---------- Forwarded message ----------
From: Mark Weisbrot, CEPR <[email protected]>
Date: Fri, Jul 17, 2015 at 12:43 PM
Subject: European Authorities Refuse to Let Greek Economy Recover, Making
Eventual Grexit More Likely
To: [email protected]
[image: CEPR logo]
<http://org.salsalabs.com/dia/track.jsp?v=2&c=W3UfEP9LU2T7eERMX%2B0nBE7IjaLv1nvt>
European Authorities Refuse to Let Greek Economy Recover, Making Eventual
Grexit More Likely
<http://org.salsalabs.com/dia/track.jsp?v=2&c=RhC11NqBtAGcTn6BHakX607IjaLv1nvt>
By Mark Weisbrot
------------------------------
This article was published by Al Jazeera America
<http://org.salsalabs.com/dia/track.jsp?v=2&c=5yHgR0ChXiD6lvpMHvcMGE7IjaLv1nvt>
on July 17, 2015.
------------------------------
The battle over the future of Europe – currently centered in Greece – is
far from over. But, with the tentative deal that has been struck between
the Syriza government and European authorities, it has certainly entered a
new phase.
Prior to the July 5 referendum, European officials had been carrying out a
strategy of “regime change.”
<http://org.salsalabs.com/dia/track.jsp?v=2&c=5H0JpbuJ9x9Zw7P7MsjRBE7IjaLv1nvt>
Deadlines came and went, and threats of a forced Grexit were mainly bluff,
despite the fact that the most powerful leader of the eurogroup of finance
ministers, Germany’s Wolfgang Schäuble, seemed to favor it. The strategy of
regime change looked relatively easy: the European Central Bank (ECB), by
restricting credit, together with the standoff and rumors of Grexit, had
already pushed the Greek economy back into recession. It seemed only a
matter of time before the economic failure, combined with anti-Syriza media
coverage, would undermine support for the Greek government enough to usher
in a new one.
In his first interview
<http://org.salsalabs.com/dia/track.jsp?v=2&c=0VYWq0PhTxh2fGXwfa3pgU7IjaLv1nvt>
since his July 6 resignation from the post of Greek finance minister, Yanis
Varoufakis describes “The complete lack of any democratic scruples, on
behalf of the supposed defenders of Europe’s democracy,” i.e., his eurozone
negotiating partners. They continuously “delayed and then came up with the
kind of proposal you present to another side when you don’t want an
agreement.”
On June 26, Greek Prime Minister Alexis Tsipras called their bluff by
announcing the referendum, which on July 5 produced a landslide “no” vote
against further austerity and regressive “reforms.” This made regime change
a somewhat more cumbersome strategy: If you are going to get rid of a
government by wrecking the economy, the people have to blame the government
rather than the officials who are wrecking the economy. But the vote showed
that Greeks saw who was responsible for their misery, especially after the
ECB, in an effort to intimidate voters, forced a closure of the banking
system – something it had not done in the past six years of crisis and
depression.
This strengthened the position within the European camp of Schäuble and his
allies who favored an “out now” solution. Tsipras was faced with a choice,
it appears: to accept the European authorities’ terms, or be forced out of
the euro as the ECB continued to destroy the Greek banks and financial
system. It was a hostage situation. He chose to surrender, defending his
decision on the grounds that although the voters had clearly rejected
austerity, they also did not want to leave the euro.
But the current deal, if it holds, almost certainly will not allow for the
Greek economy to recover. The primary budget surplus targets of 2, 3, and
3.5 percent of GDP for the three years of the deal, 2016 through 2018, will
make sure of that, given that the country is running a primary budget
deficit right now. Of course, the government is unlikely to be able to meet
these targets as the economy and therefore government revenues shrink.
The *Financial
Times *estimates
<http://org.salsalabs.com/dia/track.jsp?v=2&c=sU6%2BrPfSGzhjKtH9zyFarU7IjaLv1nvt>
that primary surpluses will contribute just 4.5 billion euros over the
three years. Even if this estimate turns out to be low, this is a small
part of a package currently estimated at 86 billion euros.
The fact that European officials are willing to keep the Greek economy
indefinitely stuck in a depression for such a small fraction of the money
that they are putting up – really pocket change relative to their resources
– should be an eye-opener for anyone who is following the drama. It means
that the European authorities are really not interested in an economic
recovery in Greece in the near future. It also indicates that this fight is
not mostly about the debt itself, but part of a much larger political
struggle
<http://org.salsalabs.com/dia/track.jsp?v=2&c=WYX6eU44agdBjAB2JNMEF07IjaLv1nvt>
over what kind of society Greeks (and tens of millions of other Europeans)
will live in.
The European authorities have now made it clear that – so long as they are
in control of Greece’s economic policy – the country’s depression and mass
unemployment will continue indefinitely.
Even further debt relief, which is not yet part of the deal, will not
improve the situation over the next three years, since it is very unlikely
to reduce interest payments during this period.
So what can be done? In his post-exit interview
<http://org.salsalabs.com/dia/track.jsp?v=2&c=t4fZ6jp1JjCAKCnTsV%2Bgek7IjaLv1nvt>,
Varoufakis describes three steps that he advocated in response to the ECB
forcing the closure of Greek banks:
"We should issue our own IOUs, or even at least announce that we’re going
to issue our own euro-denominated liquidity; we should haircut the Greek
2012 bonds that the ECB held, or announce we were going to do it; and we
should take control of the Bank of Greece [the Greek central bank]."
These were steps in the direction of leaving the euro, but not irreversible
ones. They were moves that would help prepare the government to keep the
economy functioning in the absence of an agreement with the creditors. They
would also show that Greece was not completely at the creditors’ mercy.
But Varoufakis was outvoted, he said. He also noted that although there was
a small team that had worked on the details of an exit from the euro, “To
prepare the country an executive decision had to be taken, and that
decision was never taken.”
Such preparation would now appear to be prudent, since the masks have come
off and the whole world can see how mean and ruthless the current
leadership of the eurozone is willing to be in order to impose their own
brand of economic order on the common currency area. If Greece left the
euro, things would likely get worse before they got better, but the economy
would recover.
As is well known
<http://org.salsalabs.com/dia/track.jsp?v=2&c=rJ%2BjLVytiLMULy3RYRVAME7IjaLv1nvt>,
Argentina suffered a very severe financial crisis after it defaulted on its
debt at the end of 2001 and de-linked its currency from the dollar in
January of 2002. However, the economy was growing three months later, and
went on to grow 63 percent over the ensuing six years – one of the fastest
rates of growth
<http://org.salsalabs.com/dia/track.jsp?v=2&c=Y8%2Fx9Odu89rYVSpupS6x2sigCORUYWYV>
[PDF] in the world during this period. Contrary to popular belief, growth
was not driven
<http://org.salsalabs.com/dia/track.jsp?v=2&c=hr0eyv1rLxTG8LomiDAZTE7IjaLv1nvt>
by a “commodities boom” nor by exports. Although Greece has more exports as
a percent of GDP than Argentina did, and would benefit from a devaluation,
the main boost to recovery – as in Argentina – would come from being able
to escape from the destructive economic policies imposed by foreigners.
(Argentina had just one-third of the troika to deal with – the IMF – but it
was a pretty deadly constraint.)
Some economists have correctly noted that a default and devaluation that
involves creating a new currency presents additional challenges, as
compared with Argentina’s abandoning the peso/dollar peg. But this does not
change the basic story. A developed economy does not transform itself
overnight into a failed state, simply because it exits from a currency
union. We can look at the worst financial crises over the past 25 years,
and none of them resulted
<http://org.salsalabs.com/dia/track.jsp?v=2&c=m3Co%2FchzuWnXMQeLDgCP%2F07IjaLv1nvt>
in the kind of economic damage that Greece has already suffered. It is not
clear why anyone would argue that Greece would be worse off leaving the
euro than it would be three years from now if it were to follow the
economic program that it is currently finalizing with the European
authorities.
Meanwhile, despite the unconditional surrender of the Syriza government and
the parliament’s approval of the hated austerity measures that the European
authorities demanded, the ECB did not increase its Emergency Liquidity
Assistance to Greek banks so that they could open. The banks remain closed
today (Thursday). The ECB appears to be in no hurry to let up on the
accelerated economic damage that it has been deliberately inflicting on the
Greek economy over the past few weeks in order to force this agreement.
Mark Weisbrot
<http://org.salsalabs.com/dia/track.jsp?v=2&c=WIQdCBmfkCNz7GvkJTpVKk7IjaLv1nvt>
is co-director of the Center for Economic and Policy Research, in
Washington, D.C. and president of Just Foreign Policy
<http://org.salsalabs.com/dia/track.jsp?v=2&c=lv%2BIBvue7j6XxoI2fTh4%2Bk7IjaLv1nvt>.
He is also the author of the forthcoming book *Failed: What the "Experts"
Got Wrong About the Global Economy*
<http://org.salsalabs.com/dia/track.jsp?v=2&c=PE907WQDayKotrSoqKo7bk7IjaLv1nvt>
(Oxford University Press, 2015).
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