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Wolf Richter: Greece – Disagreement Everywhere, Rift in the Troika

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By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.

Austerity measures are taking their daily toll on Greece. Suicides and attempted suicides have jumped by 22.5% since 2009. The unemployment rate rose to 18.2%. RTL, the largest radio network in Europe, lost 50% of its advertising revenues in Greece since the start of the crisis—and decided to leave. And now pharmacies are having difficulties obtaining medications.

The pharmacy problem is an unintended consequence of the austerity measures that the bailout Troika (EU, IMF, and ECB) is imposing on Greece. To cut its healthcare budget, the government has reduced the prices that the industry can charge state-owned insurers. So wholesalers are selling their limited supply outside Greece. And state-owned insurers, whose budgets are squeezed as well, delay payments to pharmacies, which then can’t pay their wholesalers for the medications they do get. Thus, wholesalers are even less likely to sell to pharmacies—and the system breaks down. A microcosm of the current state of the Greek economy.

Yet more cuts are coming. To impose them, Prime Minister Lucas Papademos even threatened private sector unions (and everyone else) with the nuclear option—disorderly default. For that whole debacle, read…. Greece’s Extortion Racket Maxed Out.

But now the Troika itself is in disarray. It surfaced today at an IMF press briefing in Washington: the IMF no longer supports austerity as a guiding principle. Athens News quoted a senior IMF source, who was speaking on condition of anonymity. Frustration was practically palpable:

Horizontal austerity measures are constantly being adopted that are leading nowhere, whilst further wage and pension cuts are unjustified because the only way to improve competitiveness is through growth-creating market liberalization, the opening of closed professions, and productive investments.

The three Troika inspectors—Poul Thomsen from the IMF, Mathias Morse from the EU, and Klaus Mazouch from the ECB—are supposed to head to Greece next week to inspect its books; the budget deficit is once again higher than the revised limit that Greece had vowed to abide by. And they’re supposed to negotiate additional “structural reforms.” But there probably won’t be three inspectors, according to senior IMF sources. Missing: Poul Thomsen. The IMF has had enough.

Already, according to more leaks, IMF Managing Director Christine Lagarde had warned German Chancellor Angela Merkel and French President Nicolas Sarkozy that the fiscal and economic situation in Greece had deteriorated. Hence, the “voluntary” haircut on Greek bonds held by private sector investors should be increased to more than 50% to maintain the goal of bringing Greece’s debt load down to 120% of GDP. And the second €130 billion bailout package, agreed upon on October 26, should be enlarged by “tens of billions of euros.”

The German reaction was immediate. “There has to be a line somewhere,” said Michael Fuchs, deputy leader of Merkel’s party, the CDU. “This cannot be a bottomless barrel.” Even if Merkel were amenable to committing more taxpayer money to bail out Greece, she’d face a wall of opposition in her own party. And he wasn’t brimming with optimism: “I don’t think that Greece, in its current condition, can be saved,” he said.

Lagarde’s demand for a larger haircut smacked into an onslaught of leaks from the bond-swap negotiations between the government and private sector bond holders. First, there were rumors that the banks had largely agreed on a deal. Then there were rumors that hedge funds that had acquired some of these bonds at a discount were refusing to go along with anything. They were betting that they could profit from a default because it would trigger CDS payouts. And if the majority agreed to the haircut, they would also profit because Greece would eventually redeem the bonds.

Now, there are rumors that the government wants to compel these hedge funds to join the bailout majority. Tool: retroactive “collective-action clauses”—if a majority of bondholders agrees to the deal, the recalcitrant minority could be forced to go along.

“Frankly, a disaster,” is how David Riley, head of global sovereign ratings at Fitch, described the negotiations.

Mid March, Greece will either default or receive the next bailout tranche. Its economy is in shambles, its society in turmoil, and its finances ruined. There are no easy solutions. Every move is painful. And someone has to pay. It may be too difficult to keep Greece in the Eurozone, but allowing it to exit would be even more difficult, at least in the short term. And not only for Greece. It would be a shock to the Eurozone economy, which is already fragile. Even Germany, economic superstar with unemployment at a 20-year low and exports at an all-time high, has smacked into a wall. Read…. Germany’s Export Debacle.

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87 comments

  1. RueTheDay

    Hopefully Germany is starting to realize that the reason their GDP just declined 1.0% on an annualized basis for the latest quarter is BECAUSE of the austerity they are demanding from other European countries (who happen to be their trading partners).

    1. Tim

      World War II was Germany attacking everybody else.

      World War III will be everyone else attacking Germany.

      That’s so ironic since Germany is trying so hard to not repeat mistakes that led to World War II.

      Germany is damned if they do damned if they don’t, and I’m not saying that with any kind of sympathy whatsoever.

      They’ve always been strong enough to make their own bed and they always end up lying in it.

    2. Jim

      German GDP declined because the Eurocrats at the ECB fail to realize the obvious: The EuroZone is not sustainable, short of permanent fiscal transfers from the North to the South. Since this isn’t going to take place, everyone is waiting for it to unravel.

      Yes, German exports to the South have declined. But how is the South supposed to avail itself of the hard currency needed to buy German exports? Why would a US private equity fund invest in Greece right now when the likelihood of Greece leaving the Eurozone is over 70%. If I were doing a DCF analysis of any Greek asset, I would use a discount rate of at least 70%.

      Do you think any Greek politician is going to sell off Greek assets using a discount rate of 70%?

      That’s the problem.

    3. KnotRP

      > And someone has to pay.

      Might as well demand a Unicorn that poops skittles.
      Try holding your breath until you get what you want.

  2. jsmith

    Once again, it appears that instead of admitting the failure/defeat of yet another human construct/system, the elite will once again go the route of unleashing death and misery upon the millions and millions commoners who are trapped in the said failed systems of their leaders – be it with continued austerity or ginned up wars.

    Yup, instead of dismantling the fraudulent and oppressive regimes and institutions that benefit only a few and bringing those responsible few to justice, the lives of millions of peaceful people will be ended or made worse.

    Nice.

  3. Maju

    It’d be easier if Greece declared outright bankruptcy and nationalized every key industry, including banks, transport, food and medicine providers. For Greeks can’t be worse, for the rest neither: bitter medicines, you better drink fast.

    The problem (or a problem) is that creditors do not want to assume their loses: but they must.

    1. F. Beard

      but they must. Maju

      Not necessarily. The beauty of abolishing further credit creation is that it allows a one-time opportunity to bailout everyone from the bottom up with new fiat to replace existing credit as it paid off.

      No one need lose if only we are willing to abolish counterfeiting by the banks.

      1. Maju

        No idea of what you’re talking about: creditors lent at risk and MUST pay for assuming that risk when the debtor, in full sovereign right and dire need, declares bankruptcy.

        My “must” is moral but also implacable destiny because the clock does not tick in favor of systemic continuity but implosion instead.

          1. F. Beard

            Them’s fighting words. I’d rather be dead than a gold bug.

            What we need is good ole full legal tender fiat to replace all the credit money (97% of the money supply) with and in the process bailout everyone from the bottom up ala Steve Keen.

            In the US, that fiat would be US Notes (Greenbacks). As for the Eurozone, they may be stuck.

          2. Maju

            Sure: he’s one of those pseudo-libertarians who want us all to bow to corporations indeed. But still I do not understand half what he says, the same I would hardly understand some exotic religion’s priest mumbling some sort of incantations or prayers that only make sense if you previously know all the traditions and dogma of that religion.

          3. F. Beard

            he’s one of those pseudo-libertarians who want us all to bow to corporations indeed. maju

            Don’t be a dolt. Without the counterfeiting cartel to borrow from, it would be the people and particularly labor who controlled the corporations and not vice versa.

          4. Maju

            Democratically controlled companies? That is communism! Not that I mind but that is what people-controlled corporations means, although we would not be able to call them corporations anymore but public (state or community owned) companies or cooperatives because the very system of decision-making in corporations is anti-democratic, based on money (numerical rendering of social power) and not the principle of democracy: one person = one vote, regardless of wealth or race or gender or…

            You and your fascist “libertarians” want us to bow directly to the corporations, i.e. mafias controlled by a few, without even the balancing act of the state.

            Counterfeit what? Is better corporate-”counterfeited” money than state-printed one? At least the state is supposed to be there to serve the people (“for the people”) and to be ruled “by the people”. It does not work that way because corporations control the state in reality and need the state for their own legitimacy and protection (read Kropotkin if you want to understand what is the state). It is, as Marx would say, a bourgeois class dictatorship where formal democracy is just thin varnish for propaganda and stability purposes. But replacing the state by the raw dictatorship of the mafioso corporations would change nothing, at least nothing for the good. If anything it could only be worse because the balancing act of the state would have disappeared and class war would be naked and outright direct. The mafioso private cops would not be spraying capsacin on people’s faces but shooting them and making them into hamburgers or who knows what?

        1. F. Beard

          Debt forgiveness or default or principal reduction is certainly better than nothing but counterfeit money (so-called “credit”) cheats everyone so everyone is entitled to restitution.

          All that is necessary is to forbid the banks from anymore credit creation so they won’t leverage the new reserves into serious price inflation.

          But is the monkey willing to let go of the cookie so he can pull his hand out of the cookie jar? We’ll see.

          1. Typing Monkey

            All that is necessary is to forbid the banks from anymore credit creation so they won’t leverage the new reserves into serious price inflation.

            For the life of me, I can’t figure out how you arrive atthese absurd conclusions.

            How about a more conventional one: All that is needed is that governments stop borrowing like hell, and then stop printing like hell to compensate for their borrowing?

          2. F. Beard

            All that is needed is that governments stop borrowing like hell, TM

            Monetarily sovereign governments should NOT borrow. They should just spend their fiat into circulation.

            and then stop printing like hell to compensate for their borrowing? TM

            Some money creation is good but it does not require borrowing.

          3. F. Beard

            How about a more conventional one: TM

            Correct. You do appear to be conventionally wrong. What are you doing at this hip joint?

            At least learn some MMT before you venture here.

        2. sleeper

          I’m sure I don’t understand the ins and outs of the central bank but it seems to me that any asute large investor or creditor would have laid off his bets via the CDO, Credit swaps, or otherwise to cover any potential losses -

          It fact this might be part of the problem – if the creditors take “losses” the CDOs come into play which may in turn require another bailout by the US tax payers.

  4. steve from virginia

    What a nightmare. Why?

    People refuse to make sacrifices: refuse to get rid of the goddamned cars. Guess what, Greece and the rest of Europe is on the way to being car-free … the hard way.

    Greece free of cars by fiat is painless compared to having the Greek economy passed through the keyhole which is what is taking place.

    US trade deficit increases: more imports of fuel and cars. Unbelievable! Nobody will be satisfied until the entire world economy is utterly destroyed and humans are gnawing on each other.

    This default — the large or ‘grande’ default — has to be dealt with in the beginning like the Greek version of THREE YEARS AGO. Greek warning signs were ignored as are thw warning signs of today. It’s us or cars. We cannot have both, the planet is too small for us doing our serious work and our toys.

    Auto manufacturers will fail and millions will lose jobs. Good riddance to both! Let these millions do something else: a quick looks sees a multitude of tasks left undone in favor of car slavery. Enough with the industrialists’ hostage taking, enough with that of finance/banking/politics all wound around the car and car infrastructure. Enough.

    Just hold yr nose and get rid of the goddamned things.

    They don’t pay for themselves … a luxury the world cannot anymore afford.

    1. F. Beard

      LOL! It’s not the filthy counterfeiting cartel. It’s the cars, CO2, illegal immigrants, my toe bunion ANYTHING but the “respectable” bankers.

      I tell you what. Before we start worry about convenient transportation how about we deal with the problem of a thieving money system?

      1. Typing Monkey

        Now, there are rumors that the government wants to compel these hedge funds to join the bailout majority. Tool: retroactive “collective-action clauses”—if a majority of bondholders agrees to the deal, the recalcitrant minority could be forced to go along.

        1. While I have no sympathy for the financiers, I have a very big problem with retroactive laws that try to do anything.

        2. Let’s say this law is actually being considered and that it will be passed, and that it’s not just more idiocy being spouted off as a bargaining chip. Forcing a minority to accept terms that are worse than what was originally promised still constitutes default, and therefore those CDSs will get paid out, which sets off the same domino chain. JPM et all are F!@#ed.

    2. Maju

      Another one talking about nothing even close to reality: what Greece is about to be “free” from is public transport, and that is the real problem: what use is a state for if it cannot guarantee basic public services like transport, water, electricity, housing, health and jobs? The state and the whole market only exist for that reason: to serve the public. It’s not about cars but buses and bicycle lanes.

      Greece is not Los Angeles.

  5. Birch

    “the IMF no longer supports austerity as a guiding principle.”

    Really? I thought the IMF was set up specifically to impose austerity on chosen nations, and enforce that austerity through debt, thus extracting eternal rents – traditionally called ‘tribute’. If they were really to relinquish austerity as a guiding priciple, wouldn’t they cease to be the IMF?

    Or does it refer only to their treatment of European countries?

    1. YankeeFrank

      Yeah, apparently all the misery the IMF imposed on third world nations over the past 40 years was just fine but once a western nation falls under their “solution” its time to scrap the program. I’ll believe the IMF is over their austerity policy when they categorically reject neoliberal economic theory and demand debt forgiveness, nationalization of key industries and commodity producers, state support for employment, food distribution and healthcare in the third world and everywhere else. Until then its merely a passing fit of humanity and common sense.

      1. Blunt

        Yankee Frank has shown us the keys to IMF.

        They’ll need to show us instead of making a terse statement.

      2. Marc

        Well put YankeeFrank. In fact whenever I speak with policymakers in Asia, who also remember the costs Thailand, Indonesia, etc paid by following the IMF’s ” austerity wisdom” in responding to the 97 Asia financial crisis, as opposed to rejecting it like Malaysia did, they also see right through the IMF’s rhetoric on their supposed “change of heart/kinder-gentler” application of neo-liberalism doctrine on European nations. As one friend told me, “Do they really think that we are stupid and don’t see the contradicions?”

    2. Externality

      Or does it refer only to their treatment of European countries?

      Only to Western European countries. The IMF and the “international community” have supported austerity measures that inflicted immense suffering on the people of Eastern Europe. Two examples:

      ** According to a published study, the IMF’s requirement that Eastern European countries stop funding TB treatment in order to get loans led to 100,000 excess deaths from TB. (A horrible way to die.) http://www.reuters.com/article/2008/07/22/us-tuberculosis-imf-idUSL2190684520080722 Countries that refused to comply with the IMF did far, far better. http://www.slate.com/id/2195760/

      ** Naomi Kline’s book Shock Doctrine and other sources describe how the IMF, Wall Street, the US government, and the international community treated the Russian people after the dissolution of the Soviet Union. http://www.infoshop.org/amp/NaomiKlein-TheShockDoctrine.pdf When the Russian people peacefully protested the US-backed looting of their country and destruction of their social safety net, the US-backed Yeltsin regime illegally abolished the Ruusian constitution, illegally dissolved the Duma (parliament) and Constitutional Court, illegally declared martial law, and illegally used tanks and helicopter gunships to destroy the parliament building and mow down crowds of protestors. American Secretary of State Warren Christopher and the Washington Post quickly expressed support for Yeltsin’s actions; Christopher even traveled to Moscow to express his support publicly.

    1. PQS

      So, is S&P’s current business model to get to the point where Sinapore and Switzerland are the only AAA countries anymore?

      What does this even mean?

      (Yes, I know the ratings agencies are trash, etc.)

      But from the perspective of your basic “uninformed voter” this just sounds like yet a further disconnect between Reality and Big Business. (Like we needed another….did anyone else laugh out loud when hearing Mitt Romney say that “short term thinking just doesn’t work in business?!”

        1. F. Beard

          Any positive interest rate is outrageous since the US Government need not and should not borrow the money it creates in the first place.

          My how the ticks think the dog needs them!

  6. craazyman

    There’s that word again.

    . . . the only way to improve “competitiveness” is through growth-creating market liberalization . . .

    Q: Can any economist or technocrat anywhere define what it truly means?

    A: Of course not. Stupid question.

    1. craazyman

      OK, here’s an answer:

      “It’s the natural healthy condition of an economy when it’s achieved equilibrium.”

      just kidding.

      1. Valissa

        According to Wikipedia, Paul krugamn agrees with you http://en.wikipedia.org/wiki/Competitiveness

        Competitiveness is a comparative concept of the ability and performance of a firm, sub-sector or country to sell and supply goods and/or services in a given market. Although widely used in economics and business management, the usefulness of the concept, particularly in the context of national competitiveness, is vigorously disputed by economists, such as Paul Krugman.[1]

        The term may also be applied to markets, where it is used to refer to the extent to which the market structure may be regarded as perfectly competitive. This usage has nothing to do with the extent to which individual firms are “competitive’.

        Teh competitive force http://www.savagechickens.com/images/chickenhateyou2.jpg

        1. craazyman

          pretty funny Ms. V.

          I just tried to read Kevinearick’s latest but after 2 glasses of wine I can’t get past paragraph 1 without totally losing my train of thought. It’s like trying to do math.

          The cartoon. That I can understand.

    2. Birch

      It doesn’t matter what it means, so long as it doesn’t involve co-operation. Get people co-operating too much and it might spell a new era of development and the end of (throughput) growth and market liberalization.

      I’m really beginning to think the Competition dogma is at the root of all this craziness. Competition is not what has gotten humanity as far as it has.

      1. F. Beard

        I’m really beginning to think the Competition dogma is at the root of all this craziness. Birch

        Of course. It couldn’t be something so simple as government backed, systematic violation of “Thou shalt not steal” on a world-wide scale.

        1. Birch

          It takes a pretty solid commitment to competition to devise a global network of systematic theft; but you’re right, I’m just saying the egg came before the chicken.

  7. Jackrabbit

    Given Greece’s trajectory, one has to wonder if a ‘global reset’ is not inevitable. It just seems like wealth extraction and can-kicking will continue everywhere until other nations/economies expire and contagion does the rest. (I hope I’m wrong.)

    Que the new mantra: Ireland is not Greece. Spain is not Greece. Italy is not Greece. Portugal is not Greece. The EU is not Greece. The US is not Greece. (until they are)

    1. John M

      “The US is not Greece.” Unless the US chooses to, it can never become like Greece. The unwarranted fear of it becoming like Greece has led to it becoming like Japan.

      Greece had an out, that it may in fact still be able to do if it decides to, although time is running fast. Sell new bonds that have a provision that if Greece defaults, those bonds will be accepted as payment due the Greek government — taxes, fees, etc. This was the Nptmfs proposal.

      1. LeonovaBalletRusse

        And we thought birds didn’t get bored and seek a little diversion on the slopes. We learn from one another.

  8. jsn

    Doc, don’t be so tough on the mob! They at least have some perverted sense of honor, really, this is so unfair to honest gangsters everywhere!

    1. YankeeFrank

      Agreed. Most mobsters draw the line at throwing grannies out of their homes and/or freezing them to death.

  9. scraping_by

    Re: The CACs

    I’m not sure why it requires a majority of the bondholders to go along with a bond swap. Whether it’s 51% or 1%, they can choose to get less or get nothing. Agreement is nice, but since the Greeks are making the decision, they can decide what they want.

    And vulture funds are in on the act, and can possibly be burnt? Couldn’t happen to a nicer bunch.

    1. sleeper

      It seems to me that Greece ought to default, forcing the outstanding bonds to near worthlessness, then buy up the “worthless bonds and retire them.

      1. ebear

        >>>But if it’s an imposed agreement, the funds will invoke their CDSs and get full restitution.<<<

        Only if the counter-parties can pay, else you get another Lehman Moment.
        I think it's pretty clear by now that they can't, else why all the talk about "voluntary" haircuts?

        Truth is, Derivatives are simply an accounting trick to avoid marking portfolios to market. Today, everyone is insolvent, including the writers of said derivatives, so another Lehman Moment is only a matter of time, although this time around it should probably be called a Minsky Moment in honor of the guy who called it first.

  10. financial matters

    Interesting to contemplate what will get the dominoes to start to fall.. The problem seems to be one of musical chairs but lots of people will be left standing. Greece would seem to be as good a place to start as any. The people that bought high interest Greek bonds thinking they would be bailed out seem a good place to start taking it on the chin. If they bought CDS to try and protect that investment, good luck collecting. We’ve seen how solid that insurance system is (ie AIG). Lots of financial institutions are going to fail as this ripples through the system. Sovereign nations this time with the new transparency through more knowledge made available through this site and others should do everything they can to not repeat the past of letting the banks get away with fleecing the taxpayer/worker and starting wars from which they can profit on all sides. The focus should be on bailing out the general populace.

    1. Typing Monkey

      The people that bought high interest Greek bonds thinking they would be bailed out seem a good place to start taking it on the chin. If they bought CDS to try and protect that investment, good luck collecting.

      Perhaps a lot of “people” (eg: insurance companies) had to buy Greek bonds, and then bought CDSs as a way to mitigate their risk??

      Sovereign nations this time with the new transparency through more knowledge made available through this site and others

      Actually, I’d argue that there is *far* less transparency this time around.

  11. Fiver

    So after a brief holiday truce, the US-centred (with plenty of support from London) global financial attack on Europe is again in full swing – ECB did not drop its pants, I mean interest rates, on cue, and actually said some progress had been made, which was an accurate statement in relative terms. The Wall Street response was immediately issued by S & P, whose reputation as the eagle-eye protector of “investors” from all manner of harm was cemented by a decade of fraud in its US securities ratings. Impressively, they just bit most of Europe is the ass yet again. The bite marks clearly spelled out “PRINT OR ELSE” in the language of the owner of each set of cheeks.

    The notion that the IMF has “had enough” is laughable. If Geithner’s IMF had EVER been interested in helping Greece, it would’ve insisted on massive restructuring or completely writing off the bad debts at the outset. This is just another ratchet up of the pressure. Instead of concrete help, we get:

    “blah, blah….because the only way to improve competitiveness is through growth-creating market liberalization, the opening of closed professions, and productive investments.” We ALL know what “market liberalization” “opening” and “productive investment” means when it tumbles out of the IMF’s mouth.

    Re the Hedge funds reportedly holding Greece debt negotiations hostage:

    Any fund or other entity that has taken a position that is based on a bigger payoff the worse it gets for an entire country can hop in the nearest lake. If it burns up every CDS on the planet, so be it – it is completely insane to keep honouring these obscene instruments created for the benefit of wealthy gamblers and predators.

    What needed to happen from late 2008 on was a coordinated, US-led showdown with Global Finance. Any real solution STILL requires complete US cooperation and leadership on behalf of the global public interest, NOT the criminal elite class status quo. As is, Europe will get through this very rough year via a slow, humbling cave-in to Wall Street that doesn’t APPEAR that way politically. Greece is going to default, but all players have known it for a good long time, and the effects will be negligible. What will NOT go away is the incredible damage this is going to do Europe for many years to come unless it liquidates all this unpayable debt.

    At bottom, it is the existing global financial/trade architecture that is hopelessly skewed by an economics and policy bag rooted in the post-WWII US experience – one which utterly fails to recognize that its analysis is based on what is actually the unique experience of an economic, resource and military supergiant. Applying those economic rules to the entire range of far smaller players with far less depth or breadth in their basic strengths means either acceptance of permanent relative weakness (read lower standard of living), or ingenious though doomed efforts to “beat” the House – doomed so long as they remain inside that House, that is.

    1. Typing Monkey

      I believe you view of the situation neglects to mention that Greece (along with the rest of Europe, Japan, and the US) has over the last two or three generations consistently borrowed far more than it could ever hope to pay back and until recently consistently lied about their growth and obligations in order to keep borrowing even more than it could hope to repay. A lot of this money went towards entitlements or services that citizens demanded but refused to pay for. As with any ponzi scheme, those who entered first did fine, but are mostly dead. Those who are still around are stuck holding the bag (and continue, for the most part, to insist on government-subsidized lifestyles that they refuse to pay for)

      I am fascinated by the doublethink so often posted on this site that somehow the lenders are to be blamed for asking that their money be returned to them and that the borrowers are naive innocents who have somehow been wronged. I chalk it up to social mood, but the contortions in logic used to justify this mood is somewhat appalling.

      1. Fiver

        Typing,

        I’m aware of that. It was the failed response to the oil crisis of the ’70′s that set this entire Doomsday Debt Machine into Suicide Mode. It has been an unmitigated disaster, as “modern” debt is an accelerant of activities across the board, including its own growth rate. It is fundamentally unsound, as it has created a situation where fear of slowing down, which is what HAS to happen in order to deal with this at all, is going to take us straight into the wall.

        As for lenders, over the entire time period in question lenders have been able to take stock of their environment and assess the odds that what they think they see is what is really happening. Anyone lending for Spanish, Irish, Californian, Australian, or Canadian McMansions, Greek Olympics, BMW’s and SUV’s all around because everything was “safe” and the returns were consistently great, well….

        In other words, anyone who couldn’t see that even by the ’80′s we had completely lost it in terms of material possessions vs what we could actually afford over the longer run, and that finance was spinning out of control was just plain greedy or intellectually lazy or both. The elite is presumed to be superior for a reason, i.e., that they are MORE CAPABLE. When the elite has all the power, makes the rules, every important decision up and down the line, and still completely craps out, the contract dissolves.

      2. Maju

        The government is everyone and together with the markets and property and other social tools is only there to serve the public.

        It is of course arguable how much can it redistribute but it is clear that all those resorts are there only for social use and not vice-versa. Paying is a non-issue because money is nothing but printed coupons and accountant annotations.

        The real issue is: Greek people need some stuff like medicines that they do not produce, how can they begin producing them (of course breaching the patent because it is a national emergency and there are priorities). That is what the Greek authorities should be planning for and not how to pay the IMF and its hordes of greedy vampires with the blood of the Greek people.

        Real blood of real people for the vampire corporations? Nope: you cannot support that and consider yourself still human.

        1. Typing Monkey

          The government is everyone and together with the markets and property and other social tools is only there to serve the public.

          Any intro course to poli sci/international relations will tell you that that’s a pretty 20th century view of government. It’s not universal. It’s beside the point, but I thought I’d mention it.

          hat is what the Greek authorities should be planning for and not how to pay the IMF and its hordes of greedy vampires with the blood of the Greek people.

          I’m not sure why you view the lenders as “greedy vampires” and not the borrowers. Greece did *not* reach this situation because it had to buy necessary pharmaceuticals for its citizens, btw (I’m sure you know this…) This is a bit of a straw man argument.

          As for defaulting–go for it. They should’ve done it a long time ago. It’s the scapegoating that annoys me.

          1. bdy

            Nobody ever got rich from entitlements.

            Wanting a modest house, food, medicine and a doesn’t constitute greed.

            Wanting your money to work for you – to make more money than you need – does. Lenders lend out of greed.

            “Borrowing far more than (one) could ever hope to pay back” is not a Ponzi scheme. Nobody laughs their way to the bank to take out a loan. Rather, you know it sucks but you do it anyway because you need (and can get) the money.

            Foolish to give away sovereignty to a bank. Foolish to base your national economy, your bank, hedge fund or pension on ever increasing loans that can’t be repaid. But cruel and immoral to insist the impoverished, unemployed parties in a rotten contract take it on the chin when equally foolish lenders can better afford it.

            “. . . entitlements or services that citizens demanded but refused to pay for.” criminy. Like every Greek has a mattress full of money and is just looking to fleece the poor banks for more more more.

          2. Maju

            You can’t demand the people to squeeze their veins for you. It does not matter which your title is: king or banker or warlord or priest… if you do that you become a tyrant and the people is entitled to depose you violently.

            No, this is not a 20th century view of government, but one that goes back to very concept of social contract, whenever it was first conceived (no it was not Hobbes, nor Locke nor Rousseau, these only talk of it, they did not invent it). The social contract means that people get together for mutual benefit, whoever does not consider collective good puts him/herself out of the social contract: he/she becomes a social criminal.

            Deeds, money and even laws are just tools for the common good: if they go against the common good they turn illegitimate.

            So yea, let’s sharpen the guillotine, it’s getting rusty.

          3. F. Beard

            The thing about the counterfeiting cartel, the banking system, is one must borrow from it or be priced out of the market by those who do borrow from it.

            Example: The price of a house in the US was driven beyond what people could be expected to save by “credit” – new money lent into existence by the counterfeiting cartel.

            But keep blaming the victims, Monkey.

      3. John M

        Typing Monkey: The US is perfectly capable of paying it’s debt, whatever it has borrowed. The US can no more run out of dollars to pay, than a football stadium can run out of points to award touchdowns and field goals. I’m including the Fed as part of the US. The reason: the US creates dollars.

        I think that it would be best if the Treasury took over the money-creation part of the Fed (if not the entire Fed), and did openly what the Fed does secretly: create a certain amount of money. The US wouldn’t even have to borrow or tax everything it spends. The created money would go for services rather than to the banksters.

        Taxation would be overtly a means to maintain a value for the currency, to influence aggregate demand, and limit inflation. Budget surplus would possibly occur at times of rapid growth to slow down the boom part of boom-and-bust, not to save money for the future.

        Money, for the Federal Government, is like points on a scoreboard, or coupons handed out — only useful if one creates a demand for the coupons, such as enforcing taxation.

          1. jake chase

            Typing Monkey, I pretty much agree with you. But it is not the Greek population who borrowed recklessly, rather the Greek politicians. I have always thought the common currency was a sort of back door to the Third Reich. All those celebrating millenial Euro-businessmen looked to me like nothing so much as 1930s Nazi industrialists. The Euro was great for European industry, but it was a ponzi scheme and the populations will now pay the bill. It would take too long to explain why all this is so, but does anyone else see it this way?

          2. F. Beard

            Money can have value from tradition alone so long as the amount of it in circulation does not grow too fast.

            Sadam Hussein’s dinars continued to have value even after he was deposed since people knew that there would be no more of them issued.

          3. John M

            Well, if taxes have to be paid in dollars, there is a certain demand for dollars. Everyone has to come up with dollars in order to pay the taxes. It’s possible to have tax rates so high that people would literally scramble to get a hold of scarce dollars to pay those taxes.

  12. Breton

    “So after a brief holiday truce, the US-centred (with plenty of support from London) global financial attack on Europe is again in full swing …”

    …………………

    Yup
    I would say, fairly accurate.

    BReton

  13. SH

    I disagree with the author on the below paragraph. I don’t think the leap from austerity to “growth-creating market liberalization” means the end of austerity as a goal. It reads more like starving the beast is not working, so a quicker fix is to introduce a private beast that can eat it instead which may be no change of heart.

    From the post…

    But now the Troika itself is in disarray. It surfaced today at an IMF press briefing in Washington: the IMF no longer supports austerity as a guiding principle. Athens News quoted a senior IMF source, who was speaking on condition of anonymity. Frustration was practically palpable:

    Horizontal austerity measures are constantly being adopted that are leading nowhere, whilst further wage and pension cuts are unjustified because the only way to improve competitiveness is through growth-creating market liberalization, the opening of closed professions, and productive investments.

  14. financial matters

    The IMF has been a tool for western banking interests re their actions concerning Mexico (ala Rubin (1)) and the Asian crisis re Thailand and Indonesia etc (2). Now it’s eating itself with the Euro crisis. Austerity for the global financial cabal is what is needed… (3)

    (1) http://www.atimes.com/atimes/Global_Economy/LA26Dj04.html

    “”The foreign creditors were protected; the debtor developing nations lost what little they had gained in the previous decade and then some, with no prospect of ever escaping from the tyranny of foreign debt in the foreseeable future. Neo-liberal economists cited Shakespeare: ‘Better to have loved and lost, then not to have loved at all’, while their paying clients laughed all the way to the bank. “”

    (2) http://www.atimes.com/atimes/Global_Economy/LA26Dj04.html

    The NPL problem in Asia is a fiction invented by the Bank of International Settlement to prepare national private banks as ripe targets for predatory acquisition by Western large, complex banking organizations.”

    (3) ibid

    Today, in 2010, as predatory capitalism hits its own home base, it is possible that a new world economic order will soon emerge from people power. Unfortunately, all governments are still fixated on “recovery” schemes concocted to turn the crisis back to the very same flawed system of moral depravity that had led the world to its present disastrous state.

  15. WorldisMorphing

    So we need –s o m e– central planning after all. Interesting… ;-)

    The problem is with the t h e o r y of economic rent.
    The only efficient way out of this mess is for the world to adopt a DUAL currency system.
    Two currencies, one reflecting the natural ressources required for production of that good or service(oil,land, minerals,etc), necessarily international in scope–yes, a one world currency, I dare…– the other, a national one reflecting how and what, citizens produce inside this said nation, in other words –Labor.
    Necesserily, there will be capital controls of everything regarding land and its resources.
    Necessarily, at the international level, financial speculator must be taken out of the game.
    Necesserily will there be a fancy conversion system between the two currencies, different for each nation.

    Oh, and let’s not forget; A social contract. Because you don’t get breed at will on a finite spaceship with finite resources. Nothing unreasonable.

    The Experiment should start with Greece.
    In the Greeks case:
    The bailout shoud provide them with the Euros needed to stay afloat and thus the Euro will play the role of temporary stabalizer, essentially keeping the Greek’s access to a “somewhat” affordable ration of oil supply. Reinstate the Drachma and let it float, side by side with the Euro. Land and ownership should be valued in Euro(with strong regulation and subsidies for native citizens needless to say). Workers could be paid in both Euro and Drachma to the ratio of their respective valuation to one another(or something of the sort, for now). Income tax could be paid in both currencies.

    I think if the system doesn’t change this planet is gonna turn into a fucking cannibal cockroach hell. In the case it doesn’t, it would require for the sake of intellectual rigor to EXPLICITLY stipulate in every country’s charter that fascism is the name of the game and that decency is for some, mediocrity is for most. Rewarding MERIT and free enterprise can, and must stay. However, subordinating everything to property rights, not caring how one becomes a “rentier” and calling that “not-caring” Freedom …that has to go…

    1. F. Beard

      If you wish to euthanasise the rentier class, the way to do it is not to establish a one-world money monopoly for international trade and national internal monopolies for private debts.

      1. WorldisMorphing

        Not sure a one world currency would behave quite like a monopoly to be frank; And as for the national one, well yeah, it remains a fiat system, but the way to circumvent monopoly in this case is to allow (and\or expand the number of)publicly owned banks.
        It is true that unpegging the dollar from a tangible resource has brought about a perverse dynamic in the system of exchanges, but going back to gold won’t solve anything and will simply bring a ridiculous new set of problems with it.

        1. F. Beard

          but the way to circumvent monopoly in this case is to allow (and\or expand the number of)publicly owned banks. WorldisMorphing

          Publicly owned banks do not escape the inherent problem with banking: the transference of wealth from the “non-creditworthy” (typically the poor) to the “creditworthy” (typically the rich).

          but going back to gold won’t solve anything and will simply bring a ridiculous new set of problems with it. WorldisMorphing

          Agreed. I am no gold bug. Why do you assume I might be?

          It is your new world wide “Euro” that approximates a world wide gold standard just as the Euro now approximates a Euro-zone wide gold standard.

  16. Praedor

    You know, I am just a biochemist so I haven’t studied make believe all that much (economics) but even I know that austerity MUST fail, austerity CANNOT work…if “work” means improve the situation for country X forced into austerity.

    See, even a mere biochemist can see that austerity MUST increase joblessness, MUST decrease GDP, MUST decrease monies collected by government in taxes, MUST increase the debt-to-GDP ratio (basic math – GDP goes down, revenues go down, debt remains the same). Even Forest Gump could see this a mile off.

    I guess the “geniouses” at the IMF or coming out of criminal organizations like the University of Chicago (Chicago School Econ) have dimmer bulbs than a Forest Gump…or they are not sub-Forest Gumps and are simply criminals bent on looting the public for the benefit of a few, say, the 1% of the 1%ers.

  17. Musashi

    I don’t understand the rationale of this part of the article:

    It may be too difficult to keep Greece in the Eurozone, but allowing
    it to exit would be even more difficult, at least in the short
    term.

    Given the current mess, why would allowing Greece to exit the Eurozone
    be “even more difficult”?

    As I understand it, the plan to “save” Greece was actually a plan to
    save French and German banks. But now that the we know that the ECB
    agrees to print euro notes and hand them at a discount to banks, why
    wouldn’t those bank be able to stand the shock of Greece properly
    defaulting, exiting the Eurozone and devaluating their currency to
    relieve the pressure and head for a new start?

    This is a honest question.

    1. Maju

      For Greece, setting up a new currency would be near impossible and could only cause even more economic disruption, specially in absence of generalized nationalization of the pillars of the economy.

      But for the rest of the Eurozone it would be extremely dangerous as well, allowing the speculators to believe that they can win also in further maneuvers of siege and demolition of other states with any kind of problems that they would magnify, as they did in Greece. It would be a signal for the financial sharks that the prey is weak and they can attack even harder and expect to obtain some more blood at the very least.

      Finally there are no legal provisions for exiting the euro: states cannot leave (at least it is not provided that they can) nor can be kicked out (same). Legally being a Eurozone member is as unchangeable as being a US state. Can Alaska leave the union? Equally Greece can’t leave the euro, at least not in any legal way.

  18. theyenguy

    A New Dynamic And A New Dynamo Will Produce A New Europe

    Out of the S&P sovereign downgrade and the soon coming default of Greece, the dynamic of destructionism will produce a region of global governance where the dynamo of diktat will provide both moneyness and political rule. Catalysts of the loss of debt sovereignty and regional trade imbalances will cause leaders to meet in summits and pool sovereignty to establish a Federal Europe and empower the ECB or the Bundesbank, that is Buba, as the Euro’s Bank. Out of a global credit breakdown and financial collapse, fate will establish regional global governance.

    Much more on the link http://tinyurl.com/7o8jqd3

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