Tag Archives: eurozone

Good ways to ensure Brexit

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Pardon the Tory-friendly sourcing, but I stumbled across this news and was startled enough to remark upon it.

The Telegraph: “EU demands Britain joins Greek rescue fund”

Jean-Claude Juncker, European Commission president, discards David Cameron’s deal that spares Britain from Eurozone bailouts

 
Is the European Commission entirely filled with fools? The Conservatives in Britain just got re-elected on a platform bragging about how they had legally firewalled UK from liability for eurozone bailouts (which makes sense since the UK isn’t part of the eurozone and doesn’t have any major connection to crises there), and they’ve got a difficult referendum coming up on whether or not to leave altogether.

EU Commission President Jean-Claude Juncker screwing over Prime Minister Cameron and using UK funds for bailouts (against the written agreement) is an excellent way to ensure the Conservative Party’s voting base goes very hard against continued EU membership, whether or not Cameron tries to campaign in favor of remaining inside the EU.

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Time for a “Two-Speed Europe” after all?

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This is a pretty good article on the future of the European Union and the eurozone after the Greek Crisis subsides (probably after Greece’s departure from the eurozone). A “Two-Speed Europe” — once a widely feared and derided proposal — is suddenly looking much more attractive on its merits after the events of the past several months, from Greece (Grexit) to Britain (Brexit) to Hungary (Orbanism) and other severe challenges (refugees).

Political union is necessary for the economic integration to move forward, but it is currently out of reach and probably ill-advised for the full 28 members as a complete set. A political union of only core countries (the eurozone) could be made significantly more democratic than the current structure, while still offering relatively close alignment by much of the rest of Europe, as well as stepping stones up the economic and political development ladder for countries that are not yet prepared to be fully deep-integrated.

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Lenderocracy

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The Greek crisis matters for us in the United States too, not just Europeans.

For all the high-minded rhetoric of the European integration project as an effort to bridge together the peoples of Europe in liberal democratic union, the events of the past week have conclusively ripped off the mask and revealed the underlying reality that it has been little more than a neoliberal economic project the whole time. And a poorly designed one at that. But we now can all see that the preservation of investment banking interests will be placed above all other values and principles whenever they come into conflict. This isn’t just rule by corporations — it’s rule by lenders.

The Greek “crisis” — manufactured by the European Central Bank, the IMF, and the German government — is a financial public execution of an entire developed country to make an example of them for all others.

In my more than 30 years writing about politics and economics, I have never before witnessed such an episode of sustained, self-righteous, ruinous and dissembling incompetence — and I’m not talking about Alexis Tsipras and Syriza. As the damage mounts, the effort to rewrite the history of the European Union’s abject failure over Greece is already underway. Pending a fuller postmortem, a little clarity on the immediate issues is in order.
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There’s no reason, in law or logic, why a Greek default necessitates an exit from the euro. The European Central Bank pulls this trigger by choosing — choosing, please note — to withhold its services as lender of last resort to the Greek banking system. That is what it did this week. That is what shut the banks and, in short order, will force the Greek authorities to start issuing a parallel currency in the form of IOUs.

 
If investors made stupid loans to Greece, these lenders – not the Greek people – should suffer for it. A startling lack of due diligence strikes again.

And just as with the subprime mortgage crisis, the lenders are considered “too big to fail” (but not too big to regulate before the bubble bursts). Instead of bailing out the ordinary people who truly got screwed over by the irresponsible lending and the ensuing crash, the banks are the ones who get bailed out. In this case, Greece keeps receiving “bailouts” that are actually earmarked exclusively for repaying debt obligations to lenders (some of which are by now merely the quasi-governmental institutions holding debt they purchased from irresponsible banks in earlier bank bailout rounds).

We’ve seen this kind of thing happen countless times throughout world history. Lenders pretend to assume risk and then wield tremendous political influence to ensure that they never actually face serious consequences when that risk blows up in their faces. That way, investment recipients (including citizens) always lose, while the investor class is guaranteed a payday, before anyone else finds relief.

Greece’s default, day one

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National democracy at its Athenian birthplace crashes head-long into the distant technocracy of the wider European project.

On Tuesday night, Greece became the first developed economy to default on an IMF loan (though not its other obligations). The IMF loan was itself a bailout to repay other loans, including those the EU failed to stop years ago:

In a sense, like so many American homeowners before the end of 2007, Greece was given subprime loans it couldn’t possibly repay. Regulators and monetary authorities failed to perform due diligence ahead of the accession of Greece to the eurozone and then ignored the escalating danger as long as the rest of the global and European economy was doing fine. They only stepped in after the house of cards collapsed and then demanded round after round of budget cuts and other measures that hurt average Greeks who had nothing to do with the bad debt decisions that the rest of the Eurozone should have stepped in to prevent years earlier.

 
Greece now heads into a referendum (full story➚) on the bailout conditions offered by European leaders.

Here are a couple reactions since the referendum was announced and default became very likely.

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“Joseph Stiglitz: how I would vote in the Greek referendum”:

I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5% of GDP by 2018.
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In January, Greece’s citizens voted for a government committed to ending austerity. If the government were simply fulfilling its campaign promises, it would already have rejected the proposal. But it wanted to give Greeks a chance to weigh in on this issue, so critical for their country’s future wellbeing.

That concern for popular legitimacy is incompatible with the politics of the eurozone, which was never a very democratic project. Most of its members’ governments did not seek their people’s approval to turn over their monetary sovereignty to the ECB.

 
Paul Krugman, arguing no to additional austerity; no to the euro:

First, we now know that ever-harsher austerity is a dead end: after five years Greece is in worse shape than ever. Second, much and perhaps most of the feared chaos from Grexit has already happened. With banks closed and capital controls imposed, there’s not that much more damage to be done.

Finally, acceding to the troika’s ultimatum would represent the final abandonment of any pretense of Greek independence. Don’t be taken in by claims that troika officials are just technocrats explaining to the ignorant Greeks what must be done. These supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way. This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.

So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.

 
On the other side of the debate there has been some sighs of exasperation, tongue-clucking, and then particularly disturbing responses that are clearly the wrong takeaway from the situation… Read more

Greece heads back to the polls on a big question

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In less than one week, the people of Greece are scheduled to vote on a referendum on whether or not to accept the terms from the European Central Bank and European Commission leaders and the IMF to receive more help on meeting its debt obligations.

The terms are not particularly favorable (read: pretty terrible), and the government of Greece is urging a no vote. But Greece is also about to run out of money and go into default and probably be forced out of the eurozone, because the European leaders and IMF aren’t planning to change the terms or provide emergency funds even with a no vote.

So, there are likely to be brutal consequences coming either way the referendum goes. The average people in Greece will continue to suffer the most.

They were the victims of a lot of really irresponsible people — creditors and European leaders as well as Greece’s own past leaders — putting abstract finance and personal enrichment over human lives.

But within all the blame going around, I still remain most frustrated by the present-day handling of the situation from the European Union leaders. The lines below captured a lot of my feelings.

“The moral crusade against Greece must be opposed” by Zoe Williams for The Guardian:

The vision that Syriza swept to power on was that if you spoke truth to the troika plainly and in broad daylight, they would have to acknowledge that austerity was suffocating Greece. They have acknowledged no such thing. Whatever else one could say about the handling of the crisis, and whatever becomes of the euro, Sunday will be the moment that unstoppable democracy meets immovable supra-democracy. The Eurogroup has already won: the Greek people can vote any way they like – but what they want, they cannot have.
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The euro was founded on the idea that the control of currency was apolitical. It has destroyed that myth, and taken democracy down with it.

These talks did not fail by accident. The Greeks have to be humiliated, because the alternative – of treating them as equal parties or “adults”, as Lagarde wished them to be – would lead to a debate about the Eurogroup: what its foundations are, what accountability would look like, and what its democratic levers are – if indeed it has any. Solidarity with Greece means everyone, in and outside the single currency, forcing this conversation: the country is being sacrificed to maintain a set of delusions that enfeebles us all.

 

Is EU member democracy compatible with fiscal union?

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After four months of mounting tension between pro-austerity European Union officials and Greece’s anti-austerity Prime Minister Alexis Tsipras, a breaking point appears to have arrived. The Prime Minister published an op-ed (see below) questioning whether the increasingly centralized fiscal / currency decision-making authority in the Union is compatible with continued democratic self-determination by each member country’s populations.

Asking that question so publicly (and in a hostile tone) is likely to solidify his growing pariah status within the European Union, but it is not altogether unreasonable. In fact, more than a few political theorists and economists have been raising the point since the start of the currency crisis in 2010. Maybe it’s simply not possible to have a strong monetary / fiscal / currency union without an equally strong political union. Such an arrangement either allows individual member countries’ voters and legislators to veto necessary standardization of union-wide policies, or it forces member countries to accept rules and decisions set by unelected and unrepresentative officials without popular consent.

In Greece’s case, the voters plainly rejected the policies that the Union and the IMF demanded the government deliver. Whether or not the policies are merited, if the people exercise their sovereign self-determination to reject the policies, the ostensibly pro-democracy European Union either needs to rethink its demands or rethink its overall sustainability as an economic union without political unity.

Here are excerpts from the Tsipras op-ed, as reported by the UK’s Express newspaper:

He envisioned a future where a “super” finance minister of the eurozone wielded unlimited power and the ability to reject budgets of sovereign states that are not aligned with its “extreme” ideals.
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Writing in an article for a French newspaper this weekend, Mr Tsipras blasted creditors.

He said: “The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance.

“It is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people.”

He added: “An initial thought would be that this insistence is due to the desire of some to not admit their mistakes and instead, to reaffirm their choices by ignoring their failures.

“I simply cannot believe that the future of Europe depends on the stubbornness or the insistence of some individuals.

“My conclusion, therefore, is that the issue of Greece does not only concern Greece; rather, it is the very epicentre of conflict between two diametrically opposing strategies concerning the future of European unification.”

Mr Tsipras said that the strategy of EU creditors who insist on austerity means “the complete abolition of democracy in Europe, the end of every pretext of democracy, and the beginning of disintegration and of an unacceptable division of United Europe.”

He added: “This means the beginning of the creation of a technocratic monstrosity that will lead to a Europe entirely alien to its founding principles.

“It appears that this new European power is being constructed, with Greece being the first victim. To some, this represents a golden opportunity to make an example out of Greece for other countries that might be thinking of not following this new line of discipline.”

He finished the article by adding: “If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake.”

 
For more analysis on this tension between the European Union’s supranational democratic deficit and member-national self-determination see my March 2015 essay, “Drawbacks of Technocracy, Part 1: Europe’s Political Crisis”.

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The language of austerity

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What happens to the politics of word choice when two dozen languages are spoken in a union?

Below are excerpts from “How do you say ‘austerity’ in German? You don’t” in France24:

In Germany, the crisis rocking the country’s EU partners has produced the ugly term “austerität”, but few use it, least of all Chancellor Angela Merkel. She has made no secret of her distaste for the word, prefering to speak of “sparpolitik” – which translates as “the politics of saving money”, or of spending it “sparingly” – and “sparsamkeit” (frugality). Both terms have positive meanings and refer to very reasonable policies. Conversely, anyone opposing “sparpolitik”, like Greece’s government, is necessarily unreasonable.
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“Schuld”, the German word for debt, also means “guilt”. It has a moral quality that doesn’t translate into other European languages. For Keynesian economists, spending one’s way out of crisis, at the risk of temporarily increasing the debt load, is eminently sensible – particularly at a time of low interest rates, as is presently the case in Europe. But to many Germans it is sinful.