Useful perspectives on the Greek crisis

Counterpunch is a left-of-center (sometimes far left) journal, so one should read its articles with that perspective in mind.  Nevertheless, it can and does highlight real issues in its own snarky, punchy way.  A recent article on the Greek financial crisis lays out the facts of the matter in an admirably succinct way.

If you haven’t been following developments in the Greek-EU standoff, you’re really missing out. This might be the best story of the year. And what makes it so riveting, is that no one thought that little Greece could face off with the powerful leaders of the EU and make them blink. But that’s exactly what’s happened. On Monday, members of the Eurogroup met with Greece’s finance minister, Yanis Varoufakis, to decide whether they would accept Greece’s terms for an extension of the current loan agreement.

. . .

Now, remember, Monday was the absolute, drop-dead deadline for deciding whether the Eurogroup would approve or reject the new terms for Greece’s loan extension. That means the Eurogroup’s task could not have been more straightforward. All they had to do was vote yes or no. That’s it.

Instead, they called ‘Time Out’ and kicked the can a little further down the road. It was not a particularly proud moment for the European Union. But what’s even worse, is the subterfuge that preceded the meetings; that’s what cast doubt on the character of the people running EU negotiations. Here’s the scoop: About 15 minutes before the confab began, Varoufakis was given a draft communique outlining the provisions of the proposed loan extension. He was pleasantly surprised to find that the document met all his requirements and, so, he was prepared to sign it. Unfortunately, the document was switched shortly before the negotiations began with one that backtracked on all the crucial points.

I’m not making this up. The freaking Eurogroup tried to pull the old switcheroo on Varoufakis to get him to sign something that was different than the original. Can you believe it? And it’s only because Varoufakis studiously combed through the new memo that he was able to notice the discrepancy and jam on the brakes. As it happens, the final copy was just a rehash of the same agreement that Varoufakis has rejected from the onset. The only difference was the underhanded way the Eurogroup tried to slip it by him.

Now you tell me: Would you consider people who do something like that “trustworthy”?

. . .

The Greek bailout was never reasonable because the plan wasn’t designed to create a path for Greece to grow its way out of debt and deflation. No. It was basically a public relations smokescreen used to conceal what was really going on behind the scenes, which was a massive giveaway to the banks and bondholders. Everyone knows this. Check this out from Naked Capitalism:

“According to the Jubilee Debt Campaign, 92% of €240 billion Greece has received since the May 2010 bailout went to Greek and European financial institutions.” (Naked Capitalism)

Yep, it was all just one big welfare payment to the moocher class. Meanwhile, the Greeks got zilch.

There's much more at the link.  Interesting and recommended reading.

Another report, this one from Bruegel, which describes itself as 'a European think tank specializing in economics', gives additional perspective on Greece's problems.  Again, bear in mind that the report is written from a particular perspective, so it should be read with an inquiring mind rather than blindly accepted.  Even so, its facts are pretty self-evident, IMHO.

On July 2, the IMF released its analysis of whether Greek debt was sustainable or not.  The report said that Greek debt was not sustainable and deep debt relief along with substantial new financing were needed to stabilize Greece. In reaching this new assessment, the IMF stated it had learned many lessons. Among them: Greeks would not take adequate structural reforms to spur growth, they would not sell enough of their assets to repay their debt, and they were unable to undertake sufficient fiscal austerity. That left no choice but to grant Greece greater debt relief and to provide new financing to tide Greece over till it could stand on its own feet. The relief, the IMF, says must be provided by European creditors while the IMF is repaid in whole.

The IMF’s report is important because it reveals that the creditors negotiated with Greece in bad faith.  For months, a haze was allowed to settle over the question of Greek debt sustainability. The timing of the report’s release—on the eve of a historic Greek referendum, well after the technical negotiations have broken down—suggests that there was no intention to allow a sober analysis of the Greek debt burden. Paul Taylor of Reuters tells us that the European authorities worked hard to suppress it and Landon Thomas of the New York Times reports that, until a few days ago, the IMF had played along.

As a result, the entire burden of adjustment was to fall on the Greeks before any debt reduction could even be contemplated. This conclusion was based on indefensible economic logic and the absence of the IMF’s debt sustainability analysis intentionally biased the negotiations.

. . .

If the IMF’s latest numbers are properly reconstructed, the Greek debt burden is much greater than portrayed—and the policy measures proposed to reduce that burden will make matters worse.

To see this, we must go back to a lesson that American economist Irving Fisher taught in 1933.  He says ... that “the more debtors pay, the more they owe”. That pathological condition arises in the midst of Great Depressions, such as the United States in the 1930s and Greece in the last 5 years. 

Here is how this principle applies today to Greece. Recall that prices in Greece have been falling for about two years now. Since debt repayment obligations do not change when businesses sell at lower prices or when wages fall, businesses and households struggle to repay their debt in that deflationary environment. Investment and consumption are held back, the government receives less revenue, making its debt repayment harder. If fiscal austerity is imposed in such a deflationary setting, prices and wages are forced down faster, making debt repayment even harder. This is Fisher’s debt-deflation cycle. Greece is in a debt-deflation cycle. It is the medical equivalent of a trauma patient: the blood flow does not stop on its own and, in such a condition, austerity is like asking the patient to run around the block to demonstrate good faith.

Again, more at the link.

The people of Greece go to the polls today to vote in a referendum on whether to accept the European proposals.  I hope they reject them.  I think it's the only sane response.  As Einstein famously opined, insanity is "doing the same thing over and over again and expecting different results".  By that standard, the entire European fiscal nightmare is insane - and it's long gone time it was stopped.

Peter