By Mike Whitney
“We are being asked to take even larger doses of a medicine that has proven to be deadly and to undertake commitments that do not solve the problem, but only temporarily postpone the foretold death of our economy.” – Hieronymos II, head of Greece’s Orthodox Church
While EU banks have borrowed more than $600 billion at rock bottom rates (1 percent) for up to 3 years with no-strings-attached, eurozone finance ministers are threatening to push member-state Greece into default over a paltry 325 million euros. A German-led coalition within the Eurogroup has set a 6-day deadline for Greece to agree to additional budget cuts or the struggling country will be denied 130 billion euro loan. Absent the bailout, the Greek government will run out of money sometime in late March and default. This appears to be what many in Berlin secretly seek.
Aside from the 325 million euros of cuts, Greek coalition party leaders will also be forced to make a written commitment that the terms of the agreement will be followed whether general elections are held or not. The troika (The European Commission, the IMF, and the ECB) wants to be sure that it is repaid regardless of a change in government.
Naturally, these developments have infuriated the Greek people. It’s no longer uncommon to see German flags set ablaze at demonstrations in Athens or posters of Merkel in full Nazi regalia. This latest humiliation will only add to the seething resentment that is fueling the massive labor strikes and sporadic street violence across the country. George Karatzaferis, leader of the LAOS party, (who has already said he will oppose the additional cuts) urged other countries in the European Union to challenge what he described as Germany’s domination of the union.
“We can get by without being under the German jackboot,” Karatzaferis said in a press conference following the announcement. “Like all Greeks, I am very irritated …. by this humiliation. They have stolen our pride. I cannot tolerate this. I cannot allow it, even if I have to starve.” (“Greek coalition party to oppose austerity measures”, AP)
Greece has already withstood five consecutive years of economic contraction with no sign of
improvement. Unemployment has soared to a new high of 20.9 percent, the debt-to-GDP ratio is rising, and capital continues to flee the country. All of the troika’s so-called “rescue” efforts have failed. The country remains mired in a semi-permanent slump brought on by austerity measures. Greece is in the middle of a policy-generated depression.
On Thursday, all three Greek coalition party leaders agreed to accept deeper cuts to public spending in order to win approval for 130 billion bailout. The new austerity measures are a straightforward attack on working people and retirees. As The Athens News notes, it is “the most violent devaluation of labour pay during peacetime.” The provisions include “a 22 percent cut to the minimum wage, new restraints on collective bargaining, severe cutbacks on social insurance, and a 22-40 percent cut to real wages and bonuses. Also, 150,000 public workers will be sacked, and 400 million euros will be cut from public investment programs. The social safety net is being gutted while the banks are raking in billions on the carry trade–the purchasing of high-yield government debt with money they borrowed from the ECB.
Working people and pensioners are being asked to shoulder a disproportionate amount of the burden for a crisis that was precipitated by financial elites and their political lackeys. The Troika wants Greece to cut the minimum wage to less than 600 euros a month (poverty level) and abolish holiday allowances altogether. They’re also demanding that supplementary pensions be cut by 35 percent. This same war on working people is being waged in every country hit by the crisis. The agents of big finance have replaced democratically-elected leaders in Greece and Italy and launched a full-blown assault on organized labor. Here’s an excerpt from an article by Peter Schwarz titled “The looting of the Greek working class”:
“What the financial aristocracy is doing to Greece is what they intend for the whole of Europe. A social counter-revolution is taking place which was barely conceivable a few years ago. Broad layers of the population are being condemned to poverty, unemployment, sickness and even death to secure the profit demands of the international financial aristocracy.” (“The looting of the Greek working class”, World Socialist Web Site)
Greece is also being asked to surrender its sovereignty by allowing an EU budget commissioner to oversee public spending. The new commissar will see that future tax revenues will be used to pay off foreign lenders “first and foremost” before providing money for vital social services. In the event of a national emergency, lenders and bondholders will be paid before funds are allocated to help disaster victims. This is what “greater eurozone-integration” looks like in real time.
Greece’s deep structural reforms and privatizations are supposed to “increase competitiveness and growth” and to “bring the fiscal deficit to a sustainable position”, but, of course, it’s all a pipedream. The Greek economy is in worse shape now than it was two years ago when the bailouts began. And, as Der Speigel notes, the latest bailout package “will not save the country…it will only delay a Greek insolvency — and serve to create new hardships for the country’s population…”
Here’s more from the same article:
“If the country is to lastingly reduce its mountain of debt and, at some point, be able to borrow money on the capital markets again, then it needs a comprehensive debt haircut…..
Of course, things wouldn’t stop there. The euro-zone states would also have to build a bigger firewall around the remaining crisis countries in order to prevent contagion. They would have to help some banks that get into trouble as a result of a debt cut. And they would have to provide Greece with a real opportunity to get back on its feet and start growing under its own steam — in other words, a kind of Marshall Plan.” (“It’s Time To End the Greek Rescue Farce”, Speigel Online)
But EZ policymakers and central bankers don’t want “a comprehensive debt haircut”, because they’re afraid that the speculative bets made by financial institutions (CDS and sovereign bonds) may cause losses that will crash the banking system. So, they’ve put their agents in positions of power to extract as much wealth as possible from working people without precipitating a default. It’s all part of the calculation.
25 of 27 countries in the EU have also agreed to a balanced budget provision that will limit the ability of national parliaments to conduct counter-cyclical fiscal policy or reduce soaring unemployment by expanding government deficits. The so called “debt brakes”–which are strongly supported by German chancellor Angela Merkel– will lead to additional cuts in social spending and welfare while–at the same time–paving the way for deeper and more protracted recessions.
Meanwhile, the banks are held to an entirely different standard than EZ member states. Banks that are unable to procure funding via the capital markets (because no one trusts the condition of their balance sheets) are given “limitless” loans on collateral that wouldn’t fetch a bid at a flea market.
When the banks tapped into the ECB’s deep pockets for 489 billion euros in late December, they were not required to cut staff, slash bonuses, lay off workers, curtail health care or pension benefits, or appoint a budget czar to oversee how the money was spent. They were given carte blanche, even though the money they borrowed hasn’t been used to extend credit to consumers and businesses (as it was supposed to), and even though the loans merely conceal the vast losses on their stockpile of toxic bonds. This is how the ECB perpetuates the illusion of “solvency” in the eurozone. It’s all a fraud.
So, why does Greece have to grovel for $130 bil loan when the banks can just snap their fingers and get as much money as they want? And why does the IMF have one policy for Europe and another for China? This is from the Wall Street Journal:
“China should be prepared to sharply stimulate its economy if Europe’s growth falls more than anticipated, the International Monetary Fund said, adding to expectations that Beijing could turn to spending if conditions significantly worsen.
In its China economic outlook report released on Monday, the IMF urged China to run a deficit of 2% of GDP rather than looking to reduce the country’s deficit as planned, given the uncertainty in the global economy.
If Europe’s problems turned out to be worse than expected, China should hit the fiscal gas pedal harder. In that case, “China should respond with a significant fiscal package” of about 3% of GDP, the IMF said…
However, the IMF warned that Beijing should execute any fresh stimulus through its budget rather than the banking system. China used a four trillion yuan, or about $635 billion, stimulus package in 2008 to help blunt the impact of the financial crisis, in large part through bank lending.” (“IMF Urges Beijing to Prepare Stimulus”, Wall Street Journal)
So, it’s thin gruel and hairshirts for Greece, Portugal, Spain, Italy and Ireland, but lavish doses of fiscal stimulus for China? Why is that? And notice how the IMF even stipulates HOW China’s stimulus should be implemented–not through the “banking system” (monetary stimulus ala Helicopter Ben), but the old fashion way; Keynesian fiscal stimulus mainlined into the central bloodstream via the budget.
But doesn’t this just go-to-show that Troika policymakers really know that all this austerity bunkum is just nonsense?