Yves here. As this article describes, the cheerleaders over the Greek referendum last weekend has badly misread the game in play. Tsipras is now working on a coalition basis with all parties save Golden Dawn, which means firmly pro-Eurozone parties such as To Potami and New Democracy. And as he and other party leaders promised in the runup to the election that with a voter mandate, they’d be able to get a better deal from the creditors.
Einstein defined insanity as, “Doing the same thing over and over again and expecting different results.” And Syriza never thought it lacked a mandate until Tsipras needed to distract attention from the pending IMF default and shore up his slipping support. For instance:
Varoufakis at Brookings Institute, April 17 2015.
– There is speculation that there might be a referendum for the euro or snap elections. Is this an option?
Varoufakis: This is an easy question: Absolutely not!
Varoufakis again at Brookings, 16 April 2015:
“It would be a foolishness to go to referendum, from the moment that we have a fresh mandate and huge popular acceptance”.
On Monday, Tsipras formed a new coalition that included the firmly pro-Eurozone parties of To Potami and New Democracy. When we suggested a couple of months ago that Tsipras would do that in order to cut a deal with the creditors, readers rejected it out of hand. That does not mean Tsipras will succeed; the mood in Berlin and other hardline countries is set on regime change, and the Eurozone rules mean all it takes is one holdout to scupper a deal.
As readers will recognize, we don’t agree with the recommendation of a Grexit. It will produce far more devastation than its proponents imagine. But since the government chose to go with a hardball negotiating strategy, it was reckless and irresponsible not to have examined that option and made what preparations it could. If the ECB continues strangling the banks, Greece will soon be faced with a depositor bail-in, which will result in a wipe-out of a substantial portion of funds still stranded in now-closed banks, or having to start a totally unplanned Grexit, which will be even worse than if they had done the war-level planning necessary to minimize the considerable damage that will result.
The Greek voters, contrary to what Syriza fans have claimed, did not engage in a brave act of democracy. Syriza abjectly misrepresented the alternatives that voters face, and most important, the costs and risks of doubling down on a failed strategy. Syriza failed to acknowledge that the lenders could make it well nigh impossible for them not to start using a domestic currency, which puts them on a slippery slope to a Grexit. As money and currency expert Warren Mosler pointed out:
And so now while Greece isn’t being formally ousted, it will see its economy continue to deteriorate if it doesn’t agree to troika terms and return to ‘normal funding’ via securities sales at low rates under the ECB’s ‘do what it takes’ umbrella, and rejoin the rest of the members.
If the govt starts paying in IOU’s payments get made for a while, however they will be discounted ever more heavily with time, raising the cost of re entry to ‘normal’ funding, and the EU counts those as additions to deficit spending which could cause the terms of re entry to be that much steeper.
And any movement by Greece to use alternative funding will be taken as reason not to return Greece to ‘normal’ funding under the ECB umbrella.
In other words, it becomes difficult to get Greece back into the fold if Greece starts issuing meaningful amounts of IOUs, even if they are intended only for internal use, and even small amounts could be used by the ECB as an excuse to continue the economic quarantine of Greece.
Greece faces multiple impediments. The biggest is that financial time moves faster than political time. Greece needed a deal by June 30. Going past that event horizon, as events are going to prove out, tipped the scales decisively against Greece by given the creditors cover to give their real enforcer, the ECB, free rein. Changing values and ideology are decades-long projects, so moral appeals might make for nice op-eds but will not change the power dynamics in time to have any impact. Look at how long it took for women’s rights and civil rights to become accepted in the US, or even with extremely deep pockets and the most sophisticated messaging money can buy, how long it took corporate interests to move values in the US decisively to the right. Greece was far too small and economically weakened to confront the creditors and have any hope of succeeding unless it got support. Its only conceivable allies are nowhere to be found. The Obama Administration has gone all in with the Eurocrats and the European left has been missing in action.
As we’ve said from early on, many commentators on Greece have wanted to make Syriza into something other than what it is. Despite the bold talk and some Marxist trappings, the core of the party leadership is moderates and its base consists heavily of disaffected Pasok voters, not hard core leftists. And this sadly, is the flaw of the stirring call to action in this post. Even after its incredible suffering, Greece is not as radicalized as those outside Greece would like to believe. The high percentage of Greeks saying, even on the eve of the referendum, that they still wanted to remain in the Eurozone, shows that Greek society is not willing to make a break even from its punitive overlords Syriza’s new coalition with centrist, pro-business parties should dispel any doubt as to what Syriza really stands for, as opposed to what Tsipras would like you and Greek voters to believe.
We Greeks have voted ‘No’ to slavery – but ‘Yes’ to our chains.
Not surprisingly, by nearly two-to-one, Greeks have overwhelmingly rejected the cruel, economically bonkers “austerity” program required by the European Central Bank in return for an ECB loan to pay Greece’s creditors. In doing so, the Greek people overcame an unprecedented campaign of fear from the Greek and international media, the European Union (EU), and most of our political parties.
What’s simply whack-o is that, while voting “No” to austerity, many Greeks wish to remain shackled to the euro, the very cause of our miseries.
Resistance, not Crisis
Before we explain how the euro is the cause of this horror show, let’s clear up one thing right away. All week, worldwide media was filled with news of the Greek “crisis.” Yes, the economy stinks, with one in four Greeks unemployed. But two other euro nations, Spain and Cyprus, also are suffering this depression level of unemployment. Indeed, more than 11% of workers in seven euro nations, including Portugal and Italy, are out of work.
But unlike Greece, these other suffering nations have quietly acquiesced to their “austerity” punishments. Spaniards now accept that they are fated forevermore to be low-paid servants to beer-barfing British tourists. Spanish prime minister Mariano Rajoy, who has enacted a draconian protest ban at home to keep his own suffering masses at bay, has joined in the jackal-pack rejecting anything but the harshest of austerity terms for Greece.
The difference between these quiescent nations and Greece is that the Greeks won’t take it anymore.
What the media call the Greek “crisis” is, in fact, resistance.
Resistance to Nowhere
But it’s a resistance whose leaders are leading them nowhere.
For decades, Greeks have suffered governments that are both corrupt and dishonest.
The election of SYRIZA changed all that: the government is now merely dishonest. Our new SYRIZA Prime Minister, Alexis Tsipras, correctly called the austerity plan “blackmail.” However, before Sunday’s vote, Tsipras told the nation a big fat fib. He said we could vote down the European Bank’s plan but keep the European Bank’s coin, the euro. How? Tsipras won’t say; it’s part of a policy ploy his outgoing finance minister Yanis Varoufakis calls “creative ambiguity.” To translate: Creative ambiguity is Greek for “bullshit.”
Sorry, Alexis, if you want to use the Reich’s coin you have to accept the Reichsdiktat.
Not a Coin, a Virus
Tsipras’ claim that Greece can keep the euro while rejecting austerity is crazy-talk. The fact is that German Chancellor Angela Merkel, the Cruella De Vil of the Eurozone, will ignore the cries of the bleeding Greeks and demand we swallow austerity––or lose the euro.
But, so what if we lose the euro? The best thing that can happen to Greece, and should have happened long, long ago, is that Greece flee the Eurozone.
That’s because it is the euro itself that is the virus responsible for Greece’s economic ills.
Indeed, the sadistic commitment to “austerity” was minted into the coin’s very metal. We’re not guessing. One of us (Palast, an economist by training) has had long talks with the acknowledged “father” of the euro, Professor Robert Mundell. It’s important to mention the other little bastard spawned by the late Prof. Mundell: “supply-side” economics, otherwise known as “Reaganomics,” “Thatcherism” – or, simply “voodoo” economics.
The imposition of the euro had one true goal: To end the European welfare state.
For Mundell and the politicians who seized on his currency concept, the euro itself would be the vector infecting the European body politic with supply-side Reaganomics. Mundell saw a euro’d Europe as free of trade unions and government regulations; a Europe in which the votes of parliaments were meaningless. Each Eurozone nation, unable to control neither the value of its own currency, nor its own budget, nor its own fiscal policy, could only compete for business by slashing regulations and taxes. Mundell said, “[The euro] puts monetary policy out of the reach of politicians… Without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.”
Here’s how it works. To join the Eurozone, nations must agree to keep their deficits to no more than 3% of GDP and total debt to no more than 60% of GDP. In a recession, that’s plain insane. By contrast, President Obama pulled the USA out of recession by increasing deficit spending to a staggering 9.8% of GDP, and he raised the nation’s debt to 101% from a pre-recession 62%. Republicans screamed, but it worked. The US has lower unemployment than any Eurozone nation.
As Obama scolded the European tormentors of Greece: “You cannot keep on squeezing countries that are in the midst of depression.” Cutting spending power only leads to less spending which leads to further cuts in spending power – a death spiral we see today in the Eurozone from Greece to Italy to Spain—but not in Germany.
“Not in Germany.” There’s the rub. Normally, a nation such as Greece can quickly recover from debt-induced recession by devaluing its currency. Greece would become a dirt cheap tourist destination once more and its lower-cost exports would zoom, instantly increasing competitiveness. And that’s what Germany can’t allow. Germany lured other European nations into the euro in order to keep them from undercutting Germany’s prices in export markets.
Restricted by the 3% deficit rule, the only recourse left for Eurozone debtors: pay the piper with “austerity” measures.
Tsipras in Wonderland
So therein lies the lie. Tsipras tells his fellow Greeks that we can live in a Looking Glass world, where we can have our euro and eat it too; that we can stay handcuffed to the euro but run free without austerity.
The nonsense continues: Following the announcement of the official results of the referendum on Sunday night, Tsipras tweeted that the Greek electorate voted for a “Europe of solidarity and democracy,” while the now-resigned finance minister Varoufakis tweeted that “Greece’s place in the Eurozone is non-negotiable,” claiming that he would not allow the “only alternative,” the old drachma trading alongside the euro.
SYRIZA’s euro-fetish was already evident in its pre-referendum proposals to the IMF and European Bank, a 47-page document which included 8 billion euros in new austerity measures plus a new round of sell-offs of state industries, the maintenance of a primary surplus of 1% this year which would increase in the coming years, the increase of the retirement age to 67, and making permanent the previously “temporary” taxes upon an already overtaxed populace. In Tsipras’ own proposal, there was no word of a debt write-down or stoppage of payments, despite the fact that the government’s own Debt Audit Commission announced on June 17 that the bulk of Greece’s debt is illegal, “odious,” and should not be paid.
Instead, Tsipras has come out in support of the IMF’s proposal for a mere 30% “debt haircut” and a 20-year grace period, effectively sweeping the problem under the rug. Greece is currently running a deficit, meaning that in order for the 1% surplus to be achieved, SYRIZA must cut, cut, cut. Exactly as Mundell and the supply-siders intended.
Death by “Reform”
Like Obama, Tsipras knows that cutting pensions, privatizing and closing industries, slashing wages — in other words, “austerity” — or, to use the latest jargon, “reform” — is not just cruel, it’s plain stupid: it can only push a nation in recession into depression.
That’s not just theory. The Troika (the European Central Bank, IMF and European Commission) first imposed their vicious austerity measures on Greece in 2010. Greeks watched their annual salaries plummet to half of a German’s paycheck. Greece’s supposedly generous pensions have been cut eight times during the crisis, while two-thirds of pensioners live below the poverty line. Everything from Greece’s airports to harbors, the national lottery to prime publicly-owned real estatewas sold off, while schools and hospitals were shuttered.
And, for the first time since World War II, widespread starvation had returned. 500,000 children in Greece are said to be malnourished. Students fainting from hunger in frigid schools which cannot afford heating oil is now a common phenomenon.
This cruel “belt tightening,” the Troika promised, would restore Greece’s economy by 2012 (and then 2013, 2014, and 2015). In reality, unemployment went from a terrible 12.5% in 2010 to a horrendous 25.6% today.
Now, the Troika demands more of the same, a continuation of this disastrous policy.
Crashing into Africa?
Meanwhile, following the referendum result which made him a hero, finance minister Varoufakis resigned. Ironically, while Varoufakis rubbed German officials the wrong way with his unorthodox style, he, too, maintained the pro-euro myth. Previous austerity measures continued under his watch. To please the mad austerity masters, he said he would “squeeze blood from a stone” to repay the IMF–which he did in May, when all remaining funds in the Greek Treasury were rounded up by presidential decree to make that month’s IMF loan payment. Varoufakis was so wedded to the euro that he claimed that Greece would be unable to print its old currency, the drachma, because we destroyed our currency printing presses when we joined the euro. In fact, the government’s banknote printing facility in Athens still operates, printing the 10-euro note.
Meanwhile, our future flees. A quarter million university graduates have abandoned our nation. They have no choice: unemployment for those under 25 has hit 48.6%.
I know that many Greeks, Cypriots, Italians and Portuguese all express a visceral fear of leaving the euro. Depending on which polls one chooses to believe, anywhere from a near-majority to an overwhelming majority of Greeks wish to remain in the euro at all costs. From the hysterical statements I heard from some Greeks that, “We cannot leave Europe!”, you’d think that dropping the euro will cause Greece to break off at the Albanian border and crash into Africa.
It would be refreshing to hear political leaders say the honest economic truth: “Workers of Europe unite! You have nothing to lose but the euro–and your chains.”