Crossposted from The Stars Hollow Gazette
As Greece stares into the abyss, Europe must choose
Maria Margaronis, The Guardian
Sunday 12 February 2012 14.10 EST
When you ask people on the street if they would rather Greece went bankrupt than submit to further measures, many now point out that it is already bankrupt, that public sector workers have gone unpaid for months, that hospitals have no supplies, that the poor are being wrung dry in order to pay the banks. “Let’s get it over with,” a woman who works for the education ministry said to me. “Then we’d know we only had €250 a month and we could start again. This is not the people’s Europe we dreamed of.” The fact that Poul Thomsen of the IMF, the eurozone’s poster boy Mario Monti, the markets and countless economists agree that more austerity will deepen Greece’s depression without making the debt sustainable adds weight to her argument. The icy reception given last week to the Greek delegation in Brussels confirms the sense that its lenders are ready to end the relationship.
Why, then, have large sections of the Greek elite clung so hard to the fantasy that a new loan deal can “save” the country? The obvious answer is that default is a black hole and an enormous risk. No one can predict what suffering a default might bring. Another is that the current crop of politicians built their careers in the system that is now unravelling, based on oligarchies, clientelism and corruption; they’ve proved unwilling to make the reforms that might, in a different global climate, have revived both Greece’s economy and its democracy.
The deeper reasons, though, may be cultural and political. The crisis has intensified old splits in Greek society. You can see it in the polls, which show support ebbing from the centre to the edges of the political spectrum, and especially to the fragmented left. You can see it, too, in the historical parallels people reach for in a vain attempt to name this unprecedented nightmare. Protesters chant slogans from the dictatorship of 1967 to 1974, comparing the deal’s Greek enforcers with the CIA-backed junta. Both left and right talk about a new German occupation – an understandable reference given that Germany is calling the shots and that Greeks last queued at soup kitchens in the 1940s, but one that can edge into racism or crude exaggeration, as in a recent headline that read simply “Dachau”. Both those tropes call up the silent ghosts of the Greek civil war, which launched the cold war in Europe and outlawed the Greek left for the next 30 years. In this story, the west plays the part of the repressive imperial interloper.
For the liberal centre, this is populist anathema. To them Europe is still Greece’s heartland and its hope, the only guarantor of liberal capitalism, human rights and democracy. A few weeks ago a distinguished law professor compared the prospect of default to the Asia Minor disaster of 1922, which brought a million-and-a-half refugees into Greece and convulsed the state, and went so far as to suggest that leaving the eurozone would end the 200-year cycle of the Greek Enlightenment.
Next Steps for Greeks after the Austerity Bill (AKA: Hope for Greece, at last)
by Ian Welsh
2012 February 12
Ok, another austerity package just passed. That’s the bad news, but amidst the bad news there is some good news. More than 40 MPs were expelled from the PASOK and ND parties, two from LAOS-those MPs need to form a new, explicitly anti-austerity, pro-default government. Odds are good they will win the next election, and can form the new government.
No deals made by a sovereign are unrevocable. Whatever this government is doing, has done and will do, can be undone by a new government.
Greece can be fixed, if the Greeks are willing to do what it takes, both in terms of electing a new government and that government doing the right things. Those things will be unorthodox and painful, but no more painful than austerity, and unlike austerity, they will lead to a better economy, and based on experience elsewhere, probably within two or three years of doing the right thing, with some relief being felt within 6 months.
What passes for smart on the Greek Debt Crisis
by Ian Welsh
2011 November 4
It didn’t take years for Argentina when they defaulted. When Iceland told Europeans to go take a long flying leap of a short pier, it didn’t take them years. In fact, my best guess is it would take a year, maybe less. There is too much money chasing far too few returns. Contrary to the idea that there isn’t enough money in the world, the problem is that there is too much, and it is chasing diminishing returns.
No, no they don’t have to bail out the banks. Not for the full value of the default (if Greece just said “we won’t pay”, as opposed to “we’ll pay at some point”.) The banks have shareholders and bondholders. Those institutions and people take the losses. Some of them are public (pension funds, etc…) but many of them aren’t. Let them eat their losses. The banks go under, you refloat them, but the cost of doing so is far less than paying off all the bad loans, because the private actors have taken their losses and any excess losses, well, they’re just written off. Same as when you realize cousin Fred ain’t ever paying you back than $100. It’s gone. Done. Over with.
The only reason “all the debts” must be paid off is because the rich demand it. They don’t want to take their losses. This is what should have been done in the US. It is what should be done in Europe. It is what our lords and masters refuse to do at all costs, because the people who own them, or they themselves, or their friends, or their lovers, are the ones who will take the bath.
According to the IMF, hardly an organization that wants countries to default, the effect on the economy of defaulting is one year of sharp pain, followed (perhaps) by a few years of lesser growth than otherwise. In other words, not that bad, and no worse than Greece has already suffered.
(C)ountries could simply slap on currency controls, which experience shows (most recently and clearly in the Asian currency crisis of the 90s), works. And permanent austerity, which is what France and Germany want to impose on Italy, Greece and Spain (with the apparent cooperation of their political classes, I might add) will erode the value of the bank holdings in time anyway.
There are economic tools for dealing with these issues. Capital and currency controls are one of them, the distinction between default (we’ll pay you eventually, as opposed to we’ll never pay you) is another. The question of who is being bailed out (private investors, in large part) is another. And bailing out those investors is a political act, their money is their political power. The current political class, who is complicit with the current monied class, of course wants to bail them out.
All of this is before we even get to the horribly anti-democratic nature of all of this: the repeated refusal of the political class to allow referendums, the complicity of all major political parties in the process (notice there is no party to vote for if you want to default), and so on.
There is no actual democracy in any part of the world which is attached to the Wall Street centered financial system. Calls can run up to 1000:1 against TARP and it will pass. Strong majorities can be for or against particular policies and if the elite disagrees, that’s all that matters. There are no parties to vote for if you are against the current system.
Politicians compete for the money and favors of the rich, and what they sell is the ability to wrangle you: to pass the austerity bills, to cut the benefits, to privatize the jewels of the public system, to force through the multi-trillion dollar bailouts. They control government for the benefit of the rich.
And the rich pay all the way down the line. They control the media, right down to the bottom, to make sure that what is discussed is what they want discussed, in the terms they want it discussed. That default isn’t that bad: forbidden. That currency controls mitigate damage in these circumstances: forbidden. That lenders will lend to defaulting countries almost immediately: forbidden.