Tag Archives: greece

Why Torture a Victim Whose Will Is Already Broken?

14 Jul

The draft of the agreement between the Greeks and the Eurogroup is out and, as everyone has noticed, it is not just an act of revenge, it is a piece of legislative torture. It contains old demands, like pension reductions and higher taxes to fund primary surpluses, as well as new demands, like reduction in the power of unions and a massive privatization of state assets using a separate fund controlled by Greece but monitored by the EU’s institutions. In fact the document asks for a massive legislative program touching on every aspect of Greek economic life – tax policy, product regulation, labor markets, state-owned assets, financial sector, shipping, budget surpluses, pensions, and so on. This legislation is demanded within the next few weeks. Such a package is the kind of thing one sees during or just after wartime, not as the product of democratically negotiated decisions. Let’s remember that the programme on which Tsipras and the Eurogroup agreed is something asked of a country that has already experienced a very severe depression, already implemented a number of constraints requested by creditors, has 25% unemployment and a banking crisis. What is the point of torturing a victim whose will is already broken? To destroy all opposition.

I think this should not be read as a proposal for restoring growth to Greece or even as the reflection of an economic blindness in Europe but as the reflux of the EU political project, of which the euro is the purest expression: the preference for technocratic domination over popular sovereignty. This program describes an architecture of rule, one that expresses utter indifference to the attempt by peoples to manage their affairs democratically, and one that demands enormous reserves of discretionary power for the Eurogroup. Note not just the scope of the Eurogroup’s demands but the molecular level of detail with which they lay out demands. For instance, as part of their package of “ambitious product market reforms,” they insist on changes in “Sunday trade, sales periods, pharmacy ownership, milk and bakeries, except over-the-counter pharmaceutical products, which will be implemented in a next step, as well as for the opening of macro-critical closed professions (e.g. ferry transportation).” Then there are the new demands, like “rigorous reviews and modernization of collective bargaining [and] industrial action,” which is Eurospeak for rubbing out labor rights. Other demands make it clear that these decisions are not only extensive and fine-grained, but designed as much as possible to remove responsibility and control from the Greek people and their government. The “scaled up privatisation programme” is to “be established in Greece and be managed by the Greek authorities under the supervision of the relevant European Institutions.” And the “quasi-automatic spending cuts in case of deviations from ambitious primary surplus targets” are “subject to prior approval of the [European] Institutions.”

Most telling of all, “The government needs to consult and agree with the Institutions on all draft legislation in relevant areas with adequate time before submitting it for public consultation or to Parliament.” That is to say, on every above named area of reform – from tax policy to labor markets – the government must consult first with its European managers. The piece-de-resistance, however, is that the Greeks are maximally accountable to the Eurogroup while the Eurogroup is minimally accountable and maximally arbitrary. Having listed its demands the document then says, “The above-listed commitments are minimum requirements to start the negotiations with the Greek authorities.” Later, the document says that an ESM programme is possible “Provided that all the necessary conditions contained in this document are fulfilled.” There is no guarantee the money is forthcoming. In other words, the Eurogroup retains maximum discretion to decide that Greece has failed to meet any of the impossible demands made upon it, while the Greeks possess no similar ability to hold the Europeans to account for their failures. Recall, for instance, that the agreement requires Greece to run budget surpluses that the Germans and French have never managed to achieve and that the ECB recently refused to extend sufficient emergency financing to the Greek banks, essentially engineering a near bank-failure in direct violation of its mandate to provide emergency liquidity to illiquid banks.

There are those who think that you can be pro-Euro and anti-austerity. As this round of negotiations show, the economics and politics of the euro are not separated like that. The Euro is a political project. It is unification without sovereignty. It is the delegation of national sovereignty to groups of finance ministers and supranational bodies whose main task is to suppress the re-appearance of the very source of their power. The political institutions and practices that have grown up around the euro and the EU are based on the belief that exercises of sovereignty are dangerous, irresponsible, and unaccountable. Although these institutions are in one sense nothing more than the product of agreements between nations, their raison d’etre is to prevent any further, outright expression of that sovereign power. That is why they insist on total subjection to their decisions, and why Greece became about more than Greece. The Greeks dared to assert popular sovereignty at the only level it is currently possible to do so. The bitter irony being that the discretion demanded by these post-sovereign entities is less accountable than when exercised as the outright power of a democratically elected government. And no less vindictive.

Alex Gourevitch

 

The Grand Old Duke of Athens

11 Jul

Alex Tsipras has caved in to the demands of Eurozone creditors. He rightly claims that he has no mandate to leave the Eurozone. However he also has no mandate to accept the creditors’ demands. In the referendum that he called, Tsipras convinced the Greek people to vote decisively against accepting an austerity package very similar to the one he is now recommending. The Greek parliament’s approval of the package last night is an empty formality that does nothing to conceal the final surrender of Greece’s sovereignty and with it any remaining pretence of self-government. The parliamentary majority that Tsispras commanded was made up of the utterly compromised Syriza and the opposition parties whose arguments the Greek people decisively rejected in the referendum campaign less than a week before.

The contradiction in Syriza’s strategy and its mandate has been fully exposed. From its election as a government to the referendum, Syriza convinced the Greek people to vote for something that was not possible: staying in the Euro without the austerity that was the condition of staying in the Euro. This strategy has now come unstuck, as it was bound to. Faced with a stark choice of leading their country out of the Eurozone or giving it up to the control of Eurozone leaders, Syriza has opted for the latter. At the time of writing, it is still possible that the Eurozone will decide to kick Greece out, notwithstanding Syriza’s capitulation. But whatever the outcome, democrats need urgently to assimilate the lesson of this political debacle.

Tsipras and Varoufakis claimed that they could use the Greek people’s support in elections and the referendum to increase their bargaining power in an intergovernmental forum. They discovered that there was no truth in this claim. They fatally misunderstood the nature of the Eurozone and the EU. These are not institutions in which different sovereign nations reach a compromise on their interests, as they erroneously believed going into the negotiations. They are institutions in which national governments agree to subordinate their national will and interest to a set of technical rules dictated by market imperatives. As Syriza discovered, this institutionalized self-limitation of national sovereignty by European governmental elites is implacably hostile to the idea that policy should be accountable to electoral majorities. The essence of the Eurozone and the EU is anti-democratic.

Instead of being straight about this with his supporters, Tsipras, like the Duke of York in the English nursery rhyme, marched the Greek people up to the top of the hill only to march them back down again. This futile manoeuvre failed to cover up his retreat, and it is likely to have a profoundly subversive effect on democratic politics in Greece and beyond. After months of populism Syriza have flipped and now do the work of the technocrats. Voters have been forcefully reminded that neither their votes nor their views count for much in contemporary Europe. Many will react to Syriza’s capitulation with resigned acquiescence, while others will simply turn away from representative politics in disgust. The worst of it is that many people, and not only in Greece, will take away the lesson that democratic political action is impotent in the face of market power.

To have any chance of reversing the effects of this disaster, democrats need to be realistic about the anti-democratic nature of European integration and recapture the idea of popular sovereignty from the populist right.

Peter Ramsay

The real sins of Varoufakis

9 Jul

Why have negotiations between Greece and creditors collapsed, to a point of virtual no return, when both sides have repeatedly said they want the same thing: for Greece to stay in the euro?

The conventional wisdom is that the policy gap between the two sides was simply too great. Elected in January, the Syriza-led government sought to reverse years of austerity under the slogan of no more bailouts. Its flamboyant finance minister, Yannis Varoufakis (who has since stood down), spoke of an economic transformation in Greece, taking on the long-standing power of the country’s oligarchs. His renegotiation with the Troika was part of this broader agenda.

Facing Greece was a German-led bloc committed to more austerity and structural reforms. Within this bloc were countries – Ireland, Portugal – that had turned to the EU for their own bailouts and had undertaken the cuts and reforms asked of them. They were implacable in their belief that Greece should do the same.

But this view cannot explain why both sides came as close as they did. The often-forgotten truth of the last few weeks is that Greece and the Troika very nearly secured a deal. From the outset, the policy differences between them have been minor, largely because of Syriza’s moderate demands.

In early 2015, there was a lot of sympathy – including from the IMF – for Greek debt relief. When Varoufakis argued that a crisis of insolvency should not be confused with a liquidity crisis, he was listened to. Even in the very final stages of the negotiations, the remaining differences were small in what was multi-billion euro loan agreement. In the recent referendum, heavyweight economic commentators like Joseph Stiglitz and Paul Krugman argued for a ‘no’, saying the intellectual case for a revised bailout agreement and debt relief was solid.

The negotiations didn’t break down because of an unbridgeable gap between the North and South; creditors and debtors; the German ‘Ordoliberalism’ of Schäuble and Djisselbloem and Greek-style Marxism of Varoufakis and Tsipras. This gap has never existed. They broke down because Varoufakis repeatedly breached the Eurogroup’s etiquette. In doing so, he challenged the very foundations of the eurozone’s mode of governance.

The Eurogroup is not a democratic institution. Though it is made up of finance ministers from democratically elected governments, these ministers meet as individuals who are there on the assumption that they will build consensus, make compromises, and reach agreements amongst themselves.

The etiquette of the Eurogroup is that one leaves one’s national interests at the door. Relations are more personal than political. Ideologies and grand statements of political doctrine have no place in the body’s deliberations. If a minister is constrained because of a difficult situation at home, this is treated as an understandable – if unfortunate – problem thatneeds to be solved. Ministers find in the Eurogroup a source of energy and support for taking on their own domestic populations. It is also a private club of sorts, where what goes on inside remains secret. Ministers attending the Eurogroup are transformed from politicians representing interests into experts seeking solutions to common problems.

The hostility towards Varoufakis stems from his breaking of all of these rules. He refused to play the Eurogroup game. It’s not really about riding a motorbike, wearing combat trousers and being a celebrity academic-blogger – though his charisma and popularity probably created jealousies amongst the other (colourless and tie-wearing) politicians.

At the heart of the matter is how Varoufakis presented his demands. Thinking of himself as a representative of the Greek people, he made his wishes public, and when in the Eurogroup, he maintained the same stance – changes in views could not be informally agreed around a table but had to be taken back to Athens and argued for, in cabinet and with the Syriza party.

It was this breach of etiquette that made agreement impossible. Creative solutions can usually be found in the EU. It is, after all, a machine built on compromise. But when someone violates the very rules of the game, nothing can be done. Varoufakis exposed the Eurogroup as a private club where relations between individuals matter more than relations between the populations that are formerly being represented around the table. For that, he – and Greece – must now be punished.

Christopher Bickerton

Originally published on Le Monde Diplomatique

The end of insolvency

10 Jan

An arresting fact published yesterday in the Financial Times: the lowest rates of insolvency in Europe in 2011 were in Greece, Spain and Italy, the countries that faced the brunt of the Eurozone economic crisis. The newspaper continues: fewer than 30 in every 10,000 companies fail in these three countries, at the same time as nearly one in three companies is loss-making. There couldn’t be a clearler proof of the fact that Schumpeterian creative destruction has taken leave of Europe.

There are various explanations for this. For instance, the low level of corporate insolvencies is partly a reflection of government action: companies that might otherwise have gone bust have been able to borrow from their governments at very low rates, making refinancing of existing loans possible. Fearful of the political fall-out from lots of businesses going bust, governments have kept them alive. The broader climate of cheap borrowing, made possible by central bank action, has also played its part.

According to the FT, however, action by public authorities is only partly to blame. The real culprit appears to be the banks. Faced with so much pressure on their balance sheets, and saddled with bad loans, banks have been very reluctant to force businesses into insolvency or restructuring procedures. Rather than take the hit, they have preferred to hang on, letting the bad loans sit on their balance sheets. This has been the case particularly in Spain, but also elsewhere across the continent. Here we obviously see the underlying causes of the crisis working their way back into its resolution. Central to the debt-financing that occurred prior to the crisis, it is the same debt that prevents a more decisive resolution of this crisis.

We should, of course, be wary of bullish talk about the constructive effects of insolvency. The FT quotes one company chairman who laments the fact that all the company’s revenues are being taken up by pension payments to retired employees. “We are unable to invest in new growth areas”, he complains, because of these pension obligations. One wonders what his solution would be: renegue on the payments and ask the pensioners to find alternative sources of income?

Clearly, the idea of creative destruction works less well in an age when corporations have welfare obligations. But is also rests upon an expectation that public authorities command enough authority to be able to weather restructuring storms. Evidently in Europe this is not the case. Alongside a fear of social unrest is also a fear and hostility towards change. In countries like Greece, Italy and Spain, and certainly in France, governments talk about supply side reform and a fundamental transformation of their economies but there is little idea of where they would like to go or of what they would like to do. This political impasse is matched at the corporate level. Creative destruction after all rests upon an optimistic attitude towards the future: something new can be built, new energies can be released if the old is torn down. Restructuring is often driven by hedge funds looking to buy up assets cheaply and sell them on for a profit. But in Europe’s current predicament, we also see hostility towards change present across the political and corporate elite. And the banks, supposedly the most gung-ho and reckless of the lot, are the most cautious of them all.

Aglietta on the crisis

26 Sep

In a comment last week on George Soros’ well-publicized essay on the Eurozone crisis, we noted his fixation with the European roots of the present crisis. In his view, the combination of the Eurozone’s curious institutional design (a common currency without a fully empowered central bank) and the overly cautious approach of European policymakers together explain the European sovereign debt crisis. Whilst there is a specific European dimension to the crisis, we argued that it is also a crisis of capitalism, not just of the Euro.

In a piece published in the New Left Review in May 2012, the French economist Michel Aglietta gives his account of the European crisis. His account is more general and wide-ranging that Soros’. His explanation of the debt build up in Western economies is tied to the emergence of a new “accumulation regime”: one that demands a maximisation of returns for shareholders and downward pressure on labour costs. The gap between stagnating wages and the demand needed to maintain growth levels is provided through credit. The availability of credit in Western economies was made possible by various factors, including financial innovations and the recycling of large dollar surpluses built up by East Asian economies. These surpluses were an outcome of the East Asian crash of the late 1990s: a traumatic event that pushed governments in the region to insulate themselves from further instability by focusing on export-led growth.

Whilst generating a great deal of liquidity within the global financial system, these developments in East Asia also help explain why European economies failed to capitalize on the boom years of the 2000s when borrowing rates across the continent fell steeply on the introduction of the Euro. Aglietta notes that the intention in the early 2000s was that the mobility of capital within Europe would lead to a convergence of national economies. Productive investments would be sought out and the differences between national economies would slowly disappear. Capital certainly flooded to those countries that had the highest interest rates prior to 1999 – Greece, Spain etc – but there was no evening out of competitiveness across the region. In fact, as Aglietta notes, divergences grew. This was because at the same time as capital was moving into Europe’s periphery, so were East Asian economies beginning a concerted export drive as a response to their 1997-1998 crisis. Unable to compete with these imports, industrial activity in Spain, Portugal and elsewhere shrunk. Capital was channelled into a property and services boom, with growth becoming dependent upon rising house prices. In a better starting position and not faced with the temptations of sudden influxes of capital, countries like Germany and the Netherlands faced up to East Asian competition and were able to generate their own export surpluses. Aglietta also notices that given the poor performance of the German economy in the first half of the 2000s, the country was not sucked into the property boom that affected countries like Ireland and Spain. Divergences within Europe are thus not only an internal European story but have a global dimension as well.

Aglietta makes a number of other important points. His discussion of the options open to Greece and to Europe makes for interesting reading. He notes that Europe cannot really afford a Japanese-style era of deflation and high public debts. A reason for this is that Japan has a large industrial sector and is in a very dynamic part of the world. Aglietta also observes that Japanese debt is financed by Japanese savers, meaning that the risk of spiralling debt refinancing costs is kept low. In Europe the situation is different on all counts, making it difficult to replicate the Japanese model. On Greece, Aglietta gives a detailed breakdown of how “Grexit” would work, arguing that the long-term benefits outpace the short-term costs. Argentina, he argues, did the right thing but it did it badly. Greece could learn lessons from it and exit the Euro in a more orderly manner.

For all the elegance in his exposition, Aglietta’s solution to the crisis is surprisingly apolitical. He argues that “the euro must be constituted as a full currency, which means it must be undergirded by a sovereign power” (p36). This means transferring competences to the European level, fiscal union, and a long-term development strategy based on the idea of permanent transfers from one part of Europe to another. Aglietta’s recommendations are obvious but the problem today is that public opinion across Europe is moving in the opposite direction, against the idea of further transfers of power to European institutions. In practice, pursuing Aglietta’s recommendations means deepening the gap between national politics and European-level policymaking, thus compromising democracy in the name of economic emergency. Whilst that may provide some palliative to the economic crisis, it will only make the political crisis even greater.

Still no alternative to austerity

24 Aug

An interesting post on austerity over at the Economist’s Free Exchange blog. It makes the point that British business – generally in favour of austerity measures when they were first introduced back in 2010 – is now beginning to change its mind. It’s not difficult to work out why: Britain is facing a third quarterly decline in GDP, with a 0.5% contraction in the British economy expected for the second quarter of 2012. For the UK this is particularly galling given the fiscal boost of the Olympics and the expectation that this would mean a heady summer for at least some British businesses. Perhaps it is true that as many people left the UK as entered it for the Games, making the net effect close to zero.

The Economist’s post suggests that the tide is perhaps turning in the UK, with austerity giving way to a new consensus around pro-growth measures. It notes that Cameron’s government is considering an “economic regeneration bill” for the Autumn and that Boris Johnson – with an eye perhaps on the Tory leadership – is talking up the need for big government infrastructure projects (based around London, of course).

The difficulties faced by the UK economy should give food for thought to those arguing that the route to economic growth lies via an exit from the Eurozone. One might have expected the UK to boost competitiveness through cheapening its currency but – on the contrary – the British pound has become something of a safe haven for those with lots of cash. Life outside the Eurozone may mean currency flexibility and low borrowing costs but that isn’t helping the British economy. The debt burden for individuals and businesses, incurred in the heady pre-2008 years, is still depressing growth and holding back new investment plans.

The idea that the tide is turning at the level of elite opinion is difficult to substantiate. There were always voices calling for moderate fiscal stimulus alongside cuts in government spending. Back in 2010 the debate between the Tories and Labour was not about whether the government should drastically reduce spending – both agreed that it should – but it was all about timing. Shock treatment versus gradual reductions eased along via some discretionary spending. Austerity was the backdrop with the debate focused on how, not if. Little, it seems, has changed.

As noted on The Current Moment last week, the debate in the US presidential campaign is also about how the government’s deficit can be reduced, with both camps fighting over who is more credible in their deficit-cutting plans. In France, a government was elected with an ostensibly pro-growth agenda. In his campaign speeches, Hollande regularly fulminated against austerity politics, claiming he represented an alternative. And yet – bar the few measures introduced that are intended to put a little more money in people’s pockets – the real challenge for the Hollande government is the 2013 budget and finding the money to meet its balanced budget obligations. Much to the chagrin of the left of the Socialist Party, Hollande has signed off on the EU’s fiscal compact with little regard for the growth measures he had promised. Budget cuts will be financed in part via higher taxes but also via spending cuts. The Greek premier, Antonis Samara, is about to undertake a desperate trip to Paris and Berlin where he will ask for a bit more leeway in his efforts at balancing the Greek deficit. Merkel and Hollande are shifting all responsibility for the decision on whether to grant Greece an extension to the Troika, as if the issue was a technical one to be decided by accountants from the European Commission. From the US through to Europe, there is little evidence that the tide is turning.

Even though economies are stagnating under the burden of austerity measures, the intellectual case for an alternative still needs to made. Until then, it will be more of the same.

The problem with Eurobonds

7 Jun

As the Eurozone crisis deepens, some new ideas are emerging. Some have been aired for a while but are only beginning to be taken seriously. In this post, The Current Moment considers the issue of Eurobonds. In future posts, we will consider some of the other solutions being suggested, such as the idea of a banking union, the plans for which have been recently floated by the European Commission.

 

In a continued deepening of the Eurozone crisis, attention is focusing on Spain. Rather than investing in production during the boom years, bank capital in Spain was mainly channelled into property development. As the bottom fell out of the property market, Spanish banks have been left with worthless loans on their balance sheets. The regionalized nature of its banking system has made these problems less transparent than elsewhere and the scale of the problem has only recently emerged. Even now, there is considerable speculation about exactly how much it would take to stabilize Spanish banks. The IMF’s most recent estimate is that Spanish banks will need at least 40 billions Euros of new capital. In the meantime, loans are drying up for business and Madrid is being shut out of the international bond market.

There is some debate about whether in the longer term the Spanish economy will be able to raise competitiveness levels. The boom years were not entirely devoid of productive investment and optimists point to a weaker Euro boosting the country’s exports. Portugal, according to the FT (29/05/12) specializes in high end shoes and black toilet paper. Spain may find some of its exports benefiting from a falling Euro. But these competitive gains are not shared across the Eurozone as a whole: countries dependent on exporting to within the Eurozone will not benefit from a falling Euro. Any Spanish gains in competitiveness in the medium to long term are likely to come at the expense of the French, the Italians and other Eurozone member states.

For many, this all points to Eurobonds as the solution to the crisis. Far from exaggerating the differences between national economies within the Eurozone, Eurobonds are seen as a way of mobilizing these differences (especially German competitiveness) for the common good of the Eurozone as a whole. The basic idea of Eurobonds is that instead of national governments issuing bonds, the EU as a whole would do so. Those countries currently facing punitively high interest rates on new bond issues would find their borrowing costs falling. German bonds, currently serving as safe havens for international investors, would see a rise in interest rates, costing the German taxpayer but stabilizing the Eurozone as a whole. This idea was raised back in 2010 by the Bruegel think tank with its blue bond proposal. The idea here was that a Eurobond could be issued for debt of up to 60% of GDP for Eurozone members. Debt in addition to that would have to be financed by purely national government bonds. This would mean lower rates for sustainable debt levels and higher rates for excessive debt levels. The idea was batted away by Chancellor Merkel as a poor substitute for supply-side reform in crisis-stricken countries.

As opposition to austerity politics as strengthened, consolidated in recent months by the election of François Hollande in France and the inconclusive Greek elections, Eurobonds have come back onto the agenda. The term is used by Hollande as a rallying cry and as a measure of his success in Europe: if he is able to get the topic onto the EU agenda, he will have won his battle of wills with Merkel. Ever supportive of measures that may increase its own powers, the European Commission supports Eurobonds, as do leaders such as Mario Monti in Italy.

The more technical discussion about the exact modalities of any Eurobond issue asides, there are two major problems with this idea. The first is that as a solution to the Eurozone’s economic crisis, Eurobonds essentially rest upon the idea that borrowing more money can help Europe grow out of its current recessionary state. Given the performance of this particular growth model, that seems unlikely. As already argued on The Current Moment, Europe faces an impasse on growth: stuck between Hollande’s European neo-Keynesianism and Merkel’s insistence on national supply-side reforms, there are few alternatives to these two positions, neither of which inspire confidence.

The second problem is that Eurobonds present us with a direct clash between technocratic rationale and political reality. From the technocrat’s perspective, Eurobonds appear as a sensible solution to a thorny problem. Politically, they run against almost all the trends in place today in Europe. They would imply wealth transfers across national boundaries, something that is firmly resisted by national publics who would be expected to pay more. They would require considerable institutional strengthening at the European level in order to put in place the mechanisms needed to make decisions about how Eurobonds should be issued and how the funds raised should then be distributed. This comes at a time when the EU, according a recent Pew poll, is experiencing a “full blown crisis of public confidence” (see here for an overview of the poll).

Eurobonds would only exacerbate the democratic failings of European integration whilst at the same time they fall short of answering key questions about Europe’s growth model.

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