford).
And the most outrageous they ask the goverment to sign that all the primary surplus (collected by the blood of the citizens) goes to pay the depths.
They ask to to change the rules of public loan from the existing domestic to British law, that means in simlpe words if goverment can't pay back it's debts in future they have the right to seize even the Parthenon!
In this occasion default is a bitter but the less worse solution, even if this means exit from Eurozone.

How much is the troika demanding from Greece? How tight is the squeeze? Here’s a look based on the most recent IMF report (pdf).

So, what is the real truth about the Greek catastrophe?

2012-02-06T00:23:00.002+02:00

In late 2009, Europe and the world discovered that Greece was a “fraud” and a “deceiver” that had never stopped forging its economic performance in order to enjoy the benefits of membership of a privileged club, at the expense of its partners and the euro.

But how accurate is this really? Due to the advancing international economic crisis at the time, the majority of European governments were inaccurate in their deficit estimations. For example, in their Stability Programmes, at the beginning of 2009, Britain had predicted a deficit of 8.2% that finally reached 11.4%, the Netherlands predicted a surplus of 1.2% that turned out to be a deficit of 5.4% and Portugal predicted a deficit of 3.9% that rose to 9.3%.

Why was Greece alone in the dock?
Also, in the years 2008-2009, the deficit in...

in Spain extended to 11.1% and in the United States to 12.9%. In April 2010, Ireland predicted a deficit of 11.7% for 2009 and 11.6% for 2010, while the latter finally reached 32%. However, it was only Greece who was accused of falsifying its data and being unreliable. And that by its own government! One wonders what caused this sudden and precipitous self-criticism.

At a time of global economic crisis, the newly elected government in Greece had structured its entire electoral campaign around the motto 'There is money', in order to topple the governing party’s campaign that highlighted the need for painful measures. In line with its election commitments, the budget drafted by the new government for the year 2010 included a whole set of allocations, such as wage and pension increases, public expenditure increases, a solidarity allowance and pledges for not imposing additional taxes.

Furthermore, the previous government had estimated that the 2009 deficit figure could finally reach 6-8%, because of the escalation of the crisis, and therefore, in an already turbulent internal political environment, it called for elections, in order that the next government should take such measures.

The new government’s estimation at the end of the year that the deficit had finally reached 12.7% reveals a considerable difference between estimations. However, this difference takes into account a number of expenditures made by the new government in the last few months of the year totalling around €9 billion, among which was €1.5bn worth of tax refunds, €500 million for the solidarity allowance, €1.2bn for contestable hospital debts, €2bn from withdrawing regulations of the previous government and €1.7bn in revenue shortfalls.

Not 'irregularities' but 'reclassification'
Moreover, as the head of the Eurogroup Jean-Claude Juncker observed, any revision of the deficit by Eurostat, the European union’s statistics office, was not the result of irregularities, but of the reclassification of certain public expenditures, namely the inclusion of the deficits of the wider public sector and public utility companies.

The former secretary-general of the national statistical service of Greece, Manolis Kontopirakis, accused the finance ministry of seeking to exert undue political influence over the statistics office, in order to revise the final 2008 deficit figure as well as the projected deficit figure for 2009, as it seemed that they wanted to discredit the previous government. Similar accusations were made later by other members of the service. The issue is of much importance considering that an Athenian public prosecutor is conducting an official inquiry into these allegations.

At the end of 2009, Greek and EU officials had repeatedly warned the Greek government that the deficit could be withheld to a single digit number, if measures were taken in this direction. The head of the European Central Bank (ECB), Jean-Claude Trichet, has held the then-government responsible for postponing the necessary measures despite the bank’s warnings, while the director of the International Monetary Fund (IMF), Dominique Strauss-Kahn, was convinced that, had the measures been taken earlier, the solution to the problem would have been less expensive.

Talking the country down
At the same time, the government almost transferred to the international markets it needed to borrow from, the idea that Greece was a bankrupt country with a “huge systemic corruption, clientelism, parasitic economy, enormous iniquity and arbitrariness”, even by comparing it to a sinking Titanic, thus skyrocketing spreads! Hence, she managed to transform a deficit issue common to most EU members into a borrowing issue, leading Greece to the IMF.

The truth is that the previous government constantly pointed to the need to take measures on time. It repeatedly sought a wider consensus with the opposition, given its thin parliamentary majority of 151 MPs out of 300. In March 2009, the-then prime minister Kostas Karamanlis warned that the international crisis, and the country’s excessive debt, posed serious threats and made a futile effort to reach consensus on the basis of cutting expenditure and of restraint by parties and syndicates.

Finally, he went to the polls, after the opposition made clear that it would vote against the re-election of the president in March 2010, in order to provoke elections and despite pledging to vote for him after coming to power, this being a decision that was going to lead the country to an extended pre-election period that would torpedo any possibility for taking measures.

It is also true that despite upcoming elections, both national in October, and European in June, the previous government announced a comprehensive set of measures in three different occasions, in February, March and June 2009, meeting criticism by the opposition that, at a time of crisis, there should be increases in expenditure instead of cuts. Part of these measures was a €28bn support package for the banking sector, the first approved in Europe, for which Greece was congratulated by its EU partners, but fiercely attacked by the opposition.

Meanwhile, in March 2009, despite the global crisis reaching its peak and the images of a rioting Greece beamed around the world in December, Greece went to the markets convincingly enough not only to cover its borrowing needs at a reasonable rate, but also securing a reserve as a safety net for the remaining of the year.

No one can deny the immense systemic problems faced by Greece over the past decades that ought to have been resolved before they became uncontrollable.

The public sector in Greece has long been excessive and counterproductive with bureaucracy, low efficiency, over-regulation and para-economy becoming endemic. The excessive public sector, and also increased armament procurements, account for a big part of the huge public debt. Greece, together with the USA and Turkey, is at the top of the list of NATO members’ spending on armaments as a percentage of their GDP, that costs almost €6bn or more annually.

However, it is worth noting that, in the years 2004-2009, €50bn was spent only to service the interests of past debts. It is also true that Eurostat has concluded that, before 2004, the Greek government falsified statistics in eleven different sectors, accounting for deficit deviations of more than 3%. According to its revision for the year 2008, after the 2009 elections in Greece and 'revelations' from the new government, of the 2% deviation professed by the latter, Eurostat acknowledged one of only 0.6%, while it expressed serious reservations for the rest. For the year 2009, Eurostat declined to make any revision, since there were only the estimations of the previous government, and one could not speak of falsification on that basis.

Self-accusations, but why?
And here comes an obvious question. Why was Greece accused of forgery, corruption and all the rest by its own government? Why did it evidently inflate its own deficit at the end of 2009? Clearly, despite being briefed by both Greek and foreign officials on the situation before elections, it had created expectations and it had given promises, on which it could not deliver. The former secretary-general of the national statistical service of Greece has noted that the huge discrepancy between the initial forecast for the 2009 deficit and the final figure was the product of two factors: the excessive optimism of the previous government and the new government’s desire to put the blame on its predecessor and make any economic rebound seem more impressive.

Unfortunately, the latter failed to anticipate the impact the new figure, and her allegations, would have on world financial markets, their reaction, and the disaster it would provoke for Greece and the EU.

SOURCE:http://www.neurope.eu/article/so-what-real-truth-about-greek-catastrophe