Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Europe Page 12 of 16

Greece and the Emperor’s New Clothes

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On June 25, 2015

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We are all familiar with the story of the Emperor’s new clothes, yes? The emperor is sold “clothes” which are imaginary, wanders around naked, and everyone pretends he’s clothed until a child points out he’s naked?

Commenter MFI pointed out yesterday that Oliver Blanchard, the chief IMF economist, had made the following assumptions about Greece in July of last year:

1. The Greek economy would grow by three percent both this year and every other year until 2020.
2. Inflation would average between one percent and two percent a year both this year and every other year until 2020.
3. The Greek government would run a primary budget surplus of four percent a year.

As MFI points out, at best, these assumptions are delusional. Greece is in forced austerity; they aren’t going to make these targets.

Edward Harrison has been on the same beat:

…the IMF revised down its estimate for Greece’s 2014 gross domestic product by some 22 percent in the space of 18 months.

And:

Greek GDP forecasts collated by Edward Harrison

Greek GDP forecasts collated by Edward Harrison

As Edward and MFI note, these are damning.

But they are of a piece with estimates of the effects of austerity. Austerity is a reduction in demand. Reduction in demand leads to economic activity being lower than it would be otherwise. Governments who spend less money buy less stuff, this is indisputable. Then, everybody has less money and almost certainly buys less stuff as a result, thus reducing the size of the economy.

Meanwhile, money has been given to rich people and corporations who, mostly, have not spent it and when they have spent it, they’ve spent it on luxury goods.

Austerity cannot help but reduce GDP. This is what it is designed to do.

But it is sold as a way to make economies better. You cannot, as a government or quasi-governmental agency (like a central bank or the IMF), admit that austerity will make the economy worse and many of the people in an economy to which it is applied worse off.

The question, then, is the old one. “Evil, or stupid?” Is Blanchard, for example, such an ideologue that he believes the assumptions which allow him to forecast a better economy under austerity? Are the other economists who have made similar forecasts similarly stupid? I mean, assuming moderate stupidity (normal), they might have believed it in 2008 or even 2010, but we’ve seen the effects of austerity since the financial crisis, and that’s going on seven years.

These people are either very stupid or are doing what they feel they must to keep their jobs and their membership in a very lucrative club. If they were to say, “No, these policies don’t work,” would they keep their jobs?

It’s not that we don’t know austerity doesn’t work, if by “work” you mean “improve the economy more than not being in austerity would,” we do. It’s only ever worked in theory by making very dubious assumptions, and it has never worked in practice.

So, at this point, if you believe austerity works, you’re either an extraordinarily blind ideologue, or you’re crooked, on the payroll, and know what you’re doing.

Austerity is the policy that the IMF, most central authorities, and all neo-liberal parties (which means almost all parties in power in the EU) believe in. It is a policy which works: It puts public assets up for sale which would not be otherwise, so that rich, private investors can buy them up. Combined with “unconventional monetary policy” (the two are Siamese twins), it makes sure that the rich get richer, corporations are flush with cash they do not use to hire workers, and that everyone who isn’t rich, or part of the close retainer class, loses.

You really, really don’t want to fall out of that close retainer class. They are paid very well (Lagarde receives a six hundred thousand per annum salary, entirely tax free), they are treated well, and their future job prospects are secure, as are those of their families.

The Emperor, in other words, is bloody well wearing clothes. If you want to remain the chief economist of the IMF, you had best remember that.

Austerity does what it was meant to do. I predicted its course in 2009, as did many others, and it has performed exactly as expected.

It is working: Its advocates are its beneficiaries. The people who enforce it are benefiting as well and there is a sufficient constituency, both at the elite level and the common level, to keep it going (remember, Cameron was re-elected in the UK, and Labour got many votes when its essential promise was “slightly kinder austerity”). A few countries (Germany, for example) are winning under this policy regime.

So austerity will continue. It is a successful policy which does what it is supposed to do and which has a constituency sufficient for its continuation. It must be sold by lies, to be sure, and many of those who sell those lies probably believe them, because they personally benefit from pushing austerity and people prefer to believe that they are honest and working for good.

Others, I am certain, know it is being sold with lies. Who falls into which camp? Who knows? The end affect is the same.

The Emperor has no clothes and beatings will continue until morale improves.

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The Lesson of Greece Is that Europe Is Run by Functional Sociopaths or Psychopaths

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On June 24, 2015

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Syriza has made an offer which includes pension cuts and VAT tax increases, and “institutions” have refused to accept it, saying that (among other things) parametric measures aren’t acceptable (though they accepted them from Spain and Ireland). They will now counter-offer.

By “among other things” they mean:

Labour laws, collective bargaining, pension reform, public sector wages, opening up closed professions, investment as well as value-added tax and corporation tax.

You do not believe, in any case, that any of these things will be good for ordinary Greeks, do you?

Total Greek Debt is about 330 billion Euros. 246 billion of that is “bailout funds,” of which over 90 percent went to private banks. As I (and many others) noted back in 2010, Greece should have defaulted then. This “problem,” such as it is, is now almost entirely the creation of attempts to bail out private lenders who should have done their due diligence, and who deserved to lose their money.

I note that the ECB is doing 1.1 trillion of “unconventional monetary policy,” about a third of which is Greek debt–mostly debt they piled up after 2010. A hundred billion of that, piled into 100 year bonds at 1 percent interest would about deal with the problem; Greece could handle the remaining debt.

A hundred billion, in today’s world, is really not that much money.

But the issue has never been Greek debt, per se, the issue has always been making it clear that no one can default and get away with it, let alone leave the Euro. Greece has been used to make an example, and when they elected a government with a mandate to negotiate an end to austerity they had to be taught an extra lesson for thinking that democracy trumped the right of debtors to run the government of those who owe them money and can’t pay it back.

(This is not remotely an exaggeration, as the terms of the deals made include the Government having to run new policies past “institutions”).

Greeks do not want to leave the Euro. They cannot devalue their currency, which is what they need to do, without leaving the Euro. They do not, apparently, even want to default and stay in the Euro.

In other words, Syriza has no bargaining position based on a popular mandate. Its mandate was “end austerity, but do it without being able to make any credible threats.”

Based on its public mandate, Syriza has no BATNA–Best Alternative to a Negotiated Agreement. In essence, they must take anything that Europe offers.

Or Syriza can turn to the public and say, “there is no deal to be had.”  But “institutions” never give them the time necessary to, say, run a referendum to get a mandate.

Greeks want to stay in the Euro, as commenter Mandos has often pointed out, because the Greek government is terribly run. They’d like to be run by the German government. The problem is, the Germans aren’t offering the government Germans get, they’re offering austerity run by the Greek government.

If Greeks want a good government, they’re going to have to create it themselves. The first stage requires giving a government a mandate allowing them to do what reason and reality both dictate must be done: seriously threaten to default and/or leave the Euro, and follow through with the threats if a good deal isn’t forthcoming.

Absent this, Syriza’s only choices are to buckle, or to do something for which they don’t have a mandate. Of course, sometimes doing the right thing goes against the wishes of the majority of the population–and these are big steps, so it is hard to blame the Greeks for being squeamish. And in hard electoral terms, if Syriza did the right thing, the economy would need to improve before the next election or they’d be out.

But, also in hard electoral terms, they may as well, because if they don’t, they’re going to lose the next election anyway. The Greeks voted them in to end austerity; they will have failed, and the Greeks will most likely try someone else.

Good luck to Greece, the Greeks, and Syriza. They’re going to need it. But luck tends to come to those who are thinking straight about the reality of their lives, and the Greeks aren’t.

As for the “institutions,” let this be your daily reminder that our leaders are functional sociopaths, at best, but act more like psychopaths. Austerity has meant immense suffering, but it is more important to them to bail out their rich donors and friends and help make them richer and more powerful, than it is to make tens to hundreds of millions of lives (far beyond Greece) less miserable.

Psychopaths.

When you’re trying to predict how European elites will operate, assume that they are sociopaths on a good day, psychopaths on any other day. The pain and suffering of those whom they do not personally know is not real to them, and they do not care how bad life is for anyone who doesn’t make their lives, personally, better.

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Push Is Coming to Shove with Greece

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On June 15, 2015

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Greece is now close to default (and possible Grexit, though it can default without leaving the Euro):

The radical wing of Greece’s Syriza party is to table plans over coming days for an Icelandic-style default and a nationalisation of the Greek banking system, deeming it pointless to continue talks with Europe’s creditor powers.

Syriza sources say measures being drafted include capital controls and the establishment of a sovereign central bank able to stand behind a new financial system. While some form of dual currency might be possible in theory, such a structure would be incompatible with euro membership and would imply a rapid return to the drachma.

The confidential plans were circulating over the weekend and have the backing of 30 MPs from the Aristeri Platforma or ‘Left Platform’, as well as other hard-line groupings in Syriza’s spectrum. It is understood that the nationalist ANEL party in the ruling coalition is also willing to force a rupture with creditors, if need be.

“This goes well beyond the Left Platform. We are talking serious numbers,” said one Syriza MP involved in the draft.

The “creditors” believed and believe “there are no other options” but capitulation:

The creditors argue that ‘Grexit’ would be suicidal for Greece. They have been negotiating on the assumption that Syriza must be bluffing, and will ultimately capitulate. Little thought has gone into possibility that key figures in Athens may be thinking along entirely different lines.

I had been dismayed by Syriza’s apparent unwillingness to consider default and Grexit, while acknowledging that given their election campaign (premised on staying in the Euro) and Greek’s own preference for staying in the Euro, they might well be negotiating deliberately to make the case that Europe will offer an unacceptable deal. And if Europe did offer a good deal, well, excellent!

This is all coming to a head. The demands made by creditors are virtually all punitive, things like reducing pensions and decreasing pharmacy times and wages and so on. Austerity. The vast majority of Greece’s problems, other than its massive debt overhang, are not caused by ordinary citizens, they’re caused by Greece’s rich not paying their share.

But all our lords and masters can conceive of when money must be scrimped his hitting regular people harder, soaking them. They make mention of taxing Greece’s rich and ending corruption there, Syriza agrees, but they are never willing to acknowledge that that an unsustainable debt load is the real problem, let alone get serious about tracking down Greek money which has left the country.

That, of course, is the real problem. There is talk of capital controls, but most of the moveable money and assets left in 2010. It’s all gone. I’d still impose capital controls, but it has the taste of barn door slamming after the horses are gone.

Nonetheless, Greece still has its immovable capital, its land, and its people. While Greeks would have to eat quite a bit less meat and non-seasonal vegetables, if they’re willing to do that, they can certainly feed themselves. Deals can be made with Russia (whom Syriza is on good terms with) and, if necessary, Iran and Venezuela to get the oil they need.

Greece has options. They don’t need to be in the Euro for prosperity, in fact they need to be out of the Euro for it; and they definitely need to default. Now that the “institutions” have made the case for Syriza that no compromise, no deal, is possible, I hope they will do so now, then prosper (though it will take a few years.)

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Fourteen Points on the World Economy as the US GDP Drops .7 Percent

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On May 29, 2015

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So, while it generally takes two quarters for a recession to be so-called, it may be that the recession is here.

Let us recap the non-recessionary period:

  • The percentage of people employed in the US never recovered;
  • More than the total amount of growth went to the top four percent or so, with most of that going to the top one percent and most of that going to the top .1 percent;
  • The stock market had a huge bull market, even though the economy wasn’t working for anyone but the top few;
  • Outside America, the “south” of Europe never recovered in any meaningful way, and most European nations generally did badly for most of their citizens;
  • Various resource nations did well for a time, but their success was based on demand from developed nations or, more commonly, from China;
  • Chinese demand collapsed some time ago;
  • China has been printing more money than either Japan or the US; much more;
  • Japan’s “unconventional monetary policy” has been a roaring failure–if its intention was to get the Japanese economy going again;
  • The collapse in oil prices last year helped the US briefly, but because the rest of the world has rolled off a cliff and because those gains couldn’t go widespread, it was only briefly (this is as I predicted at the time);
  • Canada’s economy was hurt badly by the oil price crash, and because the mixed economy has been critically injured, there is very little else to hold up the economy;
  • Both Britain (or London…almost the same thing) and Canada have huge housing bubbles, and those bubbles, with the addition of financial games, are all that holds those economies together at this point;
  • Britain never actually recovered either, for the majority of its citizens–just a large enough minority to elect Cameron;
  • Australia has tied itself massively to resource extraction on the back of Chinese demand. There is no meaningful Australian economy whose fate is not tied to China.
  • India’s development is hollow neo-liberalism, and has seen an actual decrease in per capita calories. It is consumptive and limited to a few key areas.

Let me put this another way: The developed world is in depression. It has been in depression since 2007. It never left depression. Within that depression, there is still a business cycle: There are expansions, and recessions, and so on. Better times and worse times.

While cheap solar is a big deal, it is not yet deployed sufficiently to break the “widespread demand will crash the economy through oil price increases” problem, and this is exacerbated the by the deadlock rich elites have on most of the world’s politics and economic policies, since it is not in their interest to solve problems, but only to become more rich.  Not that solving problems is something they mind, if it makes them richer and keeps everyone else poor.

The world still has very few problems we couldn’t solve if we acted on them in a productive way (though some, like climate change and the great die-off, are beyond the point of no return for catastrophic damage), but that’s largely irrelevant while public policy remains in the hands of oligarchs. There is some reason for hope, as left-wing parties rise in Europe, but those green shoots are still nothing but green shoots.

I suggest that my readers who are able to make money do so now, you may soon find that you can’t. This is especially important if your employment is precarious.  Take care of yourselves, and take care of each other, unless you are lucky enough to live in the few rich, social democratic states left, you cannot expect much aid from your governments.

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Happiness and Freedom: East German Version

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On April 30, 2015

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Picture: Fall of the Berlin Wall

Picture: Fall of the Berlin Wall

Many East Germans remember East Germany favorably:

Today, 20 years after the fall of the Berlin Wall, 57 percent, or an absolute majority, of eastern Germans defend the former East Germany. “The GDR had more good sides than bad sides. There were some problems, but life was good there,” say 49 percent of those polled.

The state with the Berlin Wall, which people died to get across, is remembered fondly?

Some of this, as the article points out, is nostalgia.  Some of it is from people who were children or not even alive when East Germany fell.

But I’m not surprised, because the happiness and life satisfaction data for East Germany showed a precipitous fall after unification, as it did in Russia after Communism fell there. (That drop has been made up since, but it was huge.)

I’m further not surprised because there were things that East Germany, in particular, did well. To start, it did community and civic association brilliantly: There were clubs for everything, people joined them, and they enjoyed them.

Happiness is strongly correlated to community: The sort of anomie which capitalist societies encourage, where you know hardly anyone well, destroys happiness.

Second, there wasn’t a great deal of inequality compared to modern capitalism. The research on happiness and equality is robust–the more equal a society, the happier people are.

Third, everyone was more or less taken care of. They may not have been taken care of with the finest consumer goods, but they had enough food, shelter, and so on.

Fourth, they didn’t have to move much. Labor force mobility in Germany today isn’t terrible, but the sure knowledge that you can stay where you were born and grew up can be as much a comfort as anything else, and it means that you don’t leave behind your community–your friends and family.

Capitalist transitions are brutal. The data from China is unambiguous: People moving from their ancestral villages to the city generally are never, personally, as happy as they were in the village.

The people interviewed in Der Spiegel’s article on East Germany tend to acknowledge the East German Stasi police state as bad, then wave it aside.

How badly has your life been affected by the fact that your government spies on you 24/7? East Germany may have had huge numbers of informants, but London has cameras everywhere and “anti-social disorder orders,” which make virtually any behaviour cops want to call illegal, illegal. Nor was East Germany’s incarceration rate nearly as high as America’s is now, and so on.

Sure, “the police state” was bad, but that wasn’t, to people who lived there, necessarily the most important thing about being an East German. Westerners believe this because of relentless cold war propaganda. Then the USSR and the Warsaw Pact fell, and our lords and masters started building their own surveillance and police states.

Still, it’s a bad sign when you aren’t even considered a better place to live than East Germany, with its Stasi. The failures of the post-Soviet era are making that period look better and better. In Russia, there is a surge of nostalgia for the USSR, for reasons which are are remarkably similar. People are discovering that, as wonderful as Levis jeans are, there is a cost to the modern consumer society in terms of anomie, corruption, and economic precarity.

Though I think I like the bitter joke from 1990s Russia best:

Everything they (Communist authorities) told us about Communism was a lie. Unfortunately, everything they told us about Capitalism was the truth.

And so the wheel turns. When capitalism, in a large region in one of the most successful countries in the West, has half the population thinking communism wasn’t so bad, something has gone off the rails. Triumphalism of the “we’ve won, so we don’t have to treat the population well” variety may well yet bite capitalists, and all of us, hard.

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Austerity in the EU—in Rap

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On April 21, 2015

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The entire video is worth watching, but if you want to skip to the meat, go to 3:37. This is one of the most accurate portrayals of Lagarde (in charge of the IMF) and Merkel I’ve seen. Better than most written analysis.

Also, funny.

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Do Tsipras and Syriza want to resist Austerity?

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On February 25, 2015

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By Mark From Ireland (Elevated from the comments)

(In response to my article on whether Syriza got owned, Mark writes):

Did Syriza get owned?

Yes and No. Syriza is a coalition between a variety of factions ranging from PASOK lookalikes to people with genuinely socialist principles. I’ll be interested to see how Alekos Flambouraris for example will react, will he help “sell” this within the Syriza coalition?

If the currently dominant faction (who have always wanted to work within the Euro framework and are very pro-EU) are to succeed in getting Syriza to accept this capitulation they’re going to have to override internal resistance. From whom? My guess would be that the resistance will centre around Panagiotis Lafazanis and the “Left Current/Left platform” grouping. The “Left Current/Left platform” are, I believe, fairly well organised and they do have a consistent critique not only the current state of affairs but also of capitalism per se. Lafazanis and his comrades can truthfully say that in attacking the capitulation to the troika that they are merely defending the platform upon which Syriza stood and that anybody who wants to vary or overturn that platform has to provide cogent and compelling reasons as to why. But the problem that Lafazanis and his comrades face is both one of policy and of internal organisational strenght. Principles are all very well but if you don’t control the party structure you’re going to lose every time. I said above that they’re “fairly well organised” but are they as well organised as Tsipras and his supporters?

Tsipras’ opponents to the left face a very real problem and one which reminds me in a way of the problem faced by the British Labour left when confronted with Tony Blair. Like Blair Tsipras has a substantial personal mandate and like Blair he’s got a record of going over the heads of his critics to party congress (he’s already successfully done this over candidate lists) and also like Blair he’s got a record of successfully campaigning alone – of very pointedly not campaigning alongside the left-wingers. Just like Blair he can say that Syriza’s victory is a personal victory brought about by him. (He’s also tried Blair’s strategy of giving difficult posts to left-wingers* how that will work out is something that will tell us a lot. Blair successfully marginalised his internal opposition using it whether Tsipras can do the same I just don’t know as the Blair/Tsipras analogy can only go so far).

So the question in a way isn’t so much one of whether or not Syriza got owned as one of whether Syriza is a coherent and viable movement without Tsipras and his followers. I have my doubts.

I hope that Greece manages to resist but I doubt they’ll resist if Tsipras remains at the helm as he never wanted to resist in the first place.

*What for purposes of shorthand I’ll call the Bennite and Militant tendencies

Did Syriza get owned?

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On February 24, 2015

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The details of the Syriza request to the Troika are here, for those who want to read the actual list. The public statement is here.

The best analysis I’ve read of the deal, as compared to Syriza promises, is by Stathis Kouvelakis, in the Jacobin Magazine.

Kouvelakis makes the case, convincingly to me, that Syriza caved, and got virtually nothing of what it wanted.  Here is a summary of what Syriza wanted:

Not consenting to any supervisory or assessment procedures, it requested a four-month transitional “bridge program,” without austerity measures, to secure liquidity and implement at least part of its program within balanced budgets. It also asked that lenders recognize the non-viability of the debt and the need for an immediate new round of across-the-board negotiations.

But the final agreement amounts to a point-by-point rejection of all these demands.

…..

In the Eurogroup’s Friday statement, the existing program is referred to as an “arrangement,” but this changes absolutely nothing essential. The “extension” that the Greek side is now requesting (under the “Master Financial Assistance Facility Agreement”) is to be enacted “in the framework of the existing arrangement” and aims at “successful completion of the review on the basis of the conditions in the current arrangement.”

Kouvelakis goes through the agreement point by point, and backs up his argument.  You should read the entire piece.  More important than proving the obvious (that Syriza got virtually nothing) is why.

The question that emerges, of course, is how we landed in this quandary. How is it possible that, only a few weeks after the historic result of January 25, we have this countermanding of the popular mandate for the overthrow of the memorandum?

The answer is simple: what collapsed in the last two weeks is a specific strategic option that has underlaid the entire approach of SYRIZA, particularly after 2012: the strategy that excluded “unilateral moves” such as suspension of payments…

Kouvelakis calls part of this the “good euro” strategy—the supposition that anyone in power in the Euro area wanted Syriza and Greece to get real debt relief and exist austerity.  This, as I have argued in the past, is delusion:

The key here is psychological. Greeks need to admit that their fellow Europeans do not care how badly they suffer; need to acknowledge that they are not seen as Europeans by their fellow Europeans, and need to look East and South for their survival and future prosperity.

Until Greeks get through their heads, and hearts, that the other European countries are not their friends, they will continue to suffer.

Unilateral is the key word.  Greece cannot depend on any other nation in Europe to look after its interests, let alone Germany (the very idea that the German government cares one whit how much Greeks suffer is so laughable as to move beyond fantasy into insanity).

Greece must do what it can it unilaterally.  This doesn’t mean no negotiation, but that negotiation will not be with Europe or Germany or the ECB, it will be with other countries who need what Greece has to offer enough to make a deal.

Read the Jacobin article.  And understand what just happened, because as Kouvelakis notes the only thing worse than defeat is pretending it was victory.

None of this means that victory is not still possible.  But it is only possible if Syriza spends the next few months planning moves which do not require Europe’s approval.

I genuinely hope they do.  The sooner they do, the sooner Greeks will be better off (though yes, the transition will be painful), and the sooner the current European and World system, which is causing so much unnecessary suffering, will end.

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