As we describe in our earlier post today on Greece, the ECB’s hit job on Greece is an continuation of the destructive and ultimately self-defeating practice of letting the pet needs of banks trump those of governments and social orders. The ECB is willing to turn Greece into a failed state out of what looks like sheer brutality, with the apparent rationalization that punishing Greece will serve pour decourager les autres, meaning the other periphery countries, and potentially even France, that are calling for relief from failed austerity policies.
It isn’t just the Eurozone that is falling into a mire of faltering economic performance out of fealty to misguided economics principles and elite finance. The Eurozone has now joined Japan and most of Asia in a currency war against the US. thanks to its implementation of QE. Roughly one quarter of S&P earnings is from operations in Europe. Many companies are reporting earnings misses due to the impact of the strong dollar, both via making exports less competitive, and from lower profits from operations on the Continent, due both to the surging greenback and to the deterioration of European growth. Given how fixated US companies are on short-term profits, earnings misses are headcount cut futures. Thus the mismanagement of the Eurozone is of direct concern to the US, since our economies have significant interdependencies.
Obama is one of the few national leaders to come out forcefully against the Troika’s efforts to squeeze more out of an already bankrupt Greece. From the Wall Street Journal report on his remarks:
“You cannot keep on squeezing countries that are in the midst of depression. At some point there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits,” Mr. Obama said in an interview with CNN’s Fareed Zakaria aired Sunday.
He said Athens needs to restructure its economy to boost its competitiveness, “but it’s very hard to initiate those changes if people’s standards of livings are dropping by 25%. Over time, eventually the political system, the society can’t sustain it.”
Even US investors, who normally take a bank-friendly posture, saw the ECB shellacking of Greece today as putting political expediency over economic realities, as this Bloomberg video demonstrates. And while Greek markets plunged when the Syriza government came in, they also rallied sharply when Finance Minister Yanis Varoufakis offered concrete proposals, such as his debt swaps.
So why is the Fed, whose mandate includes promoting growth, pointedly ignoring Obama’s views and tacitly supporting the ECB? The US central bank actually has significant leverage over the ECB via its dollar swap lines. Those were extended in violation of Congressional approval processes, but Congress has been too supine or inattentive to challenge them. While the swap lines are not presently in use, they are important to the ECB. Withdrawing them over the treatment of Greece and the potential serious downside risk would constitute a serious rebuke and get the ECB’s attention.
Similarly, Congress could challenge the Fed’s authority to have granted the currency swap lines at all, a move it should have taken long ago. There is a good argument to be made that it is unconstitutional to have done so without prior explicit approval from Congress, and no justification for making them “permanent”.
Even worse, the ECB has an almost certain booster in the Board of Governors in the form of Stanley Fischer, who was ECB chief Mario Draghi’s thesis advisor. If Yellen were to be concerned about the dangers of the Troika’s policies towards periphery countries as a danger to global growth, and hence the US, the odds are high that any effort to press the ECB to moderate its course would be influenced, as in checked, by Fischer, or that he would volunteer himself as intermediary, which would serve the same end.
The question of where Fischer’s loyalties truly lie are why Elizabeth Warren only reluctantly supported Fischer’s nomination to the Fed. As with Lazard’s Antoinio Weiss, Warren is concerned that individuals with strong ties to major financial firms and whose careers have made them members of a club of like-minded insiders will reflexively side with their colleagues and former employers. From her remarks on her vote:
In recent years, Wall Street institutions have exerted extraordinary influence in Washington’s corridors of power, but Citi has risen above the others in exercising a tight grip over the Democratic Party’s economic policymaking apparatus. Fischer, after all, is just the latest Citi alumnus to be tapped for a high-level government position. Starting with Robert Rubin – a former Citi CEO – three of the last four Treasury secretaries under Democratic presidents have had Citigroup affiliations before or after their Treasury service. (The fourth was offered, but declined, Citigroup’s CEO position.) Directors of the National Economic Council and Office of Management and Budget, as well as our current U.S. trade representative, also have had strong ties to Citigroup…
But there is danger anytime the key economic positions in our government fall under the control of a single tight-knit group. Old ideas can stay around long after they’re useful, and new ideas don’t get a fair hearing. We learned about the harms of groupthink in economic policymaking the hard way – first with the deregulation of the banking industry in the 1980s and 1990s, followed by the no-strings-attached bank bailouts in the aftermath of the 2008 financial crisis, and most recently with the anemic efforts to help homeowners who were systematically cheated by financial giants.
The power of a tight group of insiders can also echo through the government in subtle ways. No one likes to ignore telephone calls from former colleagues, and no one likes to advance policies that could hurt future employers. Relationships matter, and anyone who doubts that Wall Street’s outsized influence in Washington has watered down our government’s approach toward still-too big-to-fail banks has their eyes deliberately closed.
The ECB’s kneecapping of Greece demonstrates how central banks act as powerful enforcers on behalf of lenders and investors. The ECB operates with no concern that it will be reined in by democratic governments, even as its reckless actions towards Greece threaten not only Syriza but the Spanish and French governments by giving their anti-austerity, and the the case of France’s National Front, rabidly anti-Eurozone parties persuasive talking points. The Rothschilds, who had the power to make or break governments in the 19th century, took care not to abuse their power to avoid rousing opposition and putting their business at risk. The ECB is now operating with a swagger that despite being swathed in bureaucratese, is disturbingly authoritarian. It is time to wake up to the danger to democracies of central bank mission creep. While the Fed is not as far down the path of lack of accountability as the ECB is, the only protection is to insist on checks and more transparency.
Update: Krugman does us the favor of exhibiting precisely the sort of socially destructive insider loyalty that Warren called out. In a post today, Krugman makes the strained argument that because Draghi is clearly a smart man (a Serious Economist and a central banker!), the savage move against Greece has to be more clever than it looks. He argues that it must be to pressure German by showing them that Greece really might leave the Eurozone.
Has Krugman even bothered following the Financial Times, much the less the European press? Even an occasional reading will show that the Germans and to a large measure, the ECB, believe there is no contagion risk of a Greek exit. Moreover, if Krumgan had bothered paying attention, he’d also know that Varoufakis, over years of writing on this topic, is firmly opposed, seeing it as a disaster to Greece. And the markets are confirming that today. While the European equity markets are down, they aren’t seriously so, nor are periphery bond prices ex Greece.
In other words, to justify the EBC’s clearly reckless move, Krugman has gone into 11th dimensional chess mode. With Obama, that messaging by loyalists served as a lame effort to justify his repeated unforced concessions to Republicans and Big Business: surely there is a bigger plan and we plebes simply don’t see the full picture. As we’ve seen again and again, there was no bigger plan with Obama. He governed as a center-right President on economic issues because he is a neoliberal. And Draghi is similarly acting like a thug towards Greece because he thinks crushing Greece, if it comes to that, is necessary to keep the Troika’s doomsday machine on its course.
A good slice of emotive leftist propaganda, thanks for that. Now let’s get back to the reality; the ECB has not performed a hit job on Greece, it has simply followed the rules according to its obligations to the Eurozone. They have already been bending over backwards for Greece by accepting junk bonds as collateral but faced with Greece’s stubborn refusal to uphold its side of the bailout conditions, it has no choice. And as for the bailout being aimed at saving banks rather than the Greek economy, whose money do you suppose would be lost if those banks went under? The fact cats would have removed their money long before the banking collapse became common knowledge; it would be the savings of ordinary folk that would go up in smoke. The blame lies squarely with the successive Greek governments of the last 20 years, and I’m afraid to say, the people who voted for them despite the blatant corruption and cronyism, because they also stood to gain from the public spending sprees. Blaming the Germans and European institutions makes for a convenient script with some people, but anyone with any insight into this crisis knows that it is, to a large extent, self inflicted.
I know four former central bankers who disagree with your views, and none of the former central bankers I know support the ECB’s action. One said via e-mail:
Germans and other Europeans have forgotten the lessons of their own past. Stupid borrowing always should be condemned. But so should stupid lending. Allegedly good Keynesians always should favor reduction, cancellation, and forgiveness of debt, especially sovereign debt. So should good monetarists (and Austrians and others). It’s just good classical economics. Classical theory also supports the idea that reasonable reforms of the debtor should be pursued, as well as tough reforms of the lenders (where the real problem usually lies).
An economist said the EBC move, driven by internal politics, if not stepped down, is exactly the same sort of major misstep that led to CreditAnstalt. And that was also driven by German internal politics.
The creditors of Spanish, Portuguese and Italian banks (and German banks?) must be watching Germany’s and the ECB’s behavior. If they are, this is precisely what can come to pass. Krugman and Coppola are just guessing, and underestimate Draghi’s independence.
If EU democracy produces kid of impasse (Greek vs. German voters), it is time to end it.
Correction: make that “overestimate Draghi’s independence.”
Good rebuttal, Yves. And it should be noted that the notion that the ECB simply followed the rules is nonsense since it has tied those rules in knots whenever it serves its owners’ immediate interests WRT QE and buying bankster-members’ toxic assets to extend and pretend. Draghi’s “whatever it takes” applies only to certain casino VIPs. Furthermorr, it was Goldman’s fraudulent hiding of the corrupt Greek oligarchy’s debt, with its certain knowledge and that of the ECB, that engineered the current debt trap. No, this brinksmanship is designed as a Versailles surrender, for Greece to bend its knee and sell itself into permanent bondage.
It’s immensely reassuring to read that FinMin Varoufakis does not intend to follow Obama’s default negotiation strategy, premature capitulation. As Ilargi wrote yesyerday, he and Tsipras show that they understand game theory, and not all statements and events ate to be taken at face value. It may be that Syriza is letting the Troika tie its own noose.
I imagine comrade Vladimir is watching all of this eith plenty of interest, despite the German press saying it has no interest. Please. Vlad has one hand on his telephone. And the CIA is already planning it’s next coup.
And another thing that should never be taken at face value: Obama’s forceful opposition to the Troika’s squeeze play. Obama’s words and actions rarely correlate.
The German banks lent the money so they could make money off of fees and interest payments and so the Greeks could turn around and hand the money to German firms for goods and services. Period. The idea that the Germans (or the Americans, or anyone else) handed out this money out of the goodness of their hearts, or in an honest effort to help Greece develop into a more modern economy, is laughable and you know it. If the Germans had one iota of interest in what Political Scientists called Systems Maintenance they’d understand that the recirculation of their vast, pointless balance of payments surpluses is essential if they want to maintain a healthy European system and keep their own manufacturing employees employed. It’s called a trade-off. China buys our Treasury bonds that lose money via inflation because they want to keep selling stuff to us and keep their surplus population from doing what Chinese surplus populations have done for 3500 years–starving and/or revolting. Merkel et al. want to eat their cake and have it too. That’s greedy, stupid, and in the long term unsustainable.
Nice post – and I agree. However, there appears to be a positive feedback loop at work here as well. The media paints the Greeks as ungrateful, lazy, reneggers resulting in popular opinion encouraging Merkel to ‘man up’ (as if she needs encouragement). And of course, central banksters are very serious people and with Milton Friedman’s wind in their sails, know precisely what is best to do and are offering Greece no quarter. In their minds, doing otherwise would be foolish. That is, the evildoers in this circus are merely character actors playing their part. It is neo-liberal economics that is the villain – Merkel’s just one of that witch’s flying monkeys.
LOL “rules according to its obligations to the Eurozone” LOL, you mean those “rules” that France and Spain and Italy have been flagrantly violating for years? Or do you mean the ones Goldman helped Greece skirt (wink wink) with thinly-disguised swaps? Yes, the crisis is “self-inflicted”, we’ve decided that bad loan underwriting no longer has any consequences, whether it was liar loans to US homeowners or German and French bank lending to Greeks so they could turn around and buy BMWs, German submarines, and trips to Antibes.
It’s a hall of mirrors, a room full of Emperors who have promised to each other not to remark on their collective nakedness. Of course nobody wants to take their medicine, you have a massive tumor growing but of course you’d prefer to swallow a handful of sugar pills. The right answer, and Obomba had the moment to do it, was to let Goldman and Citi go, we would have had two years of very serious pain but a big chunk of the cancer would be gone, instead we got Timmy, we got FASB to replace mark-to-market with mark-to-fantasy, and we’re now entering year 8 of Permanent Consequences.
Agree completely. Excellent analysis.
It’s about damn time someone starts running policy based on emotion and the acknowledgement of the misery those policies can inflict. You call it propaganda, I call it reality based on an understanding of profound human suffering. Not that I would expect a conservative to understand emotions, your hearts seem to run entirely on a sociopathic worldview that only values those close to you, and only then as your property.
I thought the point of “playing hardball” with Greece was to make of Greece an “example”: this is what happens to you when you don’t pay your bills. Same thing with the ECB’s opposition to SYRIZA proposals: this is also what happens to you when you elect a government not composed of neoliberals. Obama, for his part, finds it easy to mouth liberal platitudes just so long as he’s checked to be sure there’s nothing at stake. Perhaps Yellen’s position echoes the real elite consensus upon Greece?
The election has a lot to do with it. A small “leftist” brushfire is smoldering and must be stamped out before it can spread. I think of it as a neoliberal economic pre-emptive strike. In late stage capitalism it seems fair to paraphrase Clausewitz: “politics is just war by other means”.
Obama’s remarks came a few days after Greece decided to endorse and expand sanctions against Russia. Had Greece voted against the sanctions – which required unanimous approval to extend – there would have been no words of support from Obama.
We know what restructuring an economy to boost competitiveness looks like to a neoliberal; Obama was making the banal point that the poison goes down better when mixed with a bit of sugar.
I’m afraid you are right.
On the other hand, since the Dems Congressional losses, I get the feeling sometimes that Obama is going to say what he had hoped he could say after his 2008 election, if only the movement behind him had kept up pressure from the left. That assumes that he is a fiscally conservative (i.e., misguided, pre-MMT) social democrat who just lacks courage. The Ukraine story says I am wrong, and at best, he just lacks courage, at worst, he is OK with all this.
It’s a timely reminder of the power relations in our society. Creditors are all powerful, all seeing, charming and wonderous beings with divine authority who decide what gets done and what doesn’t get done in our society. Debtors are always the poor souls wringing cloth caps in dirty hands, begging for a few pence to feed poor Timmy because they spent this weeks wages on gin.
Well maybe that’s why bystanders would believe the ECB — but, given the nature of money as a boundary separating the representatives of capital from the rest of us, Greece is an example to keep the debtors in line.
Thanks to whoever posted the following link in comments several weeks ago:
“Princes of the Yen”
Yellen is a banker, doing what bankers do. Why should we expect anything different?
I see it in part as a visceral, ideological reaction stemming from the view that debtor countries can’t be given any leeway, as they will try to worm their way out of their obligations by any means necessary. No matter how bone-headed this move may seem, or how essential it is to negotiate with the new Greek government, the ECB is incapable of seeing them as negotiating in good faith.
Also, much has been made this morning and last night of Varoufakis’s staunch opposition to exiting the euro, which I understand is his stance. However, I’ve also read a lot of his work here and elsewhere as admitting that the Troika will likely continue to act in ways that make an eventual Grexit inevitable. It seems like regardless of how opposed one is to the disaster of leaving, there is a line at which it becomes the best possible option. I’d appreciate other interpretations.
Might Merkel and Draghi be taking the view that, with QE and the falling oil price providing a boost to the European economy, things will improve sufficiently elsewhere soon in Europe that what happens regarding Greece can be ridden out without having to worry about repercussions?
I do not claim to know that this is the case, just trying to stand back and ask questions, viewing the wider picture.
That said, I have a lot of sympathy for the ordinary people in Greece.
Obama: “if people’s standards of livings are dropping by 25%. Over time, eventually the political system, the society can’t sustain it.”
Wow. Maybe he should look in the mirror.
Maybe we should look at Congress. After all, Congress holds the purse strings.
Given what many have written here, that Greece will never be able to repay the debt as currently structured; and given the ECB, and the rest of the western elites, are showing little interest in compromise; I think the best move for Syriza is to hold a national referendum on the question of E.U. membership. Do Greeks want to choose the ongoing pain of permanent debt cropper status or an exit from the euro and EU, a return of the drachma, probably plenty of economic pain as well? At least those who will suffer most could vote on the question. Of course, either way, expect plenty of “soft power” interventions in Greek internal affairs…l expect that those efforts are already underway.
Tick your choice below.
A. Permanent servitude to the whims and fancies of Euro elites, slowly diminishing your work choices and terms of employment, crushing your unions, destroying your commons, increasing inequality with NO possible hope for change. (But slowly like a boiling frog so you might not notice.)
B. White knuckle roller coaster ride to plumb the economic depths with an exciting bare fisted duel to the death with Greek oligarchs, all whilst dodging vindictive kicks up the arse from nasty euro neoliberal elites. With slight hope of continually improving conditions if you survive the initial dip into the fiery inferno.
I’d take my chances!
The EU allows far more powerful unions than most Western countries. Germany is well unionised. The US/UK are not.
Labor law is basically national so it doesn’t make sense to talk about what the EU allows. There is a bit of transnational union cooperation inside the EU but it is basically cooperation between unions and unionists who identify by nation and cooperate as groups of national unions.
The lack of an EU union structure is another problem with the EU, but none of the stronger nation-based unions are really interested because they know all their power exists at the national level.
You are right that labour law is mostly national.
However Troika demanded degradation of the unions (destruction) as a ‘structural reform’ and the previous Oligarchy-backed government was happy to oblige.
you must be very young or very brave or both.
i hope you are ready to put, or are already putting, that courage of yours into action in your own country. around the world people who possess and act with that kind of courage, like snowden and varoufakis, are desperately needed now.
Neither, I’m a middle age coward. I’d just rather take my chances fighting a bold, difficult battle I just might win rather than a slow, soul sapping, rearguard action I will always lose.
Maybe people just don’t see how the Greek people will always end up losing (in the long term) inside the Euro.
Au contraire, during the last five years here in Athens I have not seen even one ‘soft power’ intervention from any direction. There ARE of course a tiny handful of ‘colour’ think tanks tied to the US Embassy (representing American business interests at high level) and they are remarkable right now in being the only voice raised against SYRIZA and pushing the ECB / Merkel punishment view. ie completely out of step neo-liberalism. Because the fact is that right now even SYRIZA’s political opponents and their followers want SYRIZA to pull this off.
“Moreover, if Krumgan had bothered paying attention, he’d also know that Varoufakis, over years of writing on this topic, is firmly opposed (to Grexit), seeing it as a disaster to Greece.”
I continue to think you misunderstand both Varoufakis and Syriza on Grexit.
It’s certainly not their desired outcome, either economically or politically.
But Varoufakis has been repeatedly clear that he is more than willing to play brinksmanship in such a way that could result in Grexit, especially if it comes after a process that widely demonstrates the lack of reasonability on the part of Germany and its Quislings.
And Varoufakis would not play that game if he were not willing to countenance Grexit under certain political circumstances. Given how this could all play out, Syriza world not be in nearly as much of a box, politically-speaking, regarding Grexit as you seem to assume.
Just because it’s not their preferred option doesn’t mean it isn’t their second option under certain circumstances.
(Also, I think you are unfair to Krugman regarding Draghi. Dude has shown a fair amount of courage and effectiveness over time in his moderate defiance of Germany, while preventing an outright breach. He’s made abundantly clear he’s not in sync with the crazy VSP crowd. I have no idea whether or not Krugman is correct in his admittedly crude speculation on Draghi’s game here, but it’s not crazy-talk.)
The post doesn’t say “crazy talk.” The post says “group think.” Do you understand there’s a difference?
Good point Lambert.
If interested, one might check out Mirowski’s work (Lecture in Sydney, 2014) to uncover the essential components of the NTC (Neoliberal Thought Collective) group think:
1. Good markets must be constructed
2. Primary NTC objective is not decrease size of the state, but to redefine/reorient and position it
3. Problems generated by markets can only be solved by new market solutions
Of course, “markets” serve as a metaphor for some all-knowing natural supercomputer, as if we can outsource all of our critical thinking to it as an homage. The NTC has been gaming democracy for decades and so their more specific and hidden plans reside in the weeds of individualism and atomized self-interest.
Anywho, for an entire group think to exist that espouses the belief that there is no such thing as society, just markets, means that we have severely underestimated the ability to plan, organize, imagine politics differently, and act. Its time for the left to do all of these. Hence, Greece.
Yes, Naked Capitalism is beyond doubt seriously misinterpreting Varoufakis & Syriza on Grexit. Look at what Varoufakis said to Roger Strassburg last yer that I quoted here. e.g. “In that case, the Eurozone is going to bid us farewell.”
IIRC , Varoufakis has stated (relatively recently) that being forced into an exit is one possible outcome that he wouldn’t rule out. That is , he won’t exit by choice but if push comes to shove , he’d accept the push rather than capitulate to more degrading treatment by the Troika.
Thank you, Calgacus, for the quote below. Given that his The Global Minotaur lays out the unworkable nature of the EU, one has to take that into account when one speaks of intention or strategy of then new government.
Yanis Varoufakis: He’s probably right. Where he’s wrong, and where I disagree with Heiner, is in his conclusion that we should simply get out of the Eurozone or, at the very least, threaten to do so. What we should do is veto the present policies. And bring things to a head. If I were the Greek prime minister I would declare that I would never going to get out of the Eurozone. “If you want to throw me out, go ahead and do it. Do your worst. Switch off ELA support to the banks and let everything go to hell. But I’m not getting out of the Eurozone. I’m also not going to fire 4,000 public sector workers in December. I’m not going to redeem the ECB for the bonds that it’s holding. And I’m not going to be talking to the Troika until and unless we have a European Union and Council in which we sit down and discuss reasonably and rationally what needs to be done. Now if you want to dismantle the Eurozone in the process by unilaterally discontinuing ELA support to my banks go ahead. If you want to get out of the euro yourselves, be my guest.”
i am sorry i do not have the source to offer, but i recall reading somewhere in recent days YV saying or writing, well before his appointment to the syriza government, that if/when greece were to be pushed all the way to the wall (i forget the specified situation), “we” would in fact simply veto every common resolution of the EU as they come up.
i know this is vague, but perhaps worth sharing; and/or someone else can find the reference.
You are welcome. Greece’s duty to negotiate with Berlin: Part B of an interview with Roger Strassburg and Jens Berger, of NachDenkSeiten is a direct link to the 2014 interview that NV & I quoted from- perhaps some people missed the link I put at the word “here” in my comment above. It is worth reading in full. Varoufakis is quite doubtful there that Merkel will change, so he clearly did not have illusions about quickly getting a good deal from the Troika. Elsewhere he says that the sensible way for Germany to get rid of Greece in the Eurozone would be for Germany to leave the Eurozone itself. He’s right, but he is not dealing with sensible people. They are revealing now how unreasonable they are. Just makes it more imperative for Greece to continue the strategy of intransigent sweet reasonableness. It is not unlikely that it will end in forced Grexit, which Varoufakis has clearly prepared for.
Another link that may dispel an illusion is Greece could feed itself, says farmers conference.
Greek SYRIZA voter speaking here. From Athens.
There are a series of fallbacks, depending on how the ECB / EU / Germany deals.
With the elections Greece has moved from total submission / oligarchic enrichment [big fortunes are being made while homeless parents place their kids temporarily – they hope – in orphanages etc.]
insisting on a new economic arrangement.
Should this be refused, should the creditors – against all self-preservative logic – continue their theatre & ‘policy’ of making a punitive example of Greece (a very big IF given the political stakes at play across the EZ and EU), the next move is to default within the euro. Accompanied by ‘veto’ skirmishing. Should it get this far!
If the EU / ECB refuses that , then and only then would a final step be Grexit. By that time the majority of Greeks would probably support it.
Of course EU / ECB could pre-empt this process and move to Grexit immediately to pre-empt the counter-productive theatre that the above would produce. However this would not be legal – ie within EU/EZ treaty rules – and the political legitimacy cost would be enormous. If they offered a controlled Grexit, this would be a relief for us, apart from short term pain. However it would be a huge gamble for these institutions (for all the reasons stated on these pages & others before) and would probably start the house of cards tumbling. Italy, for example, would probably opt to follow, since even now their economy would start recovering.
My feeling is that a deal WILL be done. And that Frances Coppola is right (also Krugman) and that with our finance minister back in Athens after his very public series of consultations (ie “over to you”) the pressure & dealing in the north is already massively underway. Not for Greece’s sake, but because of the huge political cost in practically every country of the EU where governments are abusing citizens, ie almost everywhere – apart from Germany where BILD still appears to hold sway. The politicians ARE aware that the tide has turned, and not only in the periphery. This is already beginning to be a crisis of legitimacy at EU level. And it is simply not administratively possible to put in place & maintain juntas in every country of the continent – should such temptation arise.
I hate to tell you, but that is not consistent with media reports. The opposition of the creditor countries to Syriza defying its labor-crushing structural reforms is fierce. They assume that with the ECB having made it harder for the Greek government to finance itself and with its ability to cut off the ELA (support to Greek banks), it has the whip hand. From Reuters:
Greece’s new government was isolated at its first meeting with senior euro zone officials but will have a chance to put forward its plans at a special meeting of finance ministers of the currency bloc next week, EU officials said on Friday…
Euro zone officials made no progress at a preparatory meeting on Thursday evening because the positions of Athens and other euro zone countries were so far apart.
“It was Greece against all others, basically one versus 18,” one official said, describing the discussions.
As for legitimacy, the way Irish taxpayers were saddled with the debts of Irish banks, when there was no guarantee, and the destruction of Cyprus banks, were both achieved via the ECB removing the support for the banks. They have that weapon in reserve and I doubt they would hesitate to use it.
Coppola’s FT article has some merits, but if you are referring to her post that Krugman flagged, she’d dead wrong on that. She didn’t even get what the ECB move was about right. Her focus on the ELA at this juncture was 180 degrees wrong. Krugman is a personal friend of Draghi and his effort to defend him was shameful. The ECB’s move absolutely does not pressure the Germans. The ECB is acting as their henchman. See this column in ekathimerini for a much better explanation of what is happening:
The moves of last week were all about shortening the runway to when the Greek government runs out of money, to force it to come to a deal sooner. And if the current government does not capitulate, and I do not expect it to, it will force a crisis sooner. But in that scenario, they would use to a move from Greece to justify pushing them out of the Eurozone, such as a default or nationalizing its banks, or printing (but not yet distributing) drachmas as a defensive move. Or if worse comes to worse, they’d blame it on Syriza refusing to honor the terms of deals made (more accurately forced on) previous governments.
“The moves of last week were all about shortening the runway to when the Greek government runs out of money, to force it to come to a deal sooner. ”
True. Of course!
The msm, as you know well, 90% of the time delivers the creditor viewpoint.
However, this does not mean that serious pressure is not being applied behind the scenes for the political reasons I gave above. Because an overdose of high-handedness now, given the international awareness of Troika’s huge failure (some would say victory) in Greece – unlike say, the relative obscurity of Hungary or Latvia’s condition – will be a pyrrhic victory. The EU/Troika will win the battle but ultimately lose the war.
It may sound like rhetoric on YV’s part, but for European voters the legitimacy & future of the EU has now being formally brought into question. This is the big issue. Greece & SYRIZA may lose its short term battle, but if they do – especially through high-handedness – it will be at huge and probably fatal cost down the line to the so-called European project.
Yves, dismiss me as a starry-eyed hopeful (which, despite my years, I always am) but please don’t dismiss these observations outright.
PS – re Mark Weisbrot’s article in Kathimerini
I believe we are making much the same point, though from slightly different perspectives.
Time to start the military takeover countdown.
I made that point to Nedd Ludd yesterday when he talked about Greece renting ports to the Russians–the CIA pays the Greek Army and bingo, our friendly poster here and late Finance Minister gets lined up against a wall and shot along with a few thousand “troublemakers” identified by US/UK/German Intelligence. In the end the ECB and the IMF would love a Pinochet to take over in Greece and “set an example” of Chicago-based orthodoxy within the EU.
Yes, we can be sure regime-change planning is already gamed out should Greece try to slip its carefully-forged chains. The neocon empire plays for keeps, has no compunction against murder, and will brook no insubordination from uppity little serfs, especially if it involves the newest enemy-du-jour, Russia. I trust Syriza is taking security VERY seriously.
The problem is that this is no longer a question of a ‘few hundred troublemakers’ by now but the majority of the Greek nation.
Our late coalition goverment only squeaked into power (29% to ND, the largest vote bloc) in 2012 under massive Grexit propaganda from IMF/EU/ECB/Merkel – by way of primarily switch-voting pensioners. Since then, these same pensioners have been betrayed.
As for the Greek army/police, the same applies.
The residual vote for ND is not because their voters support submission or feel Troika’s policies are correct, but kneejerk anti-leftism on the one hand and a fear that bucking the PTB will be even more dangerous.
I buy Krugman’s thesis after reading Coppola: http://coppolacomment.blogspot.co.uk/2015/02/what-on-earth-is-ecb-up-to.html
I think the ECB washed their hands of any compromise by removing the waiver (no special treatment for Greece). This has little effect on the Greek Banks, and has heavily signaled the need of a political agreement to both Greek (who already know) and German authorities (who seem to be waiting for a Deus ex machina that solves the issue).
The search is on to build a ramp for the Germans to walk down. Roll down in the case of Scheuble.
More on Varoufakis, brinksmanship, and willingness to countenance Grexit:
From Frances Coppola, via Krugman:
@Brancaleone72 It would be a non-credible threat. (E.g. “We will shut down your ELA.” Answer: “Do ahead!”)
— Yanis Varoufakis (@yanisvaroufakis) June 1, 2014
Readers of the European press don’t buy this reading. It is also inconsistent with the Financial Times’ leak prior ot the ECB announcement, which has ECB staffers saying that Draghi was just about as unhappy with Greece as the Germans.
Plus this is a complete misreading of what the ECB’s announcement was about. It is to make it hard/impossible for the Greek government to raise short-term funds without ECB support. This was NOT a threat v. Greek banks, except by accident, since depositiors might not understand the implications of the annoucement or start worrying now that the ECB is on the warpath, it might escalate and repeat what it did to Ireland and Cyprus (yank ELA support).
That forces them to the negotiating table, potentially faster. The ECB was aggressively nixing Varoufakis’ request for relaxation of some ECB rules so as to be able to refuse bailout funds by Feb 28. The ECB’s move was not just a “no” to those requests but a “Hell no”. She absolutely missed the Feb 28 bailout funds matter.
And even though we mention Obama’s verbal support of Greece in our next post, we’d also said in comments yesterday that that was an empty gesture. But it still serves as a good excuse for calling out the Fed’s role.
Looks like Putin is reaching out to Greece with open arms apparently. There might just be something to this game theory thing.
Way to take my point intentionally out of context, Lambert.
Y’know, I have profound issues with you on one topic: your Ukraine coverage, which I first tried to engage with you about, but then gave up pretty quickly, as I didn’t think you were treating the engagement honestly or in good faith.
But as Sally Fields would say, you don’t like me, you really don’t like me! And it seems you really don’t like me in a personal way, on all topics. Which is somewhat odd, considering I’m in agreement with you on a majority of topics. But whatever. I stay clear of commenting on your posts, and if you want to dishonestly hound me on Yves’ posts, I certainly can’t stop you.
Your comment — follow me closely here — is not you. I know nothing of you except what you write, and I — it’s just a little thing with me — have an aversion to bullshit and lying in comments. Yves wrote, quoting Warren:
And she goes on to say:
So, that’s the problem here, according to Yves. Group think. You “respond”:
Since you address Yves in paragraph two of your comment, I have to assume you are addressing her throughout, as opposed to simply addressing random observations to the air. If the “crazy talk” in the final paragraph is not addressing Yves’s claim (“group think”) it’s a random observation. Otherwise, it’s a strawman. Which is it?
Ya know, if you want to make a claim that I’m taking you out of context, prove it, instead forcing me to do your work by unpacking it. That would be a sign of the “good faith” you profess to care so deeply about. Have a nice day.
A lot of Greek outrage stems from the fact that the Troika has virtually taken over the administration of the country. Preventing any recovery for Greeks. So the push for democratic sovereign government is justified. In this case money has become politix. It’s a big problem because it is merely the illusion of politix and all of Europe knows it. Without sovereign, local, politix that functions the EZ will fall apart and, even worse, globalization will also become fragmented. It is globalization itself that changed the way German surpluses used to go south just like the gulf stream, keeping a fine balance between north and south. That’s another of Varoufakis’ points. But I’ve never heard him blame globalization – in fact, I think he is a devout globalist. If Germany thinks it can just take off all alone, be a prosperous global exporter, and keep all its revenue because it no longer has a good reason to share with all the GIPSIs because it now has “other” markets, then the old economic system upon which the EU was founded (“union”) is meaningless. So all of Europe recognizes this is a fatal flaw and everyone wants to fix the mistake. Even Germany. But right now, in an effort to patch things together, and with insolvent banks, Germany’s taxpayers are on the hook to pay off the bunds Germany sold (to China?) in order to do a stealth bailout of Deutsche Bank via a Troika bureaucrat rubberstamping remittances from Greece straight back to Germany. The whole former system of economic cooperation has been hijacked by globalization getting ahead of itself. Maybe. And Greece would like to have a normal, functioning and democratic economy. So the whole untouchable question of economic growth stopped in its tracks by massive surpluses everywhere and also by global warming is going to have to be redefined for the entire EU.
Good point, not only is the EU attempting monetary union without fiscal union, they’re attempting societal union without political union. The only one railing about EU mandates over so-called “sovereign” member states is Nigel Farage, if the farmer in Sussex ever realizes that the 80 pages of laws regarding what size cabbage he can legally grow were written by some group he’s never heard of in Brussels…there could be trouble. I know, many of them realize it already…but it’s very slow to coalesce into opposition.
I do think there is panic afoot. The globalists screwed up. (Probably not intentionally, but they just couldn’t control it so that should tell them something, right?) The nationalists are truly offended. So where does everyone go from here. Unless this (global warming and the earth’s carrying capacity) is the biggest con in history, we can all come together over this. To quote the Beatles. The environment. Even China likes to breath oxygen.
I can’t say I think the globalists would think they screwed up, the Global North has always extracted from the Global South by design, perhaps it’s just that the line between the two is advancing northward, now instead of across the Med and the Caribbean it’s turning into smaller and smaller moats around the Anglo-New York axis, the Beltway, Silicon Valley island, a Frankfurt to Helsinki island, the Beijing, Shanghai, Hong Kong/Guangzhou islands. Eventually the 20,000 or so people who were doing well inside Versailles were overwhelmed…but recall that dam didn’t break until the 1% themselves figured out they were getting reamed by the .001%. We’re not quite there yet IMO.
We know these technocrats couldn’t care less about the countries they represent and they certainly care nothing about 99% of the citizens, so why assume they care about the institutions they head? A central bank is very handy for one to take care of themselves and their country club buddies. It’s also a wonderful thing – like being the political leader of a country – for power junkies and meglomaniacs. Given that we are dealing with parasites, why should they care if their actions undermine the ECB, IMF, FED or any nation state? So long as they get money and power out of it then it’s mission accomplished. If the institution falls apart, so what, they just use their 1% connections to move on to a new port of call. And when they all finally fall apart the Idi Amin Villa in Arabia has confirmed their reservation.
Seeing that the EU crowd has had everything their own way since 2008, are what we witnessing now nothing more than a Draghi temper tantrum? If Caligula wants his horse to become a senator no one better dare speak out against it!
@Petey (both comments).
Mm, yes, I think there’s something to this. And Coppola’s piece was really good – I don’t know if in fact that’s what’s going on, but it seems plausible.
Just listened to the new PM’s inaugural address to the Greek Parliament (sworn in today). A couple of takeaways (in translation): “Austerity (Gk. litotita) is not an EU treaty”. And a little later: “Democracy in Europe will not be blackmailed.” The new PM will not stand down.
Other stuff in his address included a reference to his meeting with the Cypriot PM – it looks like the two countries will be coordinating much more closely politically henceforth; in return, the Cyprus issue will probably move to the forefront of discussion (in the UN?). He also announced that the government had a fully-articulated development and growth plan to be revealed in coming weeks. And the tax-evasion/ tax flight issue – here, what’s been lacking has been political will, not technical expertise.
I noted on one or two of the first couple threads Yves has been so good as to open on this topic that it’s hard for outsiders to really appreciate where Greek leftists are coming from. Varoufakis – who is obviously very closely coordinating with the PM – has got his marching orders: don’t stand down. And because he’s who he is – and because he has the support of the PM and Greek people – he won’t.
I couldn’t help but remember an epochal event in Greek history when I saw the title of the previous post -“ECB to Greece: Drop Dead”, which reminded me of 28 October 1940, when the Italian ambassador in Athens ordered the Greek dictator (Metaxas) to stand down to allow Italian forces to occupy Greece. The response was one word: NO.
Oxi Day, celebrated in Greece annually – and leading to the Allies first victory of the war. Ultimately (and fatally) delaying Germany’s push into Russia.
In fact Metaxas said “C’est la guerre”.
“Varoufakis – who is obviously very closely coordinating with the PM – has got his marching orders: don’t stand down. And because he’s who he is – and because he has the support of the PM and Greek people – he won’t.”
I think it’s even more than just marching orders. (As you say, it’s because he’s who he is.)
I’ve been following Yanis for a while now, and I think that, all on his own, he’s perfectly willing to countenance Grexit if saner and more preferable methods are rejected in an insane manner by Germany and its Quislings.
“I couldn’t help but remember an epochal event in Greek history … of 28 October 1940, when the Italian ambassador in Athens ordered the Greek dictator (Metaxas) to stand down to allow Italian forces to occupy Greece. The response was one word: NO.”
I did love the symbolism of Tsiprias’ early visit to the memorial of Greek dead at the hands of the Nazis…
“I — it’s just a little thing with me — have an aversion to bullshit and lying in comments.”
Go wild with the ad hominem, Lambert. Why stop with merely calling me a liar? I’m sure you can up that a few notches. Like I say, I certainly can’t stop you. Have your fun. (And instead of just having your fun, why not just ban a lying liar like me from the site? I don’t comment here or anywhere else in the political/economic blogosphere under other pseudonyms, so a simple “Petey” name/email ban would be effective.)
It is not ad hominem to characterize your behavior in a particular argument. He has demonstrated here and previously how you engage in straw manning and type of argumentation that are not intellectually honest. Calling some a liar is not ad hominem if they are lying; it has a DIRECT bearing on the validity of their argumentation and is SPECIFIC to the matter at hand, which it is relative to your remark today.
Obama has been moving his lips in a progressive streak recently. Of course it is perfectly clear that absolutely nothing he says in that vein has a snowball”s chance in hell of coming to fruition, but it is still a rather curious phenomenon that coincides with the recent backlash against Vichy Democrats washing up the dregs of the previous backlash, Republicans, back up onto the legislative
branchbeach of lucre that we call Congress where they dry like obscene jelly fish until they are again hard enough in inhuman form to crush their constituents into despair with airy sounding names for the deadly bills that do the deeds.
I have assumed Obama’s change of veneer is because he is seeing his presidency come to a close and is concerned to be caught by public perception in the same toxic bubble bath covering putrid water as the one the right wing monster soaks in sans vêtements – quelle horreur – that he has been wooing passionately for the last six years with verve and gusto that tells us he is truly seeing something in his paramour other than reality (though nothing significantly different than what lies in the left wing tub).
But this one about Greece is interesting. He usually doesn’t waste so much breath as to actually make sense when he goes on these propaganda sprees. The only criteria in the past has been that they be exactly 180 degrees from what his actual course is set on. True, they are just words. The Fed will ignore them, the Troika will ignore them, so will Merkel, because there is already a lot of hot air going around these days – globally as a matter of fact – and Obama’s addition to that won’t change much, but if hot air is what Greece wants for agreeing to the punishment of a fellow slave, then hot air is what it will get regardless that it deserves so much and so much better.
I’ve heard that François Hollande (and Spain?) are going to Ukraine and then on to Russia for some thing that also sounds TGTBT and oh so rational; avoiding war. More hot air or has something finally gone “pop” in the dream world of these folksy folks?
” Obama has been moving his lips in a progressive streak recently. ”
As have some Republicans. Peas in a pod , really. It’s all theater and floating soundbites to refine for 2016. Any legislation that passes will contain progressive crumbs , if that.
I think a Republican Congress will find they can get plenty done with this President. I heard Jack Lew discussing the new budget with the Senate Finance Committee today and the word that came to mind was “malleable”.
A couple corrections/additions:
I just listened again to excerpts from the new PM’s address (not to the full Parliament, but to his Parliamentary Group). Actually, he said: “Austerity is not a founding treaty of the EU”.
Also listened to excerpts from the Varoufakis-Schauble press conference. In the part on tax evasion – financial corruption, Varoufakis actually brought up the Siemens scandal by name (biggest financial bribery scandal in recent Greek history), and wasn’t willing to let it go. Schauble hemmed and hawed, eventually quoting Goethe, having in the meantime offered 500 German IRS agents to help the Greek IRS stamp out tax evasion. Varoufakis countered by noting that much of this involves cross-border transactions, and basically said “Open your bank records to our auditors” – not referring to Germany specifically, but to the entire Eurozone. “We need your help.” Varoufakis also mentioned the third party in Greece by name and characterized it for what it is, which caused almost-visible discomfort in the overcrowded room.
Siemens is code for a whole raft of German corruption scandals in Greece, not just from the recent past, but underway now by means of Troika. This message is not lost on the German Federation of Industry, a constitutional partner in German government policy. ie Troika propagandises about cleaning up our act, while hiding & ennabling yours. Exposure and prosecutions of these scandals is a number one order of business on SYRIZA’s slate, along with a thorough audit of the debt. Scheuble understands this.
More tellingly as a powerful reach-out to German public opinion, Varoufakis warned of the political consequences of poverty and despair, evoking Versailles and nazism. Of course this was couched in reference to Greece, where the third party in parliament is Golden Dawn, with 8% of the vote. [In fact, a boxed-in non-threat].
I remind everyone here that it is clear now that even opposition voters in Greece want this – a new arrangement – to work.
“Readers of the European press don’t buy this reading. It is also inconsistent with the Financial Times’ leak prior ot the ECB announcement, which has ECB staffers saying that Draghi was just about as unhappy with Greece as the Germans.”
Sure. But it’s plausible that Draghi is playing a more complicated game here than a simple surface reading would have it. In fact, if the Krugman/Coppola theory is true, it would necessitate those staffer statements.
“Plus this is a complete misreading of what the ECB’s announcement was about … This was NOT a threat v. Greek banks, except by accident…”
Sure. My only reason in highlighting that particular tweet was to provide some indirect backup in my ongoing disagreement with you on whether or not Varoufakis is willing to countenance a Grexit if his brinksmanship is met by insane and unreasonable reactions.
“And even though we mention Obama’s verbal support of Greece in our next post, we’d also said in comments yesterday that that was an empty gesture. But it still serves as a good excuse for calling out the Fed’s role.”
No doubt. No disagreement there. My only disagreements with you here are in your update, regarding both Varoufakis’ ultimate position on Grexit, and your rationale for Krugman’s rough theory on Draghi’s position.
“He has demonstrated here and previously how you engage in straw manning and type of argumentation that are not intellectually honest. Calling some a liar is not ad hominem if they are lying”
I emphatically plead innocent to the charges. And I rest my case based on the fact that the prosecution has demonstrated no such thing.
Additionally, I believe the prosecutor is personally biased against me. I’ve long since ceased engaging with Lambert on matters of substance, because they never seemed to go anywhere productive, regardless of topic or type of argumentation.
I take pride in my intellectual honesty. I’ve been commenting on lefty political/economic blogs for a decade, and while I’ve been banned from a couple for ideological reasons, I’ve never had my intellectual honesty seriously questioned.
If you genuinely believe the charges, then you really should ban me. I love your site, and find your work to be very valuable, even when I disagree with you on some matter. But I wouldn’t want someone I thought to be a serially intellectually dishonest commenter on my blog.
I take pride in my intellectual honesty. I’ve been commenting on lefty political/economic blogs for a decade, and while I’ve been nixed from a couple for ideological reasons, I’ve never had my intellectual honesty seriously questioned.
If you genuinely believe the charges, then you really should nix me. I love your site, and find your work to be very valuable, even when I disagree with you on some matter. But I wouldn’t want someone I thought to be a serially intellectually dishonest commenter on my blog.
Why is Yellen supporting the ECB? Because she’s a neoliberal central banker who’s more devoted to her ideology than her country? If this was the only move she made that hurts America, I would share your puzzlement, but what part of her tenure so far makes you think she cares about American jobs? Why would she stop now?
As for Obama, it’s easy. He can finally go back to being a campaigner. Now firmly ensconced as a lame duck president with (at last!) a fully Republican Congress, he can shed the responsibilities of governing, and go back to his true love: oration. Does anyone in Washington with real power actually care what Obama says? Even the most imperiled freshman Representative has a better chance of being in Washington after 2016, after all.