The United States has spent nearly $6 trillion on wars that directly contributed to the deaths of around 500,000 people since the 9/11 attacks of 2001. Brown University’s Watson Institute for International and Public Affairs published its annual “Costs of War” report Wednesday, taking into consideration the Pentagon’s spending and its Overseas Contingency Operations account, as well as “war-related spending by the Department of State, past and obligated spending for war veterans’ care, interest on the debt incurred to pay for the wars, and the prevention of and response to terrorism by the Department of Homeland Security.”
The final count revealed, “The United States has appropriated and is obligated to spend an estimated $5.9 trillion (in current dollars) on the war on terror through Fiscal Year 2019, including direct war and war-related spending and obligations for future spending on post 9/11 war veterans.” “In sum, high costs in war and war-related spending pose a national security concern because they are unsustainable,” the report concluded. “The public would be better served by increased transparency and by the development of a comprehensive strategy to end the wars and deal with other urgent national security priorities.”
[..] Wednesday’s report found that the “US military is conducting counterterror activities in 76 countries, or about 39 percent of the world’s nations, vastly expanding [its mission] across the globe.” In addition, these operations “have been accompanied by violations of human rights and civil liberties, in the US and abroad.” Overall, researchers estimated that “between 480,000 and 507,000 people have been killed in the United States’ post-9/11 wars in Iraq, Afghanistan, and Pakistan.” This toll “does not include the more than 500,000 deaths from the war in Syria, raging since 2011”..
The US could lose a future war against Russia or China, a new report to Congress has suggested. America is losing its edge while rivals innovate and blend conventional, cyber and even non-military capabilities to gain the upper hand in key regions, according to a dozen national security experts tasked by politicians with scrutinising Donald Trump’s national defence strategy. The bipartisan group, led by former undersecretary of defence Eric Edelman and Gary Roughead, an ex-chief of naval operations, wrote: “The US military could suffer unacceptably high casualties and loss of major capital assets in its next conflict.
“It might struggle to win, or perhaps lose, a war against China or Russia. The United States is particularly at risk of being overwhelmed should its military be forced to fight on two or more fronts simultaneously. US military superiority is no longer assured and the implications for American interests and American security are severe.” The unquestioned dominance the US enjoyed at the end of the Cold War no longer holds, the expert commission concluded following interviews with key defence officials and reviews of secret documents, and Washington faces serious challenges to its interests in Asia, Europe and the Middle East. The experts identified Mr Trump’s tax reform bill – which greatly benefited the most wealthy – as having drained potential defence funding, alongside tax cuts by both his immediate predecessors.
The White House should look to increase taxation and slash entitlements to drastically increase funding available for the military despite the short-term “pain” the move would cause, they suggested. [..] the commission recommended that the base defence budget be increased by between 3 and 5 per cent above inflation over the next several years. According to the authors, Barack Obama’s 2011 Budget Control Act had had “pronounced detrimental effects on the size, modernisation, and readiness of the military”. Mr Trump made building up America’s armed forces a central campaign pledge and the experts said his strategy was on the right track, but did not go far enough.
The UK government has inflicted “great misery” on its people with “punitive, mean-spirited, and often callous” austerity policies driven by a political desire to undertake social re-engineering rather than economic necessity, the United Nations poverty envoy has found. Philip Alston, the UN’s rapporteur on extreme poverty and human rights, ended a two-week fact-finding mission to the UK with a stinging declaration that despite being the world’s fifth largest economy, levels of child poverty are “not just a disgrace, but a social calamity and an economic disaster”. About 14 million people, a fifth of the population, live in poverty, and 1.5 million are destitute, unable to afford basic essentials, he said, citing figures from the Institute for Fiscal Studies and the Joseph Rowntree Foundation.
He highlighted predictions that child poverty could rise by 7% between 2015 and 2022, possibly up to a rate of 40%. “It is patently unjust and contrary to British values that so many people are living in poverty,” he said, adding that compassion had been abandoned during almost a decade of austerity policies that had been so profound that key elements of the post-war social contract, devised by William Beveridge more than 70 years ago, had been swept away. In a coruscating 24-page report, which will be presented to the UN human rights council in Geneva next year, the eminent human rights lawyer said that in the UK “poverty is a political choice”.
Theresa May is battling to halt a growing revolt from the Tory right after half a dozen more backbenchers came out in favour of a no-confidence vote and the organiser of the rebellion publicly predicted more MPs would follow next week. The prime minister held a conference call with local association chairmen on Friday afternoon as she fought to head off a coup and sell her hard-won Brexit deal to a sceptical and partially hostile party. Her efforts came after the number of backbenchers calling publicly for a no-confidence vote in May’s leadership increased to 23. Rebellious MPs said they were confident of reaching the required threshold of 48 letters to Sir Graham Brady, the chairman of the party’s 1922 Committee. Adam Holloway, one of the MPs demanding a vote, said his letter had been delivered “with regret”.
But, complaining about May’s Brexit plans, he added: “You cannot have someone leading a mission who does not believe in the mission. The country needs leadership.” Others who went public with their demand to hold a vote included the former cabinet minister John Whittingdale, Maria Caulfield, Marcus Fysh, and Chris Green. David Jones was also named as being among those who had written to Brady. The party rules allow for a no-confidence vote if 15% of the party’s MPs – currently 48 – submit letters. Brady would organise a vote within a couple of working days of the threshold being met. Whittingdale said he wanted the government “to pursue a proper free trade agreement” but he believed that May was not willing to do so. “Therefore I felt there is no alternative but to seek a vote of confidence,” he said.
Cabinet ministers are planning a final push to remould parts of Theresa May’s Brexit strategy in a bid to find a way through the political crisis engulfing the government. Brexit-backing members of Ms May’s team will meet within days to discuss their approach, with a drive to change the text of the UK’s withdrawal agreement not ruled out. It emerged as Ms May sought to shore up her leadership following a wave of resignations, by appointing staunch ally Amber Rudd back to the cabinet six months after she was forced to resign over the Windrush scandal. Downing Street is on high alert as rebel backbenchers submitted further letters calling on Ms May to quit, ahead of a possible vote of no confidence next week. The Independent understands that House of Commons leader Andrea Leadsom is set to convene the meeting of Brexiteer frontbenchers to decide how Ms May’s strategy might evolve ahead of a critical European summit in just over a week.
There is “no question” of further Brexit negotiations if the deal struck by Theresa May is rejected, Angela Merkel has said. Speaking in Berlin, the German chancellor welcomed the deal but warned a chaotic exit was still possible as a “worst case” scenario. “We have a document on the table that Britain and the EU 27 have agreed to, so for me there is no question at the moment whether we negotiate further,” the Chancellor said. The warning follows EU officials close to talks saying the controversial document, which has been panned on all sides in Westminster, is “the best we can do” given the prime minister’s red lines and the bloc’s own rules.
Ms May has publicly stood by the plan, but the Huffington Post reported on Thursday night that allies of the prime minister are trying to win over Brexiteer rebels in the Conservative party with the offer of further concessions from Brussels if they fall in line. Speaking at a news conference ostensibly about her government’s digital strategy, Ms Merkel told reporters: “I am very happy that after long negotiations which were not easy, a proposal has been pulled together.
Drivers plan to disrupt traffic across France on Saturday by blocking roads, bridges and toll booths in a mass protest at rising fuel prices. Dubbed the “yellow vests” after the high-visibility jackets they use as their symbol, they are expected to muster in at least 700 locations. They accuse President Emmanuel Macron of abandoning “the little people”. Mr Macron admitted this week that he had not “really managed to reconcile the French people with its leaders”. Nonetheless, he accused his political opponents of hijacking the movement in order to block his reform programme.
Officials have warned that, while they will not stop the protests, they will not allow them to bring the French road network to a standstill. The price of diesel, the most commonly used fuel in French cars, has risen by around 23% over the past 12 months to an average of €1.51 ($1.71) per litre, its highest point since the early 2000s, AFP news agency reports. World oil prices did rise before falling back again but the Macron government raised its hydrocarbon tax this year by 7.6 cents per litre on diesel and 3.9 cents on petrol, as part of a campaign for cleaner cars and fuel. The decision to impose a further increase of 6.5 cents on diesel and 2.9 cents on petrol on 1 January 2019 was seen as the final straw.
The CIA has determined that Saudi Crown Prince Mohammed bin Salman ordered the assassination of journalist Jamal Khashoggi, NBC News reported Friday, citing a person briefed on the CIA’s assessment. The CIA declined NBC News’ request for comment Friday night. The Washington Post, which first reported the CIA findings, said the U.S. intelligence agency has high confidence in its findings. Khashoggi was a resident of the United States from Saudi Arabia, and he was a columnist for the Washington Post. The Saudi Embassy in Washington denied the reports. “The claims in this purported assessment are false,” the embassy said in a statement.
“We have and continue to hear various theories without seeing the primary basis for these speculations.” According to the Post’s report, the CIA looked into a phone call between the crown prince’s brother, who also serves as the Saudi ambassador to the U.S., Khalid bin Salman and Khashoggi. Sources told the Post that during that call, Khashoggi was directed to pick up documents at the consulate. While the Post said it was not clear whether Khalid bin Salman knew that Khashoggi would be killed, sources told the Post that he made the call at his brother’s request.
Turkey has a complete record of communications in and out of Saudi Arabia’s Istanbul consulate in the week of Jamal Khashoggi’s murder, a senior Turkish source has told Middle East Eye. The communications will be used to tear apart Riyadh’s latest version of the killing. These recordings, MEE has learned, have given Turkey a detailed picture of the various operatives, teams and missions issued from Saudi Arabia. And the contents of these communications, the source said, will turn the screw on a Saudi leadership that has sought to insulate itself from the scandal. According to the source, Turkey intends to drip feed the information gleaned from the communications to the media, as it has been doing ever since Khashoggi was brutally murdered by a team of 15 Saudis on 2 October.
The Khashoggi-related conversations that Turkish intelligence intercepted began when the Washington Post columnist first came to his country’s consulate on 28 September in an attempt to get papers required to remarry. The plan to kill Khashoggi, who was told to return to the consulate four days later, began to be hatched the moment he left the building, the source said. Key conversations, the source said, were those between Consul-General Mohammed al-Otaibi and Saudi security attache Ahmed Abdullah al-Muzaini. Muzaini has so far been spared much of the spotlight. It is unknown if he is one of at least 21 suspects detained in Saudi Arabia. But Turkish newspaper Sabah, which is close to the government, has described Muzaini as the brains behind the plot.
On the day of Khashoggi’s murder, the conversations of one man are especially important. MEE understands that Maher Abdulaziz Mutrib, the leader of the death squad sent to kill the journalist, made 19 calls to Riyadh on 2 October. [..] Puzzling to the Turkish source, however, is US intelligence’s knowledge of a phone conversation between Mutrib and Riyadh, where the team leader is apparently heard saying “tell your boss” following Khashoggi’s death. [..] When CIA chief Gina Haspel visited Turkey on 23 October for consultations over Khashoggi, she apparently arrived with a team of some 35 people. Amongst them were experts in deciphering recordings, linguists, people familiar with the Saudi accent and people who could enhance audio, the source said.
A Saudi team had planned all along to kill journalist Jamal Khashoggi and never tried to talk him into anything, a Turkish daily reports, citing recordings held by police that call Riyadh’s statement on the matter into question. An audio tape, allegedly in the possession of Turkish investigators, features a 15-minute conversation, in which “the Saudi team discusses how to execute Khashoggi,” the Turkish Hurriyet Daily wrote on Friday, citing its columnist Abdulkadir Selvi. In a recording that was allegedly made even before the journalist entered the Saudi consulate, “they are reviewing their plan, which was previously prepared, and reminding themselves of the duties of each member,” he said.
The Hurriyet report contradicts the statement made by the Saudi deputy public prosecutor, Shaalan al-Shaalan, who said that the team was actually sent to Istanbul to retrieve the journalist and bring him back to Saudi Arabia. A decision to murder the reporter –and outspoken critic of Riyadh– was allegedly taken by the head of the team after its ‘persuasion’ failed. Some other audio evidence obtained by the Turkish investigators also allegedly shows that the version of Khashoggi’s killing presented by Riyadh just does not add up, Selvi reports. “Khashoggi’s desperate attempts to survive could be heard in a seven-minute audio recording. There is no hint of anyone trying to persuade him,” he says, referring to another tape, which allegedly proved that “Khashoggi was strangulated in 7-8 minutes.”
Recall that the DNC itself is currently suing WikiLeaks and Assange for publishing the DNC and Podesta emails they received: emails deemed newsworthy by literally every major media outlet, which relentlessly reported on them. Until this current Trump DOJ criminal prosecution of Assange, that DNC lawsuit had been the greatest Trump-era threat to press freedoms – because it seeks to make the publication of documents, which is the core of journalism, legally punishable. The Trump DOJ’s attempts to criminalize those actions is merely the next logical step in this descent into a full-scale attack on basic press rights.
The arguments justifying the Trump administration’s prosecution of Assange are grounded in a combination of legal ignorance, factual falsehoods, and dangerous authoritarianism. The most common misconception is that unlike the New York Times and the Washington Post, WikiLeaks can be legitimately prosecuted for publishing classified information because it’s not a “legitimate news outlet.” Democrats who make this argument don’t seem to care that this is exactly the view rejected as untenable by the Obama DOJ. To begin with, the press freedom guarantee of the First Amendment isn’t confined to “legitimate news outlets” – whatever that might mean.
The First Amendment isn’t available only to a certain class of people licensed as “journalists.” It protects not a privileged group of people called “professional journalists” but rather an activity: namely, using the press (which at the time of the First Amendment’s enactment meant the literal printing press) to inform the public about what the government was doing. Everyone is entitled to that constitutional protection equally: there is no cogent way to justify why the Guardian, ex-DOJ-officials-turned-bloggers, or Marcy Wheeler are free to publish classified information but Julian Assange and WikiLeaks are not.
China, Russia and Canada’s current climate policies would drive the world above a catastrophic 5C of warming by the end of the century, according to a study that ranks the climate goals of different countries. The US and Australia are only slightly behind with both pushing the global temperature rise dangerously over 4C above pre-industrial levels says the paper, while even the EU, which is usually seen as a climate leader, is on course to more than double the 1.5C that scientists say is a moderately safe level of heating. The study, published on Friday in the journal Nature Communications, assesses the relationship between each nation’s ambition to cut emissions and the temperature rise that would result if the world followed their example.
The aim of the paper is to inform climate negotiators as they begin a two-year process of ratcheting up climate commitments, which currently fall far short of the 1.5-to-2C goal set in France three years ago. [..] India is leading the way with a target that is only slightly off course for 2C. [..] On the opposite side of the spectrum are the industrial powerhouse China and major energy exporters who are doing almost nothing to limit carbon dioxide emissions. These include Saudi Arabia (oil), Russia (gas) and Canada, which is drawing vast quantities of dirty oil from tar sands. Fossil fuel lobbies in these countries are so powerful that government climate pledges are very weak, setting the world on course for more than 5C of heating by the end of the century.
The late Prof Mick Moran, who taught politics and government at Manchester University for most of his professional life, had, according to his colleagues, once had “a certain residual respect for our governing elites”. That all changed during the 2008 financial crisis, after which he experienced an epiphany “because it convinced him that the officer class in business and in politics did not know what it was doing”. After his epiphany, Moran formed a collective of academics dedicated to exposing the complacency of finance-worship and to replacing it with an idea of running modern economies focused on maximising social good. They called themselves the Foundational Economy Collective, based on the idea that it’s in the everyday economy where there is most potential for true social regeneration: not top-down cash-splashing, but renewal and replenishment from the ground upwards.
Foundational activities are the materials and services without which we cannot live a civilised life: clean, unrationed water; affordable electricity and gas without cuts to supply; collective transport on smooth roads and rails; quality health and social care provided free at the point of use; and reliable, sustainable food supply. Then there’s the “overlooked economy” – everyday services such as hairdressing, veterinary care, catering and hospitality and small-scale manufacturing – which employ far more people, across a wider geographical range, than the “high-skill, hi-tech” economy with which recent governments have been obsessed.
For the Foundational Economy authors, focusing on the fundamental value of invisible and unglamorous jobs “restores the importance of unappreciated and unacknowledged tacit skills of many citizens”. It’s a way of looking at economics from the point of view of people rather than figures, and doing something revolutionary (yet so blindingly obvious) in the process. What is the point of “growth” if the basic elements of a decent life are denied to a large and growing number?
“The Kingdom affirms its total rejection of any threats and attempts to undermine it, whether by threatening to impose economic sanctions, using political pressures, or repeating false accusation,” a government source reportedly told the official Saudi Press Agency. “The Kingdom also affirms that if it receives any action, it will respond with greater action.” Hence, Saudi-owned Al Arabiya channel’s general manager Turki Aldakhil, in our call of the day, warned we could see an explosive move in oil prices. “If U.S. sanctions are imposed on Saudi Arabia, we will be facing an economic disaster that would rock the entire world,” he wrote in an op-ed.
“If the price of oil reaching $80 angered President Trump, no one should rule out the price jumping to $100, or $200, or even double that figure.” This mess could ultimately throw the entire Muslim world “into the arms of Iran, which will become closer to Riyadh than Washington,” Aldakhil said. “The truth is that if Washington imposes sanctions on Riyadh, it will stab its own economy to death, even though it thinks that it is stabbing only Riyadh.”
Saudi Arabia enjoys a privileged position both in geopolitical and economic terms. It will have a powerful hand to play if tensions with the US and the west escalate and it follows through with Sunday’s warning of retaliation. Its vast oil reserves – it claims to have about 260bn barrels still to extract – afford the most obvious advantage. The kingdom is the world’s largest oil exporter, pumping or shipping about 7m barrels a day, and giving Riyadh huge clout in the global economy because it wields power to push up prices. An editorial in Arab News by Turki Aldhakhil, the general manager of the official Saudi news channel, Al Arabiya, offers a hint of what could be in the offing.
He said Riyadh was weighing up 30 measures designed to put pressure on the US if it were to impose sanctions over the disappearance and presumed murder of Jamal Khashoggi inside the country’s Istanbul consulate. These would include an oil production cut that could drive prices from around $80 (£60) a barrel to more than $400, more than double the all-time high of $147.27 reached in 2008. This would have profound consequences globally, not just because motorists would pay more at the petrol pump, but because it would force up the cost of all goods that travel by road.
The Ecuadorian government has decided to partly restore communications for WikiLeaks founder Julian Assange. They were cut in March, denying the Australian access to the internet or phones and limiting visitors to members of his legal team. He has been living inside Ecuador’s embassy in London for more than six years. The Ecuadorian government said in March it had acted because Assange had breached “a written commitment made to the government at the end of 2017 not to issue messages that might interfere with other states”.
WikiLeaks said in a statement: “Ecuador has told WikiLeaks publisher Julian Assange that it will remove the isolation regime imposed on him following meetings between two senior UN officials and Ecuador’s President Lenin Moreno on Friday.” Kristinn Hrafnsson, WikiLeaks’ editor-in-chief, added: “It is positive that through UN intervention Ecuador has partly ended the isolation of Mr Assange although it is of grave concern that his freedom to express his opinions is still limited. “The UN has already declared Mr Assange a victim of arbitrary detention. This unacceptable situation must end. “The UK government must abide by the UN’s ruling and guarantee that he can leave the Ecuadorian embassy without the threat of extradition to the United States.”
Media outlets removed by Facebook on Thursday, in a massive purge of 800 accounts and pages, had previously been targeted in a blacklist of oppositional sites promoted by the Washington Post in November 2016. The organizations censored by Facebook include The Anti-Media, with 2.1 million followers, The Free Thought Project, with 3.1 million followers, and Counter Current News, with 500,000 followers. All three of these groups had been on the blacklist. In November 2016, the Washington Post published a puff-piece on a shadowy and up to then largely unknown organization called PropOrNot, which had compiled a list of organizations it claimed were part of a “sophisticated Russian propaganda campaign.”
The Post said the report “identifies more than 200 websites as routine peddlers of Russian propaganda during the election season, with combined audiences of at least 15 million Americans.” The publication of the blacklist drew widespread media condemnation, including from journalists Matt Taibbi and Glenn Greenwald, forcing the Post to publish a partial retraction. The newspaper declared that it “does not itself vouch for the validity of PropOrNot’s findings regarding any individual media outlet.” While the individuals behind PropOrNot have not identified themselves, the Washington Post said the group was a “collection of researchers with foreign policy, military and technology backgrounds.”
After years of Sears Holdings staying afloat through financial maneuvering and relying on billions of CEO Eddie Lampert’s own money, the 125-year-old retailer filed for bankruptcy. The filing comes more than a decade after Lampert merged Sears and Kmart, hoping that forging together the two struggling discounters would create a more formidable competitor. It comes after Lampert shed assets and spun out real estate, all to pay down the debt the retailer accumulated when that plan went askew. The company still has roughly 700 stores, which have at times been barren, unstocked by vendors who have lost their trust.
Many of the stores have never been visited by a generation of shoppers that can barely recall it was once the the country’s biggest retailer. Lampert, who has a controlling ownership stake in Sears, personally holds some 31 percent of the retailer’s shares outstanding, according to FactSet. His hedge fund ESL Investments owns about 19 percent. Ultimately, it was a $134 million payment that did the company in. The company had a payment due Monday it had not the money to pay.
With great flourish, Theresa May last week announced that she was lifting the borrowing cap which constrains local councils’ ability to finance new housebuilding. “We will only fix this broken market by building more homes,” the prime minister said. “Solving the housing crisis is the biggest domestic policy challenge of our generation. It doesn’t make sense to stop councils from playing their part in solving it. So today I can announce that we are scrapping that cap.” Nope. In reality, councils – or anyone else for that matter – building more homes will do very little to address the fundamental problem in the housing market, and if you want to understand why, there’s a new book which explains it.
‘Why Can’t You Afford To Buy A Home?’ by Josh Ryan-Collins – a researcher at University College London’s Institute for Innovation and Public Purpose – is about the phenomenon which he dubs ‘residential capitalism’. It follows on from his less snappily-titled volume ‘Rethinking The Economics of Land and Housing’, which was written jointly with fellow economist Laurie Macfarlane and policy wonk Toby Lloyd and published last year. Both books address the question of why a growing number of people are being priced out of the property market, with rising house prices accelerating away from household incomes. The answer is financialisation – and it is not an aberration, according to Ryan-Collins.
The ‘housing crisis’ needs to be understood primarily as a product of the banking system. For starters it’s not just a British problem; this is a trend which has gripped developed economies across the world over the past three decades. “Two of the key ingredients of contemporary capitalist societies, private home ownership and a lightly regulated commercial banking system, are not mutually compatible,” he writes. Instead they “create a self-reinforcing feedback cycle”. [..] In the early 1980s, business lending equated to around 40 per cent of GDP on average in advanced economies, while mortgage lending was around 25 per cent. By the time of the financial crisis, mortgage lending had grown to 75 per cent of GDP while business lending had only grown slightly, to 45 per cent.
Last March, we discussed why few things are as important for China’s wealth effect and economy, as its housing bubble market. Specifically, as Deutsche Bank calculated at the time, “in 2016 the rise of property prices boosted household wealth in 37 tier 1 and tier 2 cities by RMB24 trillion, almost twice their total disposable income of RMB12.9 trillion.” The German lender added that this (rather fleeting) wealth effect “may be helping to sustain consumption in China despite slowing income growth” warning that “a decline of property price would obviously have a large negative impact.” Naturally, as long as the housing bubble keeps inflating and prices keep rising, there is nothing to worry about as the population will keep spending money buoyed by illusory wealth appreciation.
It is when housing starts to drop that Beijing begins to panic. Fast forward to today, when Beijing may be starting to sweat because whereas Chinese property developers usually count on September and October to be their “gold and silver” months for sales, this year has turned out to be different. As the SCMP reports, not only were sales figures grim for September, but the seven-day national holiday last week also brought at least two “fangnao” incidents – when angry, and often violent, homeowners protest against price cuts offered by developers to new buyers.
These protests are often directed at sales offices, with varying levels of intensity – from throwing rocks to holding banners and putting up funeral wreaths. The risk, of course, is that as what has gone up (wealth effect) will come down, and as home ownership has remained the most important channel of investment for urban households in China in the past decade, price cuts have become increasingly unacceptable and a cause for social unrest. Just last week, angry homeowners who paid full price for units at the Xinzhou Mansion residential project in Shangrao attacked the Country Garden sales office in eastern Jiangxi province last week, after finding out it had offered discounts to new buyers of up to 30%.
The European Union’s top Brexit negotiator says urgent talks with Britain’s point person did not result in their reaching agreement on outstanding issues. EU negotiator Michel Barnier said: “Despite intense efforts, some key issues are still open” in the divorce talks between the European Union and Britain. Barnier and his British counterpart, Dominic Raab, met in Brussels for surprise talks on Sunday. The discussion prompted rumors that a full agreement might be imminent, but Barnier says the future of the border on the island of Ireland remain a serious obstacle. He says the need “to avoid a hard border” between Ireland and the U.K’s Northern Ireland is among the unsettled issues. An EU official says no further negotiations are planned before an EU leaders summit on Wednesday.
The “Irish backstop” is the main hurdle to a deal that spells out the terms of Britain’s departure from the EU and future relationship with the bloc. After Brexit, the currently invisible frontier between Northern Ireland and Ireland will be the U.K.’s only land border with an EU nation. Britain and the EU agree there must be no customs checks or other infrastructure on the border, but do not agree on how that can be accomplished. The EU’s “backstop” solution — to keep Northern Ireland in a customs union with the bloc — has been rejected by Britain because it would require checks between Northern Ireland and the rest of the U.K.
Over the last three years, net exports shaved 0.5 percent off Italy’s quasi stagnant 1.1 percent GDP growth. And while exports in the first seven months of this year increased 4 percent from the year earlier, that did absolutely nothing to revive the country’s manufacturing output. The industrial production during the January-to-July period dropped at an annual rate of 0.5 percent. That, of course, bodes ill for business investments because the weakness in the manufacturing sector indicates plenty of spare production capacity. In other words, Italian businesses need no new machines and bigger factory floors; they already have what they need to meet the current and expected sales demand.
So, what’s left to support Italy’s jobs and incomes? Nothing — emphatically nothing — keeps screaming the German-run EU: Italy has no independent monetary policy, and, according to the EU Commission, the fiscal stance should remain frozen in a restrictive mode of indefinite duration. Italy knows what that means. Before the onset of the last decade’s financial crisis, and the German-imposed fiscal austerity, Italy’s budget deficit in 2007 was whittled down to 1.5 percent of GDP (compared to nearly 3 percent of GDP in France), the primary budget surplus (budget before interest charges on public debt) was driven up to 1.7 percent of GDP, helping to bring down the public debt to 112 percent of GDP from an annual average of 117 percent in the previous six years.
But then all hell broke loose once the Germans — defiantly rejecting Washington’s call to reason — set out to teach a lesson to “fiscal miscreants” by imposing austerity policies on the euro area’s sinking economies. Italy should never allow that to happen again. What, then, should Italy do? The answer is simple: Exactly what it says it wants to do in the 2019 budget passed last Thursday by an overwhelming majority in the Senate (61 percent of the votes) and in the Parliament’s Lower House (63.4 percent of the votes).
Angela Merkel’s conservative partners in Bavaria have had their worst election performance for more than six decades, in a humiliating state poll result that is likely to further weaken Germany’s embattled coalition government. The Christian Social Union secured 37.3% of the vote, preliminary results showed, losing the absolute majority in the prosperous southern state it had had almost consistently since the second world war. The party’s support fell below 40% for the first time since 1954. Markus Söder, the prime minister of Bavaria, called it a “difficult day” for the CSU, but said his party had a clear mandate to form a government.
Among the main victors was the environmental, pro-immigration Green party, which as predicted almost doubled its voter share to 17.8% at the expense of the Social Democratic party (SPD), which lost its position as the second-biggest party, with support halving to 9.5%. Annalena Baerbock, the co-leader of the Greens, said: “Today Bavaria voted to uphold human rights and humanity.” Andrea Nahles, the leader of the SPD, delivered the briefest of reactions at her party’s headquarters in Berlin, calling the results “bitter” and blaming them on the poor performance of the grand coalition in Berlin.
The late physicist and author Prof Stephen Hawking has caused controversy by suggesting a new race of superhumans could develop from wealthy people choosing to edit their and their children’s DNA. Hawking, the author of A Brief History of Time, who died in March, made the predictions in a collection of articles and essays. The scientist presented the possibility that genetic engineering could create a new species of superhuman that could destroy the rest of humanity. The essays, published in the Sunday Times, were written in preparation for a book that will be published on Tuesday. “I am sure that during this century, people will discover how to modify both intelligence and instincts such as aggression,” he wrote.
“Laws will probably be passed against genetic engineering with humans. But some people won’t be able to resist the temptation to improve human characteristics, such as memory, resistance to disease and length of life.” In Brief Answers to the Big Questions, Hawking’s final thoughts on the universe, the physicist suggested wealthy people would soon be able to choose to edit genetic makeup to create superhumans with enhanced memory, disease resistance, intelligence and longevity. Hawking raised the prospect that breakthroughs in genetics will make it attractive for people to try to improve themselves, with implications for “unimproved humans”. “Once such superhumans appear, there will be significant political problems with unimproved humans, who won’t be able to compete,” he wrote. “Presumably, they will die out, or become unimportant. Instead, there will be a race of self-designing beings who are improving at an ever-increasing rate.”
Every time I write about my ‘adventures’ in Greece for the Automatic Earth for Athens Fund, which I initiated in June 2015, I think it’s been way too long, but also every time I realize that I’ve already written so much about it (which makes every new article harder to write as well). Still, it’s been three months since the last one, and as always lots has happened; we’re not sitting still. As always, there’s a full list of previous articles at the bottom of this one.
To start with the latest development, I gave Konstantinos Polychronopoulos of O Allos Anthropos another €1,000 (the last funds I had) on March 15, which he needed to go to Lesbos, where he’s been asked to help set up a ‘Multi-Center’, to be jointly built by Greeks and refugees. It’s an initiative of a privately funded organization named Swisscross, to be located outside of the horrible Moria camp.
The center, which will have no sleeping facilities, is designed to make life more bearable for the refugees stuck inside Moria. It will provide shower rooms, laundry facilities, a kindergarten, a school (remedial teaching), a cinema, cafeteria and a restaurant.
O Allos Anthropos will be in charge of the restaurant, which will also be very much geared towards providing space, equipment, food and resources for the refugees themselves to cook. An often overlooked part of the refugee tragedy here in Greece is that preparing food is an important aspect of family- and community life, a source of dignity and pride, that has been taken away from them and replaced by real bad catering.
Thank you to the Texan girls who donated their Santa hat to me for Konstantinos on December 25. Perfect fit!
We’ve had the fifth anniversary of O Allos Anthropos in December, and of course Christmas. Then we had New Year’s, and on January 8 Greek New Year. February 16 was Tsikno Pempti (aka Charcoal Thursday or Greek Cholesterol Day), when everyone eats roasted meat – there’s a connection with carnival there-, and the Monday after that was Clean Monday, the end of carnival and the start of what is probably best compared to Lent, what once upon a time was a 40-day period of ‘fasting’ all the way to Easter. No Fat Tuesday or Ash Wednesday, as far as I could find.
Konstantinos and his people made sure that everyone, homeless and refugees, had a Christmas and New Year’s party like ‘normal’ people. Someone had donated a whole lot of turkey for Christmas, there was some meat to eat, and on Cholesterol Day there was even over 1000 kilos of meat to be spread to the Social Kitchens all over the country. It’s the kind of thing that makes people feel they do count, and they do belong, despite the misery they find themselves in.
Just as important, if not more, was the fact that all children who were present in the Big House in Athens, many of whom are homeless, received presents on Greek New Year. That means so much to them. Holidays without presents is cruel to children. I’ll sprinkle some pictures through this article.
Nobody gets left out at Christmas
Through all these events one thing that kept popping into my head was how close they brought joy and misery together. It’s pretty much priceless to see the happiness in people’s faces when they are served a real Christmas meal, a sign that they belong to the ‘human tribe’, that they ARE important, and there ARE people who care about them. Being able to do that for people is a very precious thing. As I said to someone also involved in refugee work a while ago: I’m sure that when we look back on this years from now, we’re going to say this is the best thing we’ve done in our lives, or right up there.
But at the same time, you can’t look at the joy without realizing where it comes from, why a simple meal or a Christmas present means so much; it comes from the every day misery so many people live in, in Greece these days. Looking at people knowing they’ll have no place to sleep that night, while it’s pretty cold outside too (colder than I thought Athens would be), it will never be easy. The misery is always close to the surface.
So I want to thank you once again, Automatic Earth readers, for having made much of this possible through your donations. You help make a lot of people feel better, help them eat, shower, give them a sense of dignity. In the process, you make me feel better too. Thank you. (Update: Saw a video the other day of a girl tattoo artist who set up a program to change self-mutilated arms into beautiful works of body art. Her reason to do this: “You don’t know what happiness is within yourself until you do something for another person.” That. You rock.
Happiness is a little girl’s face
That €1000 I gave Konstantinos was again the last money I had to donate to him, so I will call on you once more, and shamelessly so (which I allow myself to do because it’s for others, and it really helps). The Automatic Earth for Athens Fund has so far generated over $50,000(!) -one wonderful soul sent me a check for $10,000…-, and it’s a bit of a victim of its own success. The more there is, the more gets spent; we don’t want to not help people. And already the number of meals O Allos Anthropos can prepare and serve is dropping again, for monetary reasons; the number should be going up instead. We’re rowing against a strong current, which is awfully ironic, as you can see in the rest of this article.
I was reading an article earlier this week from AFP about an Italian program for refugees that shows everything that is wrong about how the crisis is being dealt with in Europe. Italy has started flying in Syrian refugees from Beirut, so they don’t have to spent a fortune on a risky sea voyage only to be locked up for months in camps. There are other ways. Kudos to Italy, and may many other countries follow their example:
Just before midnight in a sleepy district of Beirut, dozens of Syrian refugees huddle in small groups around bulging suitcases, clutching their pinging cellphones and one-way tickets to Italy. “Torino! Pronto! Cappuccino!” They practise random Italian words in a schoolyard in the Lebanese capital’s eastern Geitawi neighbourhood, waiting for the buses that will take them to the airport, and onwards to their new lives in Italy. Under an initiative introduced last year by the Italian government, nearly 700 Syrian refugees have been granted one-year humanitarian visas to begin their asylum process in Italy. The programme is the first of its kind in Europe: a speedy third way that both avoids the United Nations lengthy resettlement process and provides refugees with a safe alternative to crammed dinghies and perilous sea crossings.
[..] A country of just four million people, Lebanon hosts more than one million Syrian refugees. For members of Mediterranean Hope, the four-person team coordinating Italy’s resettlement efforts from Lebanon, “humanitarian corridors” are the future of resettlement. The group interviews refugees many times before recommending them to the Italian embassy, which issues humanitarian visas for a one-year stay during which they begin the asylum process for permanent resettlement. “It’s safe and legal. Safe for them, legal for us, says Mediterranean Hope officer Sara Manisera. “After people cross the Mediterranean on the journey of death, they are put into centres for months while they wait. But with this programme, there are no massive centres, it costs less, and refugees can keep their dignity,” she tells AFP.
Since March 20 was the 1st anniversary of the EU-Turkey refugee deal, many articles were published about what happened during the past year. And I haven’t seen one that was positive, which makes a lot of sense. There may be fewer refugees arriving in Greece now, but the situation of those who are in the country has gotten much worse. They are now prisoners, ‘housed’ in squalid conditions and with very little idea what will happen to them, how long their asylum applications will take to be heard, if they can or will be sent back to Turkey.
And now, with Erdogan getting ever more desperate in his quest to become the over-powerful president of Turkey, with just 4 weeks left till the referendum that should make him so, and with polls showing he’s behind, the EU-Turkey deal may well fall victim to petty politics. As it always looked to do. Who will suffer if that happens? The usual suspects, Greece and the refugees. The walls to fortress Europe are still shut tight. And it’s always election time somewhere.
Live cooking in Monastiraki Square, Athens
A friend recently translated something for me that Konstantinos had written on the O Allos Anthropos Facebook page. He said that every refugee who, before the EU-Turkey deal, passed through Greece on his/her way to Europe, cost the EU €800. For a family of 5 that adds up to €4,000, which would have been more than enough to pay for transport, stay at decent hotels and eat in normal restaurants for the duration of their trip (7-10 days). Suffice it to say, that was not what they got.
After the EU-Turkey deal made it impossible for refugees to leave Greece, €15,000 has been spent per capita. That is €75,000 per family of 5, more than enough to rent a villa on the beach, hire a butler and eat gourmet food for 8 months. Instead, the refugees are stuck in old abandoned factories with no facilities, in old tents in the freezing cold and in the rain, and forced to eat a dirt poor version of rice with chickpeas and lentil soup.
Then over the weekend I saw this confirmed in a graph issued by Refugees Deeply (with slightly lower numbers, but those are just margin errors). Note: March 16 2015 in the graph should of course read March 16 2016:
Refugees Deeply are a bit of a new kid on the block, they’re a year old, and I have no doubt they do care and have the best intentions. But since they operate throughout the world, not just in Greece, they run the same risk many international NGOs do, of spreading their resources too thin. Moreover, one thing that’s become obvious is that if you approach and treat Greece the same way as Somalia, for instance, you’re certain of making some major mistakes. Greece was a modern and prosperous country until Europe tried to turn it into Somalia.
What’s good is that it focuses on the failures of the Greek government in the never-ending refugee tragedy, because that was a part that had largely been missing. But what’s not so good is that it focuses almost exclusively on that. And that’s far from the whole story.
You see, there are three separate parties involved in the saga that have access to serious funding, and all three have their own reasons NOT to solve the problems to the best of their abilities. There’s the EU, there’s Greece, and there are dozens of NGOs, many of whom are large and operate internationally (iNGOs).
The EU wants to use Greece as a deterrent. It aims to create an image to the world of Greece as a sordid inhumane place that no potential refugee should ever wish to flee to. Because it doesn’t want any more refugees. 1 million refugees is too much for a continent, and a political union, of 500 million people. Rich Europe is overwhelmed by 0.2% more people. (Note: I’m not advocation open borders or anything, I’m just saying we need to take care of people in need, which is basically what the Geneva Convention says. Until we decide to stop bombing countries like Syria, and start rebuilding them, people will come to our territory to seek help.)
The EU also wants to put Greece in an even harder predicament, for politico-economic reasons. Brussels hands out a lot of money, but it doesn’t- from what I’ve been reading- seem to keep proper tabs of where that money is going, or how it’s spent. That way its hands are always clean: we gave all this money, you can’t blame us! And their hands will remain clean until someone calls them on their lack of oversight of what happens to taxpayers’ money. But taxpayers don’t even know who to call on, Europe is faceless.
The Greek government, too, likes the deterrent idea, albeit for slightly different reasons. While the EU has money to burn, Greece has none. The country doesn’t have the means to handle the refugee influx; it doesn’t even have the means to deal with its own domestic austerity-driven misery. The last thing it wants to do is give the impression that it is able to deal with the whole thing.
That might give refugees the idea that Greece is a good place to go to, and it might give Brussels the idea that Greece can handle this, so it must be doing fine. Also, there are (party-) political issues, there is rampant corruption, and there are egos. Greece is a country that politically, socially and economically has been robbed of any and all certainties and confidence. Where the poor take care of each other and the rich only have eye for themselves. But it’s hardly a functioning society anymore, it’s a bankruptcy fire sale.
The only thing surprising about the letter bombs (parcels) for Dijsselbloem, the IMF and Schäuble sent from Greece is that it took so long. Punishing a country into paying more than they could possibly afford is Versailles redux. But sure, the Greek part in the refugee crisis needs serious scrutiny as well: how Mouzalas can still be migration minister after the Refugees Deeply piece is hard to see. Then again, sources on the ground tell me it’s not -only- him, it’s the overall chaos and infighting.
And there are protests
The third party, the NGOs, is a bit tricky to talk about. For one, because there are so many of them, and in many lots of people work with the best possible intentions. That coming to a country where you don’t know the language or culture is not a perfect plan may often get lost in translation, certainly for unpaid bright-eyed young volunteers looking for a holiday but with a meaning.
It’s tricky also because NGOs, as I’ve written before, have become an industry in their own right, institutionalized even. As someone phrased it: we now have a humanitarian-industrial complex. Which in Greece has received hundreds of millions of euros and somehow can’t manage to take proper care of 60,000 desolate souls with that.
I’ve even been warned that if I speak out too clearly about this, they may come after Konstantinos and his people and make their work hard and/or impossible. This is after all an industry that is worth a lot of money. Aid is big business. And big business protects itself.
Still, if we’re genuinely interested in finding out how and why it is possible that hundreds of millions of taxpayer euros change hands, and people still die in the cold and live in subhuman conditions, we’re going to have to break through some of the barriers that the EU, Greece and the iNGOs have built around themselves.
If only because European -and also American- taxpayers have a right to know what has made this ongoing epic failure possible. And of course the first concern should be that the refugees have the right, encapsulated in international law, to decent and humane treatment, and are not getting anything even remotely resembling it.
Refugees Deeply quotes ‘a senior aid official’ (they don’t say from what) anonymously saying that €70 out of every €100 in aid is wasted. I see little reason to question that; if anything, it could be worse. But on the sunny side that means it need not take much to improve things. If ‘only’ one third of the aid were wasted, the portion that actually helps could potentially be doubled.
Most importantly: how do you waste at least €560 million (7/10 of €800 million) when that was intended for people in misery, in peril, in desperate need? I find it hard to wrap my mind around this, can’t seem to understand how actual people in Brussels can allow that to happen, when it’s about taxpayers’ money supposed to help people in grave distress. And I can’t figure out how Greece can allow that people freeze to death on its territory, when that could obviously have been easily prevented.
Nor can I fathom how iNGOs, who together have received hundreds of millions, can fail to build a number of decent winter camps, having been warned and funded months in advance. A lot of money goes to contractors, to the caterers who provide the awful meals at ten times the cost that O Allos Anthropos does, to the builders who don’t build, to the ubiquitous wheeler-dealers who can smell a cheap profit from miles away. And NGO executives want their often hefty salaries to be paid in time.
But even then I keep on thinking: where has all the money gone? They could have built or rented great facilities for all 60,000 refugees, and fed them, and schooled their children, and still have plenty of profit left. Why must greed be so unbridled?
In view of all this wasted money, we, Konstantinos and his people, can do so much more and so much better. But then again, of course, we can’t, because we don’t have that kind of funding, not even to spend wisely. And we won‘t either since we don’t want to comply with rules that would force O Allos Anthropos to refuse a meal to a hungry person, Greek or refugee, who doesn’t have ‘the proper ID’.
That ID thing fits ‘wonderfully’ into the EU model that has turned so many refugees into de facto prisoners, and has made so many Greeks destitute. In the end, aid must come from the heart, not from a wallet. Once humanitarian aid becomes a profit-based industry, as it so clearly has here, situations like the ones I describe here become inevitable. It all must come from the desire to help fellow human beings, and that should never be something that someone gets rich off of.
And compromising that in order to let the same machine fund you that has created so much mayhem feels like a road to some place between hell and nowhere. It’s sort of the opposite of Sartre’s “L’enfer c’est les autres” (Hell is other people). O Allos Anthropos means ‘The Other Human’. In other words, heaven is other people too. I could make a good case arguing that this is the very meaning of life, that we are here to help others. But that of course is just me. And thankfully and hopefully, bless you, many of our readers.
I don’t want to spend too much time being angry over the whole thing. The best we can all do is be positive, work with we have, and help as many people as we can. Of course Konstantinos and I, and many others, talk about becoming an NGO. But in his view, that would mean becoming a part of the machine, the industry, that does so much harm, wastes so much money and precious resources, and hurts so many needy people in the process.
Konstantinos is very much opposed to that, and I agree with him (not everyone always does). For him, it’s about never forgetting the reason why you do what you do, and certainly not forgetting it for money. But at the same time, yes, with more money we could do so much more. The number of projects that don’t get done, the people who don’t get fed, because the money is simply not there, is for lack of a better term, embarrassing. Especially, obviously, because that same money does get wasted somewhere else.
So we ask you once again for your help:
For donations to Konstantinos and O Allos Anthropos, the Automatic Earth has a Paypal widget on our front page, top left hand corner. On our Sales and Donations page, there is an address to send money orders and checks if you don’t like Paypal. Our Bitcoin address is 1HYLLUR2JFs24X1zTS4XbNJidGo2XNHiTT. For other forms of payment, drop us a line at Contact • at • TheAutomaticEarth • com.
To tell donations for Kostantinos apart from those for the Automatic Earth (which badly needs them too!), any amounts that come in ending in either $0.99 or $0.37, will go to O Allos Anthropos. Every penny goes where it belongs, no overhead. Guaranteed. It’s a matter of honor.
Please give generously.
A list of the articles I wrote so far about Konstantinos and Athens.
Beijing may have averted a crisis in its stock markets with heavy-handed intervention, but the world’s biggest corporate debt pile – $16.1 trillion and rising – is a much greater threat to its slowing economy and will not be so easily managed. Corporate China’s debts, at 160% of GDP, are twice that of the United States, having sharply deteriorated in the past five years, a Thomson Reuters study of over 1,400 companies shows. And the debt mountain is set to climb 77% to $28.8 trillion over the next five years, credit rating agency Standard & Poor’s estimates. Beijing’s policy interventions affecting corporate credit have so far been mostly designed to address a different goal – supporting economic growth, which is set to fall to a 25-year low this year.
It has cut interest rates four times since November, reduced the level of reserves banks must hold and removed limits on how much of their deposits they can lend. Though it wants more of that credit going to smaller companies and innovative areas of the economy, such measures are blunt instruments. “When the credit taps are opened, risks rise that the money is going to ‘problematic’ companies or entities,” said Louis Kuijs, RBS chief economist for Greater China. China’s banks made 1.28 trillion yuan ($206 billion) in new loans in June, well up on May’s 900.8 billion yuan.
The effect of policy easing has been to reduce short-term interest costs, so lending for stock speculation has boomed, but there is little evidence loans are being used for profitable investment in the real economy, where long-term borrowing costs remain high, and banks are reluctant to take risks. Manufacturers’ debts are increasingly dwarfing their profits. The Thomson Reuters study found that in 2010, materials companies’ debts were 2.8 times their core profit. At end-2014 they were 5.3 times. For energy companies, indebtedness has risen from 1.1 to 4.4 times core profit. For industrials, from 2.5 to 4.2.
Turbulence on China’s equity market is starting to rock the country’s property market. Investors are quickly pulling their cash out of housing they purchased to cover losses incurred by stock investments. Some have begun offering discounts on property due to difficulties with finding buyers. Continued turmoil on the stock market looks as though it will have a heavy impact on the country’s real estate market. China’s stock market rally also helped drive up sales of domestic homes. The Shanghai Composite Index surged 60% from its low of around 3,200 in early March, rising to 5,166 logged on June 12. China Securities Depository and Clearing said that the number of accounts opened to trade yuan-denominated A-shares reached 980,000 in May in Shenzhen, where property prices are climbing faster than other areas.
The figure accounted for roughly 80% of the total 1170,000 accounts in Guangdong Province, where large numbers of such account holders reside. Many newbie investors, who have just jumped into the stock market, likely gave a fresh impetus to the property market. China’s share price upswing prompted investors to reach out for new investments, including houses and other properties. A property analyst at major Chinese brokerage Guotai Junan Securities said that sales of luxury properties worth over 10 million yuan ($1.61 million) each for the first half of the year topped annual sales last year in Shanghai and Beijing. After this, Chinese stocks began to crumble. In early July, the Shanghai Composite Index dropped more than 30%, after hitting a seven-year high in mid-June.
Investors who suffered big losses on the stock market were forced to sell property and cancel real estate purchase agreements. The Hong Kong Economic Times said that consumers are increasingly asking real estate firms for grace periods on down payments for mortgage loans, as they run out of cash because of weak stocks. Some canceled home purchase contracts, while others canceled mortgage loans, according to China’s largest property developer China Vanke, which has a strong foothold in Shenzhen. Local media reported that an official at China Vanke is concerned about massive numbers of cancellations in the future.
For now I think we can safely say the panic is finally over, but none of the fundamental questions have been resolved and I expect continued volatility. Because I also think the market remains overvalued, however, I have little doubt that we will see at least one more very nasty bear market. Either way the panic and the policy responses have opened up a ferocious debate on China’s economic reforms and Beijing’s ability to bear the costs of the economic adjustment. Among these costs are volatility. Rebalancing the economy and withdrawing state control over certain aspects of the economy, especially its financial system, will reduce Beijing’s ability to manage the economy smoothly over the short term but it may be necessary in order to prevent a very dangerous surge in volatility over the longer term. Sunday’s Financial Times included an article with the following:
Critics of the measures unleashed by Beijing last week argue that they point to a fundamental tension at the heart of China’s political economy that a free-floating renminbi would test even more severely. The ruling Chinese Communist party, they argue, is ultimately incapable of surrendering control of crucial facets of the country’s economic and financial system. As one person close to policymakers in Beijing puts it: “The problem with this system is that it cannot tolerate volatility and markets are all about volatility.”
It’s not just that markets are about volatility. It is that volatility can never be eliminated. Volatility in one variable can be suppressed, but only by increasing volatility in another variable or by suppressing it temporarily in exchange for a more disruptive adjustment at some point in the future. When it comes to monetary volatility, for example, whether it is exchange rate volatility or interest rate and money supply volatility, central banks can famously choose to control the former in exchange for greater volatility in the latter, or to control the latter in exchange for greater volatility in the former.
Regulators can never choose how much volatility they will permit, in other words. At best, they might choose the form of volatility they least prefer, and try to control it, but this is almost always a political choice and not an economic one. It is about deciding which economic group will bear the cost of volatility.
A prominent economist says China’s banks are circling debt-stricken countries like Greece, offering an alternative to the brutal austerity measures proposed by the IMF and EU. Former adviser to the IMF and the World Bank, John Perkins, told the ABC’s The Business that China’s Asian Infrastructure Investment Bank (AIIB) and the BRICS bank were courting countries like Greece. Mr Perkins said he believed China had sent people to Greece to offer an alternative bailout deal. “If I were the finance minister running the system I would seriously be looking at that alternative. I think that the Chinese are presenting a competitive edge here,” he said.
Mr Perkins revealed in his international bestseller, Confessions of an Economic Hit Man, how international organisations like the IMF and the World Bank enslave countries like Greece by offering crippling and unsustainable loans which never deliver the economic growth they promise. He said he believed Greece and the other European countries in similar positions should turn to China as a means of breaking the debt spiral. “These austerity programs are not the right program, even the IMF said recently there has to be more debt forgiveness we have to readjust the debt and the Europeans don’t seem willing to do this,” he said. Mr Perkins was surprised by the IMF’s public criticism of the eurozone’s bailout deal this week and said it shows the growing influence of China’s banks.
“I think the motivation may have been the Chinese because the Chinese have stepped in before, in Ecuador and several other countries, and we now have these very powerful banks that the Chinese are heading up,” he said. Mr Perkins said the growing strength of the banks will result in a major shift of power away from the United States and European Union. He conceded that there is nothing to stop China from becoming another “economic hit man” but said the Chinese have a good record so far, particularly in South American countries like Ecuador. “I recently met with a minister of Ecuador – and he said ultimately that he has no idea what China will do but we do know that the IMF, the World Bank, the Europeans and the US have screwed us over,” he said. “They’ve put military bases around here and threatened us and China hasn’t done that, so right now we trust China more than the US.”
Europe’s next recession will “kill the euro” according to economist, writer and journalist David McWilliams. McWilliams, who is among the best economics commentators from the only Anglophone nation in the euro – Ireland, warns that we only have a few months to plan an alternative to the disastrous consequences on peripheral nations of what he sees as German hegemony. He describes the mismanagement of the euro currency as “both laughable and terrifying”. Marathon negotiation sessions are not conducive to clear headed, rational decision making on the future of a nation or the eurozone. Indeed, it smacks of coercion. He lambasts the suggestion offered that Greece could have a “temporary euro”, adding, “If the board and management of a public company dealt with problems like this, the share price would collapse. There is quite simply no corporate governance within the euro”.
David McWilliams believes that Germany is out control. France is no longer strong enough to offer a counterweight and Britain is happy to allow the circus to continue as they focus on potentially getting out of the EU. He describes last weekends negotiations in Brussels as a “teutonic kangaroo court”. Should Britain successfully navigate its way out of the EU, other countries will likely follow rather than exist as provinces of Germany. Norway and Switzerland have coped just as well from the outside as their EU neighbours. He makes the obvious, though seldom heard assertion that “when economic negotiations stop making economic sense, you should begin to question the motives of the EU”. Pointing to the plundering of Greek state assets to pay off creditors whilst forcing further austerity on the Greek people.
Each previous round of austerity has caused the economy to contract further – thus forcing Greece into a debt trap from which it cannot escape. We believe this is a crucial point. While Germany have played a major role it in the subjugation of Greece it is worth asking who truly benefits from economic negotiations that have stopped making economic sense. Could it be the large banks who, following a similar model imposed on countries in Latin America, Southeast Asia and Africa since the 1970’s, continue to extract wealth from the poorest people on earth? Has not almost every development in the EU in the past ten years served to consolidate the power of financial institutions at the expense of the citizenry?
McWilliams highlights the dramatic u-turn in policy where membership of the EU is now conditional. When Mario Draghi initiated the “whatever-it-takes” mass purchase of bonds of peripheral nations the message was clear – the euro is forever. Now, however, countries must bend to Germany’s demands which are the demands of politicians who want to keep their electorate happy if they are to be re-elected. “Countries that don’t play ball with Germany will see their banking system used against their democratically elected politicians. The banking system is the soft underbelly and the Germans are prepared to orchestrate bank runs in member states to get their way. This is not only new, it is outrageous.”
Deeper fiscal integration in the eurozone is a “huge mistake” that could end up tearing the bloc apart, Sweden’s former finance minister has warned. Anders Borg said forcing countries to cede sovereignty could trigger a right-wing backlash across Europe, as he predicted that countries such as Sweden and Poland, which are obliged to join the euro, would not adopt the single currency for “decades”. “If you go for tighter co-operation that basically brings higher taxes to the north to subsidise the south, you build in a political divide that is not sustainable in the long term,” he said. Mr Borg, who stepped down in October 2014, said that while the current structure of the eurozone was problematic, the only way to secure a broad-based recovery across the bloc without creating a political rift was to focus on competitiveness.
“We’re not talking about good and bad outcomes here, we are talking about only very problematic alternatives. If you push for further fiscal integration, moving more decisions to Brussels, taxing northern European countries more heavily and subsidising countries with long-term competitive issues and deep problems in the south you would obviously have a strong Right-wing reaction that would undermine the political support for that direction and create a less open, less liberal and less dynamic Europe,” he said. “I think there are great risks in connection to the course that we now hear from political integration. There is no voter base for that and it’s not certain either that you’re dealing with the right focus.”
Mr Borg said the eurozone and the wider EU area, which includes the UK, should focus on policies such as “completing the single market, voting for free trade co-operation with the US and increasing infrastructure investment”. “[Countries] are under-spending on infrastructure. We are under-spending in education. Our labour markets are over-regulated and we have tax levels for investment and work that are too high, so we need to do fundamental tax reforms and we need to fix our expenditure so that we are concentrating on the areas where public expenditures have most return.” Mr Borg, who voted for Sweden to join the euro in 2003, said the country’s membership was unlikely for “decades”. “It’s very difficult to argue today to your population that it’s a well functioning system,” he said.
Mr Borg, who predicted in 2012 that Greece would leave the euro, welcomed the news that the eurozone had opened the door to a third Greek bail-out package to begin. He said he was in “full agreement” with the IMF that creditors needed to write off some of the country’s debt “substantially”. “There is a need to establish a credible long-term programme for financing Greece. There is serious rethinking that has to be done on the Greek side but also on the creditors’ side. I would hope that people are ready to do this because the alternative is catastrophic for Greece. It’s clear that we’re not out of the woods yet,” he said.
Unravelling the tangled logic of Greece’s bail-out talks, Charlemagne has learned, is a little like trying to explain the rules of cricket to an American. How to make sense of a process in which Greek voters loudly spurn a euro-zone bail-out offer in a referendum, only to watch Alexis Tsipras, their prime minister, immediately seek a worse deal that is flatly rejected by the euro zone, which in turn presses a yet more stringent proposal to which Mr Tsipras humbly assents? Better, perhaps, not to try. After six months of this nonsense, little wonder everyone is depressed. The immediate danger of Grexit has at least been averted, after Mr Tsipras and his fellow euro-zone heads of government pulled a brutal all-nighter in Brussels this week.
But it comes at the price of a vast taxpayer-funded bail-out for Greece, worth up to €86 billion over three years, and a humiliating capitulation by Mr Tsipras. Greece’s economy is in tatters, its creditors are fuming and Europe’s institutions are in despair. Much to Britain’s disgust even non-euro countries have been sucked into the nightmare: a bridge loan designed to keep Greece afloat while the bail-out talks proceed looks set to tap a fund to which all EU countries have contributed. But wasn’t this week’s agreement a triumph for the shock troops of austerity? Hardly. Finland’s coalition, formed only two months ago, tottered at the prospect of funding a third Greek bail-out. The Dutch prime minister, Mark Rutte, has admitted that it would violate an election pledge he made in 2012.
One euro-zone diplomat says that 99% of her compatriots would say “no” to the bail-out if offered a Greece-style referendum. Even Angela Merkel, Germany’s chancellor and Mr Tsipras’s chief tormentor, is damaged. The deal, crafted largely by Mrs Merkel, Mr Tsipras and François Hollande, France’s president, has exposed the German chancellor to competing charges: of cruelty abroad and of leniency at home, notably among Germany’s increasingly irritable parliamentarians, who must vote twice on the Greek package. Europe’s single currency, designed to foster unity and ease trade between its members, has thus become a ruthless generator of misery for almost all of them.
More than five years have passed since May 2010, when Greece was enticed to borrow €73 billion from the IMF, EC and ECB with painful strings attached. That 2010 program, said the IMF, “had two broad aims: to make fiscal policy and the fiscal and debt position sustainable, and to improve competitiveness.” There was no emphasis on improving domestic economic growth or employment — just “competitiveness” in trade. The IMF speculated that “restoring confidence” would “lead to a growth recovery” in 2012. When that didn’t happen, another €154 billion in loans was provided. And the IMF blamed the bad “investment climate” on a “lack of confidence,” rather than any lack of after-tax income.
Prominent U.S. economists blame the seven-year depression in Greece on savage cutbacks in government spending. “The contraction in government spending has been predictably devastating,” wrote Joseph Stiglitz in February. And Paul Krugman later criticized the period “from 2009 to 2013, the last year of major spending cuts” in Southern Europe. In reality, however, Greek government spending rose from 44.9% of GDP in 2006 to 53.7% from 2009 to 2012 and to 60.1% in 2013. That 2009-2013 “fiscal stimulus” was precisely when the economy contracted — by 4.4% in 2009, 5.4% in 2010, 8.9% in 2011, 6.6% in 2012 and 3.9% in 2013. By contrast, the economy grew slightly in 2014 when government spending was “only” half of GDP.
That is, the economy fell when government’s share rose, and the economy rose when government’s share fell. What is rarely or never mentioned in the typically one-sided misperception of spending “austerity” is the other side of the budget — namely, taxes. The latest Greek efforts to appease creditors would raise corporate tax again to 28%, raise the 5% “solidarity surcharge” on personal incomes, and discourage tourism by raising the VAT on restaurants and island shopping. Looked at separately, each of these suffocating tax rates might appear almost reasonable. Looked at together, they are totally unreasonable.
To offer a Greek employee an extra €100 requires that €42 be first subtracted for Social Security tax, and then up to €46 more subtracted for income tax. Out of the original €100 of marginal labor cost, the remaining €14 of after-tax income going to a skilled worker could only buy about €10 worth of goods after value-added tax is paid. The tax wedge between what employers pay for labor and what workers have left to spend, after taxes, is 43.4% for a Greek family of four with average earnings — the highest in the OECD and more than double the comparable U.S. wedge of 20.6%. This demoralizing tax wedge, which grows even larger at higher incomes, clearly depresses hiring and working in the formal economy. It also helps explain why a third of the Greek labor force is self-employed (making tax avoidance easier).
The Greek parliament has now voted to surrender control of the Greek state to platoons of bureaucrats from Brussels, Frankfurt and Berlin, who will now re-impose the full policy regime against which Greeks rebelled in January 2015 — and which they again rejected, by overwhelming majority, in the referendum of July 5. The orders from Brussels will impose strict new rules on the Greek people in the interest of paying down Greece’s debt. In return, the Europeans and the IMF will put up enough new money so that they themselves can appear to be repaid on schedule — thus increasing Greece’s debt — and the ECB will continue to prop up the Greek banking system. A hitch has already appeared in the plan: the IMF, whose approval is required, has pointed out — correctly — that the Greek debt cannot be paid, and so the Fund cannot participate unless the debt is restructured.
Now Germany, Greece’s main creditor, faces a new decision: either grant debt relief, or force Greece into formal default, which would cause the ECB to collapse Greece’s banks and force the Greeks out of the Euro. There are many ways to rewrite debt, and let’s suppose the Germans find one they can live with. The question arises: What then? An end to the immediate crisis is likely to have some good near-term effect. The Greek banks will “reopen,” likely on Monday, and the European Central Bank will raise the ceiling on the liquidity assistance on which they rely for survival. The ATMs will be filled, although limits on cash withdrawals and on electronic transfers out of the country will likely remain. There will be some talk of new public investment, funded by the EU; perhaps some stalled road projects will restart.
With these measures, it is not impossible that the weeks ahead will see a small uptick of economic life, and certainly, any such will make big news. It’s also possible that even without good news, Greece may limp along in stagnation, within the euro. ut if you walk through the requirements of Greece’s new program, there is another possibility. That possibility is an economic death spiral — contraction leading to banking failure, banking failure leading to contraction — first in Greece and, later on, elsewhere in Europe.
Former Greek Finance Minister Yanis Varoufakis has told the BBC that economic reforms imposed on his country by creditors are “going to fail”, ahead of talks on a huge bailout. Mr Varoufakis said Greece was subject to a programme that will “go down in history as the greatest disaster of macroeconomic management ever”. The German parliament approved the opening of negotiations on Friday. The bailout could total €86bn in exchange for austerity measures. In a damning assessment, Mr Varoufakis told the BBC’s Mark Lobel: “This programme is going to fail whoever undertakes its implementation.” Asked how long that would take, he replied: “It has failed already.”
Mr Varoufakis resigned earlier this month, in what was widely seen as a conciliatory gesture towards the eurozone finance ministers with whom he had clashed frequently. He said Greek Prime Minister Alexis Tsipras, who has admitted that he does not believe in the bailout, had little option but to sign. “We were given a choice between being executed and capitulating. And he decided that capitulation was the optimal strategy.” Mr Tsipras has announced a cabinet reshuffle, sacking several ministers who voted against the reforms in parliament this week. But he opted not to bring in technocrats or opposition politicians as replacements. As a result, our correspondent says, Mr Tsipras will preside over ministers who, like himself, harbour serious doubts about the reform programme.
Greece must pass further reforms on Wednesday next week to secure the bailout. Germany was the last of the eurozone countries needing parliamentary approval to begin the talks. But the head of the group of eurozone finance ministers, Jeroen Dijsselbloem, has warned that the process will not be easy, saying he expected the negotiations to take four weeks. On Saturday, the Greek government ordered banks to open on Monday following three weeks of closures. Separately, the European Council approved the €7bn bridging loan for Greece from an EU-wide emergency fund. The loan was approved in principle by eurozone ministers on Thursday and now has the go-ahead from all non-euro states. It means Greece will now be able to repay debts to two of its creditors, the ECB and IMF, due on Monday.
The avalanche of toxic bailouts that followed the Eurozone’s first financial crisis offers ample proof that the non-credible ‘no bailout clause’ was a terrible substitute for political union. Wolfgang Schäuble knows this and has made clear his plan to forge a closer union. “Ideally, Europe would be a political union”, he wrote in a joint article with Karl Lamers, the CDU’s former foreign affairs chief (Financial Times, 1st September 2014). Dr Schäuble is right to advocate institutional changes that might provide the Eurozone with its missing political mechanisms. Not only because it is impossible otherwise to address the Eurozone’s current crisis but also for the purpose of preparing our monetary union for the next crisis. The question is: Is his specific plan a good one? Is it one that Europeans should want?
How do its authors propose that it be implemented? The Schäuble-Lamers Plan rests on two ideas: “Why not have a European budget commissioner” asked Schäuble and Lamers “with powers to reject national budgets if they do not correspond to the rules we jointly agreed?” “We also favour”, they added “a ‘Eurozone parliament’ comprising the MEPs of Eurozone countries to strengthen the democratic legitimacy of decisions affecting the single currency bloc.” The first point to raise about the Schäuble-Lamers Plan is that it is at odds with any notion of democratic federalism. A federal democracy, like Germany, the United States or Australia, is founded on the sovereignty of its citizens as reflected in the positive power of their representatives to legislate what must be done on the sovereign people’s behalf.
In sharp contrast, the Schäuble-Lamers Plan envisages only negative powers: A Eurozonal budget overlord (possibly a glorified version of the Eurogroup’s President) equipped solely with negative, or veto, powers over national Parliaments. The problem with this is twofold. First, it would not help sufficiently to safeguard the Eurozone’s macro-economy. Secondly, it would violate basic principles of Western liberal democracy. Consider events both prior to the eruption of the euro crisis, in 2010, and afterwards. Before the crisis, had Dr Schäuble’s fiscal overlord existed, she or he might have been able to veto the Greek government’s profligacy but would be in no position to do anything regarding the tsunami of loans flowing from the private banks of Frankfurt and Paris to the Periphery’s private banks.
Those capital outflows underpinned unsustainable debt that, unavoidably, got transferred back onto the public’s shoulders the moment financial markets imploded. Post-crisis, Dr Schäuble’s budget Leviathan would also be powerless, in the face of potential insolvency of several states caused by their bailing out (directly or indirectly) the private banks. In short, the new high office envisioned by the Schäuble-Lamers Plan would have been impotent to prevent the causes of the crisis and to deal with its repercussions. Moreover, every time it did act, by vetoing a national budget, the new high office would be annulling the sovereignty of a European people without having replaced it by a higher-order sovereignty at a federal or supra-national level.
They used to be pejoratively labelled the “Pigs”: Portugal, Ireland, Greece and Spain, the “peripheral” countries carried into the eurozone on a wave of prosperity that were all forced to go cap in hand to their neighbours – and the IMF – when the financial crash came. Yet while Greece’s plight has only worsened over the five years since it was first rescued, the other three bailed-out countries have managed to return to growth, and send the inspectors from the International Monetary Fund back to Washington. Ireland graduated from its bailout programme in 2013. Spain – which never had a full-blown rescue, but received aid to prop up its ailing banks – did so in January last year; Portugal followed suit shortly afterwards.
As Greece attempts to rebuild its shattered economy with the aid of last week’s controversial bailout, it will be encouraged to take heart, and learn the lessons, from these success stories. Yet these countries have taken their own, tough paths back to economic growth – and the pain is still being felt. Ireland, which experienced an extraordinary property boom in the runup to the crisis and a deep downturn when the reckoning came, is expected to see GDP growth of around 5% this year. But its economic output is artificially boosted by the enthusiasm of multinationals for the country’s rock bottom 12.5% corporation tax rate — part of a long-term industrial strategy.
Ireland was also in a very different position to Greece when entering the crisis: until the country’s politicians chose to bail out its fragile banks, the public finances were in a relatively healthy state, with government debt at around 40% of GDP. Nevertheless, Michael Taft of the Unite trade union in Ireland says the deep spending cuts imposed as part of the post-crisis settlement have left long-term scars. “30% of people live in deprivation conditions – 40% of children,” he says. He adds that the fact that parties on both sides of the political divide shared a commitment to spending cuts meant it was hard for a Syriza-style, anti-austerity narrative to take hold: “The debate has been like the sound of one hand clapping.” However, more recently there was a noisy public revolt when the government considered imposing charges for water.
At the moment it appears that Tsipras the pragmatist has knocked out Tsipras the ideologue. “He’s finally putting his country before his party,” one opposition politician said on Wednesday, expressing relief. But Tsipras didn’t have any other choice. If Tsipras hadn’t reached an agreement in Brussels, Greece would have collapsed. The banks would have collapsed; even more businesses would have gone under. And Tsipras would have been the one responsible for it all. But with his U-turn, he also showed that he is ultimately a politician and not a gambler. The latest summit in Brussels lasted 17 hours, during which Tsipras abandoned one position after the other. He repeatedly left the room, where he was negotiating with Angela Merkel, François Hollande and EC President Donald Tusk.
Outside, he telephoned with his people back in Athens. In the end, he did succeed in keeping the fund for privatizing state-owned assets — that was to be based in Luxembourg and used as collateral for the loans — under Athens’ control. The fact that the fund is unlikely to ever bring in the €50 billion expected hardly mattered. Tsipras needed the victory. It is virtually a certainty that this won’t be the only element in the new bailout deal that will not get implemented. Tsipras knows that and so do Greece’s international creditors. Greece will never be able to pay back its debts — the InMF isn’t the only party to have come to this conclusion.
Despite all the broken promises, despite the “no” vote on the austerity diktat that Tsipras would transform into a “yes” vote only a few days later, like some magician pulling a rabbit out of the hat, surveys showed 70% of Greeks supporting the deal, which they consider to be “necessary and without alternative.” 68% say they would vote for Tsipras again if there were new elections. Polls also suggest he would be able to govern without a coalition partner. Those are astonishing figures for a prime minister under whose watch the banks had to be shuttered because they were threatened with collapse. Under whom capital controls had to be introduced, limiting daily withdrawals by Greeks to €60.
Furthermore, the Greek economy hasn’t been in this bad a shape at any other point since the start of the crisis five years ago. After one and a half years of consolidation, the economy has fallen back into recession and is shrinking rapidly. The fact that he isn’t being loudly criticized and that he managed to get 61% of Greeks to back him in the July 5 referendum is Tsipras’ political masterpiece. He had pitted “democracy against the Troika” as he often stated. It was a demonstration of power and at the same time a slap in the face of the Europeans. It’s possible they underestimated Tsipras because he had always come across as being so polite and reserved. But Tsipras also tested the limits and had no qualms about crossing the line.
Former World Bank chief economist and Nobel Prize winner Joseph Stiglitz expressed his serious concerns over the economic rationale behind Greece’s rescue agreement during his meetings with Greek government officials in Athens on Friday. He reassured, however, that both he and a large number of eminent scientists from Europe and America are willing to assist the Greek government in any way possible during its agonizing efforts to end the harsh austerity tantalizing the country and its people. The American economist has been opposed to the tactics of the IMF and the structure of the current financial system, defending Greece and the attempts of Greek Prime Minister Alexis Tsipras during his country’s negotiations with creditors, exerting harsh criticism toward Germany. “Germany has shown no common sense regarding the European economy, nor compassion,” he stressed, disapproving the measures imposed to Greece by European forces, and suggested a “brave” haircut to the Greek debt.
The termination of Greece’s fiscal sovereignty is what is in store for Italy, Spain, and Portugal, and eventually for France and Germany. As Jean-Claude Trichet, the former head of the European Central Bank said, the sovereign debt crisis signaled that it is time to bring Europe beyond a “strict concept of nationhood.” The next step in the centralization of Europe is political centralization. The Greek debt crisis is being used to establish the principle that being a member of the EU means that the country has lost its sovereignty. The notion, prevalent in the Western financial media, that a solution has been imposed on the Greeks is nonsense. Nothing has been solved. The conditions to which the Greek government submitted make the debt even less payable. In a short time the issue will again be before us.
As John Maynard Keynes made clear in 1936 and as every economist knows, driving down consumer incomes by cutting pensions, employment, wages, and social services, reduces consumer and investment demand, and thereby GDP, and results in large budget deficits that have to be covered by borrowing. Selling pubic assets to foreigners transfers the revenue flows out of the Greek economy into foreign hands. Unregulated naked capitalism, has proven in the 21st century to be unable to produce economic growth anywhere in the West. Consequently, median family incomes are declining. Governments cover up the decline by underestimating inflation and by not counting as unemployed discouraged workers who, unable to find jobs, have ceased looking.
By not counting discouraged workers the US is able to report a 5.2% rate of unemployment. Including discouraged workers brings the unemployment rate to 23.1%. A 23% rate of unemployment has nothing in common with economic recovery. Even the language used in the West is deceptive. The Greek “bailout” does not bail out Greece. The bailout bails out the holders of Greek debt. Many of these holders are not Greece’s original creditors. What the “bailout” does is to make the New York hedge funds’ bet on the Greek debt pay off for the hedge funds. The bailout money goes not to Greece but to those who speculated on the debt being paid. According to news reports, Quantitative Easing by the ECB has been used to purchase Greek debt from the troubled banks that made the loans, so the debt issue is no longer a creditor issue.
China seems unaware of the risk of investing in the US. China’s new rich are buying up residential communities in California, forgetting the experience of Japanese-Americans who were herded into detention camps during Washington’s war with Japan. Chinese companies are buying US companies and ore deposits in the US. These acquisitions make China susceptible to blackmail over foreign policy differences. The “globalism” that is hyped in the West is inconsistent with Washington’s unilateralism. No country with assets inside the Western system can afford to have policy differences with Washington. The French bank paid the $9 billion fine for disobeying Washington’s dictate of its lending practices, because the alternative was the close down of its operations in the United States. The French government was unable to protect the French bank from being looted by Washington.
It is testimony to the insouciance of our time that the stark inconsistency of globalism with American unilateralism has passed unnoticed.
Last weekend’s negotiations were painful, but the Greeks were not entirely without friends. Amid the conflict and antagonism, France helped Athens draft its proposals and François Hollande, the French president, battled to avoid Grexit while keeping Germany and others on board. European solidarity looked exhausted. But contrary to some reports, it was not dead. The deal to keep Athens in the single currency, despite all its undesirable aspects, remains vastly preferable to Grexit. Now that the tricky business of implementation is about to begin, it is time that Greece received a little more help from its European friends. Admittedly, generosity was not Mr Hollande’s only motive. Grexit would have spelt still more hardship for Greek people and risked creditors losing all their money.
But it would also have imperilled the European project itself. It would have bolstered the likes of the Nationl Front’s Marine Le Pen in France, who is keen to see the euro disintegrate, and Vladimir Putin, Russian president, who has made clear his desire for European fragmentation. Mr Hollande’s actions were also well received by the ruling Socialist party’s disaffected leftwingers, who harbour sympathy for Greece’s Syriza-led government. But this is not enough of an effort, either on Greece’s part or that of its partners. The agreement comes in the wake of massive austerity in Greece, amid deteriorating economic and fiscal conditions and in an environment where elementary pro-growth reforms have yet to be made. The danger is that the deal, and what should be a healing process in Europe, will be derailed.
One huge issue is implementation: the Greek government needs to improve the judicial system, write a new civil code, fight cartels in product markets and reform public administration very quickly. Such reforms should improve the country’s wellbeing, but enacting them speedily would be a tall order for even the best-organised administration. And it is here that the rest of Europe can and should help out. The fabled École nationale d’administration might offer a few tips, but this is not a question of énarques — as its graduates are known — parachuting into Athens, or of more European overlords appearing in Greece. It is instead one of using European know-how to provide technical assistance in areas where Greece needs it and where Syriza, like its predecessor governments, has failed to deliver.
Goals such as more efficient tax collection (particularly from the rich) and fighting clientelism are part of the agreement and are vital. But they come bundled with other measures, such as value added tax increases, that will stifle any recovery. Hence the need for more solidarity to help the Greeks move fast.
For more than six decades after 1933, Glass-Steagall worked exactly as it was intended to. During that long interval few banks failed and no financial panic endangered the banking system. But the big Wall Street banks weren’t content. They wanted bigger profits. They thought they could make far more money by gambling with commercial deposits. So they set out to whittle down Glass-Steagall. Finally, in 1999, President Bill Clinton struck a deal with Republican Senator Phil Gramm to do exactly what Wall Street wanted, and repeal Glass-Steagall altogether. What happened next? An almost exact replay of the Roaring Twenties. Once again, banks originated fraudulent loans and sold them to their customers in the form of securities. Once again, there was a huge conflict of interest that finally resulted in a banking crisis.
This time the banks were bailed out, but millions of Americans lost their savings, their jobs, even their homes. [..] To this day some Wall Street apologists argue Glass-Steagall wouldn’t have prevented the 2008 crisis because the real culprits were nonbanks like Lehman Brothers and Bear Stearns. Baloney. These nonbanks got their funding from the big banks in the form of lines of credit, mortgages, and repurchase agreements. If the big banks hadn’t provided them the money, the nonbanks wouldn’t have got into trouble. And why were the banks able to give them easy credit on bad collateral? Because Glass-Steagall was gone. Other apologists for the Street blame the crisis on unscrupulous mortgage brokers. Surely mortgage brokers do share some of the responsibility. But here again, the big banks were accessories and enablers.
The mortgage brokers couldn’t have funded the mortgage loans if the banks hadn’t bought them. And the big banks couldn’t have bought them if Glass-Steagall were still in place. I’ve also heard bank executives claim there’s no reason to resurrect Glass-Steagall because none of the big banks actually failed. This is like arguing lifeguards are no longer necessary at beaches where no one has drowned. It ignores the fact that the big banks were bailed out. If the government hadn’t thrown them lifelines, many would have gone under. Remember? Their balance sheets were full of junky paper, non-performing loans, and worthless derivatives. They were bailed out because they were too big to fail. And the reason for resurrecting Glass-Steagall is we don’t want to go through that ever again.
As George Santayana famously quipped, those who cannot remember the past are condemned to repeat it. In the roaring 2000’s, just as in the Roaring Twenties, America’s big banks used insured deposits to underwrite their gambling in private securities, and then dump the securities on their customers. It ended badly. This is precisely what the Glass-Steagall Act was designed to prevent – and did prevent for more than six decades. Hillary Clinton, of all people, should remember.
It cost €1bn (£694m) to build and was on sale for a knockdown price of €40m, but now looks set to be sold for just €10,000. Ciudad Real airport, one of the most notorious emblems of Spain’s economic crash, has found a buyer. A Chinese-led consortium has emerged as the only bidder for the deserted site 100 miles south of Madrid, for an apparent bargain price after no one met the much reduced valuation. Its facilities include a runway long enough to land an Airbus A380, the world’s largest passenger plane, along with a passenger terminal that could handle 10m travellers per year. It is also in pristine condition because it has barely been used, having opened to international flights in 2010 as the eurozone crisis raged, only to shut two years later.
Appropriately for such a vainglorious project, the La Mancha airport was previously named after the region’s most famous, and deluded, literary export: Don Quixote. But Tzaneen International, a Chinese company set up in March with just €4,000 in capital, believes it can succeed where others have failed. Its bid – the only offer – succeeded at a public auction. Its initial €10,000 outlay buys all the land and most of the buildings, including the runway and control tower. Tzaneen says it also wants to acquire the terminal building and the car parks and is prepared to invest up to €100m in the project because “there are several Chinese companies that want to make the airport the European point of entry for cargo”.
[..] when I ask him directly what he thinks of the deal, he seems more discouraged than angry. “I don’t know, it’s always the same story. Every nation has lost its sovereignty.” This leads into the first of many tangents. “We’ve delegated politics to bankers. The ECB is inside Deutsche Bank and Deutsche Bank is inside the Bundesbank,” he says before moving on to mention Japanese “just-in-time” manufacturing and Britain’s zero-hour labour contracts. “They trick all the statistics because, if you work one hour, it means you’re employed.” As we nibble on pane carasau, a traditional Sardinian flatbread, I try to reel him back to the main question. A week earlier, Grillo had showed his support for Greece by making the trip to Athens’ Syntagma Square, after Tsipras had unexpectedly called a referendum on earlier bailout terms proposed by Brussels. The “No” vote — backed by Tsipras — won a resounding victory that night.
Now that plebiscite of defiance seems to have been pointless. Greece still needed funds to avoid default, and Tsipras had been forced to cave on many points to get it. So was it worth it, I ask? Grillo, who has been vocal about his desire for Italy to hold its own referendum on the euro, hesitates. “I think it helped clear up the notion that these decisions should be taken by the people, not others,” he says. As for Tsipras, he says: “If he sells out the country, that’s exactly what the Greeks don’t want.” The food arrives and the best of my antipasto is the seared tuna with peach, and the marinated salmon. Grillo loads his salad up with salt and that seems to rev him up a notch. He starts attacking “those people” who have a stranglehold on Europe’s economy.
“They have a kind of illness, it’s called alexithymia, which means difficulty recognising the emotions of others: pain, pleasure, joy,” he says. Does he mean people like Merkel and Jean-Claude Juncker, president of the European Commission? “Yes,” he responds. “They don’t care if they have to put tens of millions of people into hunger to balance an account, it’s collateral damage. We’ve entrusted our lives to people who know nothing about life,” he adds. I suggest that a referendum on euro membership might not appeal to Italians, given the scenes of economic distress they have witnessed in Athens in the past few weeks. But Grillo tells me I’m wrong because Italy’s experience with the single currency has been awful.
The Italian economy has only just started growing again — by 0.3% in the first quarter of this year, after a bruising triple-dip recession. Unemployment remains high — at 12.4% — and for the country’s youth that figure is more than 40%. “We entered monetary union from one day to the next, and they said it was for our own good,” he says. “Since then, all our economic, social and financial indicators have got worse.” The chaos in Athens has, he says, been wildly overstated. “I went there with bread, cheese and nylon socks, to help. I thought there would be people on the ground, screaming, ‘Aaaaaah!’ Instead, I found a splendid city, the restaurants were full. There were many tourists. You ate well — with €18 or €20. It was clean. I am sure that if they take back the drachma, they’ll have a year of trouble but then they will become paradise on earth with 10m people.”
In the past few years, the job market has vastly improved and home prices have rebounded — yet Americans are becoming even more irresponsible when it comes to saving for emergencies. According to a survey of 1,000 adults released by Bankrate.com on Tuesday, nearly one in three (29%) American adults (that’s roughly 70 million) have no emergency savings at all – the highest percentage since Bankrate began doing this survey five years ago. What’s more, only 22% of Americans have at least six months of emergency savings (that’s what advisers recommend) – the lowest level since Bankrate began doing the survey. These findings mirror others – all of which paint an abysmal picture of Americans’ ability to withstand an emergency. For example, a survey released in March by national nonprofit NeighborWorks America also found that roughly one third (34%) of Americans don’t have emergency savings.
Greg McBride, the chief financial analyst for Bankrate.com, says these low savings reflect that households haven’t seen their incomes ramp up and thus “household budgets are tight.” Plus, he adds “people don’t pay themselves first – they wait until the end of the month to save what’s left over and then nothing is left over.” The problem with this lack of savings is that emergencies can and do happen, and when they do, you may be forced into an expensive solution like credit cards or personal loans – and in extreme cases having to declare bankruptcy. Indeed, half of Americans had experienced an unforeseen expense in the past year, according to a 2014 survey by American Express; of those, 44% had a health care-related unforeseen expense and 46% had one related to their car – both of which tend to be things you can’t avoid paying.
Thus, advisers recommend that most Americans have at least six months worth of income in their emergency fund — and more if they have children or other dependents. To build this up, “start an automatic transfer to a savings account and set a task to revisit and increase the amount in a month,” says Robert Schmansky, the founder and a financial adviser at Clear Financial Advisors. “See how much you can increase the amount until it becomes noticeable and then stop.” Scott Cole, the founder of Cole Financial Planning, says to put the money in an FDIC-insured, high-yield savings account. Schmansky says that you want this account to be separate from your checking account “to prevent frivolous withdrawals.” He adds that while it’s important to find a good rate, it’s “equally important” that the money is accessible and the bank has “a long history of paying higher than market rates” as “too many banks in the past that started out as high yield payers dropped those rates after some time.”
Marine Le Pen, a frontrunner in France’s 2017 presidential election, says a Greek exit from the euro is inevitable. And if it’s up to her, France won’t be far behind. “We’ve won a few months’ respite but the problem will come back,” Le Pen said of Greece in an interview at her National Front party headquarters in Nanterre, near Paris, on Tuesday. “Today we’re talking about Grexit, tomorrow it will be Brexit, and the day after tomorrow it will be Frexit.” Le Pen, 46, is leading first-round presidential election polls in France, ahead of President Francois Hollande, ex-leader Nicolas Sarkozy and Prime Minister Manuel Valls. She’s the only one of the four calling for France to exit the euro, banking on people’s exasperation with the Greek crisis and Britain’s proposed referendum on the European Union to win over voters.
“I’ll be Madame Frexit if the European Union doesn’t give us back our monetary, legislative, territorial and budget sovereignty,” Le Pen said. She’s calling for an orderly breakup of the common currency, with France and Germany sitting around the table to dismantle the 15-year-old monetary union. Since she took over from her father as head of the National Front in 2011, Marine Le Pen has done her best to push the anti-immigration party into the French political mainstream. She came third in the 2012 presidential race and currently has two members in the country’s National Assembly for the first time since 1997. The combination of tepid economic growth and high unemployment at home, together with hundreds of thousands of African and Middle Eastern immigrants seeking jobs or asylum in Europe, has given Le Pen increased traction.
Even German Chancellor Angela Merkel has expressed concern about the level of support Le Pen will receive in 2017 and how that power might weigh on French economic policy. “She knows perfectly well that if France leaves, there’s no more euro,” Le Pen said. Although Le Pen hasn’t given a full, detailed plan of how she would lead her country out of the euro, she says she doesn’t believe France would be shut out of the borrowing market or rejected by investors as a result.
The Delphi Conference on the European/Russian crisis created by Washington issued a declaration repudiating the EU attack on the Greek nation. The Delphi Declaration asks the European peoples, especially the Germans, to do the right thing and object to the plunder of Greece by the One%. This appeal to good will is likely to fall on deaf ears even though the pillage of Greece will create a precedent that can then be applied to Italy, Spain, France, and even Germany.
THE DELPHI DECLARATION: European governments, European institutions and the IMF, acting in close alliance, if not under direct control of big international banks and other financial institutions, are now exercising a maximum of pressure, including open threats, blackmailing and a slander and terror communication campaign against the recently elected Greek government and against the Greek people. They are asking from the elected government of Greece to continue the “bail-out” program and the supposed “reforms” imposed on this country in May 2010, in theory to “help” and “save” it.
As a result of this program, Greece has experienced by far the biggest economic, social and political catastrophe in the history of Western Europe since 1945.It has lost 27% of its GDP, more than the material losses of France or Germany during the 1st World War. The living standards have fallen sharply, the social welfare system all but destroyed, Greeks have seen social rights won during one century of struggles taken back. Whole social strata were completely destroyed, more and more Greeks are falling from their balconies to end a life of misery and desperation, every talented person who can leaves from the country. Democracy, under the rule of a “Troika”, acting as collective economic assassin, a kind of Kafka’s “Court”, has been transformed into a sheer formality in the very same country where it was born!
Greeks are experiencing now the same feeling of insecurity about all basic conditions of its life, that French have experienced in 1940, Germans in 1945, Soviets in 1991. In the same time, the two problems which this program was supposed to address, the Greek sovereign debt and competitiveness of the Greek economy have, both, sharply deteriorated. Now, European institutions and governments are refusing even the most reasonable, elementary, minor concession to the Athens government, they refuse even the slightest face-saving formula, if it could be. They want a total surrender of SYRIZA, they want its humiliation, its destruction. By denying to the Greek people any peaceful and democratic way out of its social and national tragedy, they are pushing Greece into chaos, if not civil war.
By the way, even now, an undeclared social civil war of “low intensity” is waged inside this country, especially against the unprotected, the ill, the young and the very old, the weaker and the unlucky. Is this the Europe we want our children to live? We want to express our total, unconditional solidarity with the struggle of the Greek people for its dignity, its national and social salvation, for its liberation from the unacceptable neocolonial rule “Troika” is trying to impose on a European country. We denounce the illegal and unacceptable agreements successive Greek governments have been obliged, under threat and blackmail, to sign, in violation of all European treaties, of the Charter of UN and of the Greek constitution.
Greece’s parliament will have only a few days to pass all the economic reforms Athens promises its creditors to unlock desperately need bailout aid, putting intense pressue on prime minister Alexis Tsipras to build domestic political support for controversial concessions. Berlin has insisted on full and immediate legislative approval of measures that may be agreed at a meeting of eurozone finance ministers on Wednesday even though officials now concede a deal may come too late for Athens to meet a €1.5bn debt repayment to the IMF due on June 30. People briefed on Berlin’s thinking said months of fraught negotiations since the radical anti-austerity government came to power have undermined trust in Greece’s ability to fuflill its promises.
German officials want Greek parliamentary approval before an extension of its bailout programme is presented to the Bundestag before it expires on Tuesday. Greek authorities have already begun preparations for a hasty and potentially rancorous parliamentary debate over the weekend amidst growing signs Mr Tsipras’ new reform plan – which would be presented to eurozone leaders on Thursday — faces fierce resistance at home. A handful of more radical members of Mr Tsipras’ governing Syriza party have already vowed to mutiny over the proposal, and thousands of Greek pensioners took to the streets of Athens on Tuesday evening to decry the plans. “We have nothing, no money, we cannot live like this anymore,” shouted Thomas Yanakakis, 63, with tears in his eyes. “Enough is enough. Everyone must take to the streets now to stop this.”
The real question is why Europe is forcing Greece to do any more austerity at all. It’s already done so much that, before this latest showdown, it actually had a budget surplus before interest payments. And that’s all it should shoot for, really: the point at which it doesn’t need any more bailouts from Europe. Anything more than that, though, would just inflict unnecessary — and self-defeating! — harm to the economy. When interest rates are zero, like they are now, budget cuts of 3% of GDP would, by Paul Krugman’s calculation, make the economy shrink something like 7.5%. So even though you have less debt, your debt burden isn’t much better since you have less money to pay it back.
There’s only one reason to make Greece do more austerity, and it makes no sense at all. That’s to try to make it pay back what it owes. Indeed, one European official said that the entire point of this was that they “want to get our money back some day.” The problem, though, is everybody knows Greece will never do that. Its debt should have been written down in 2010, but it wasn’t because it was “bailed out” to the extent that it was given money to then give to French and German banks. The longer Europe pretends this new debt will be paid back, the longer Greece’s depression will go on. Now, it’s true that Europe has lowered the interest rates and extended the maturities on Greece’s debt so far out that, for now at least, it’s like a lot of it doesn’t exist.
But eventually it will, and at that point they’ll either need to extend-and-pretend some more or hope that Greece has returned to growth. Until then, Greece will be stuck in its economic Groundhog Day. It keeps trying to resist these pointless budget cuts that just keep it in a perpetual state of high unemployment, but then gives in at the last minute. On second thought, history is just repeating itself as tragedy over and over again.
Margarita sits cross-legged on a shiny parquet floor in a small Athens apartment, surrounded by piles of cardboard boxes. Within them are her family’s possessions. “I never expected to set up house in my late parents’ place,” the 42-year-old says. Her husband George, a banker made redundant three years ago, is overseeing workers installing security shutters in the two-bedroom, one-balcony space, while her 16-year-old daughter Christina brews coffee in a cramped kitchen. The Athenian family, who asked for their surname not to be used, moved to a downtown residential district from a villa in the northern suburbs to avoid defaulting on their mortgage. “We restructured it twice, thanks to my old colleagues at the bank but we still couldn’t keep up with the payments,” says George, now a struggling investment consultant.
“Things were looking pretty bleak but then we found a tenant so we could move out.” The family still owes a year’s worth of school fees at the private international school their daughter attended, which George admits is not a priority. He is no longer embarrassed by his inability to pay, he says, because so many other parents are in the same situation. Such strategic defaults have become a way of life among Greece’s formerly affluent middle-class. Many borrowed heavily as local banks competed to offer consumer loans at accessible interest rates after Greece joined the euro in 2001. When the crisis struck they resisted changes to their lifestyle, convinced that it was only a blip on a continuous upward path to income levels matching those of Italy and Spain.
But they have since been forced to make harsh adjustments. With their own savings depleted and the country’s immediate future so uncertain — will Greece default on its debts and leave the euro? — many have simply stopped making payments altogether, virtually freezing economic activity. Tax revenues for May, for example, fell €1bn short of the budget target, with so many Greek citizens balking at filing returns. That has put more pressure on the country’s leftwing government as it desperately scrapes up cash to pay wages and salaries and foreign creditors. The government, itself, has contributed to the chain of non-payment by freezing payments due to suppliers. That has had a knock-on effect, stifling the small businesses that dominate the economy and building up a mountain of arrears that will take months, if not years, to settle.
Business-to-business payments have almost been paused, one Athens businessman says. “They are just rolling over postdated cheques”. For Greek banks, mortgage loans left unserviced by strategic defaulters have become a particular headache, especially since the Syriza-led government says it is committed to protecting low-income homeowners from foreclosures on their properties “There’s a real issue of moral hazard… Around 70% of restructured mortgage loans aren’t being serviced because people think foreclosures will only be applied to big villa owners”, one banker said.
Unlike most eurozone members, Greece’s welfare system is relatively weak, with effectively no social housing or rent assistance programs, while the jobless only receive benefits and state health coverage for up to one year. Families are left to provide the safety net. Pensioner Assimina Griva, who helps run a community center for the retired in a hillside suburb of Athens, illustrates what many Greeks live. With her monthly pension of €600 she gives financial assistance to her son, who was laid off from the steel industry and otherwise depends on his wife’s salary of €400. “I help my child, and I keep €100 for the whole month,” says Griva. The problem, experts agree, is that the system is speeding toward insolvency.
State spending on pensions has risen from 11.7% of GDP before the financial crisis to 16.2% as the economy shrank. The average in the European Union is about 12%. The burden on the state is set to grow dramatically as the number of pensioners — currently 2.6 million out of a total population of 11 million — is set to keep rising. Greece has the sixth oldest population in the world, according to United Nations data. Over 20% of Greeks are aged 65 and over, a share the EU statistics agency expects to jump to 33% in 2060. Added to that is the impact of the financial crisis. High unemployment, undeclared labor, and arrears from struggling businesses have hammered state revenues.
A 2012 write-down of Greece’s privately-held national debt saw pension funds’ reserves lose more than half their value, as they were required by law to buy government bonds. “The pension system in Greece is not sustainable. But how could it be?” Finance Minister Yanis Varoufakis said at a business conference in Berlin this month. “We want to reform it … (But) pensions have already been cut by 40%. Forty%! Is cutting further a reform? I don’t think it is a reform. Any butcher can take a clever and start chopping things down. We need surgery.”
For Greece, the small concessions the creditors now seem prepared to make on pensions and tax increases on the poor will at least allow Alexis Tsipras to save face with his electorate and overcome the difficulty of getting the proposals through his parliament. But he will also have seen off the threat of capital controls being imposed to stop any further outflow of money from Greece and a humiliating take-it-or-leave-it message from the creditors should the ECB have pulled the plug and stopped providing emergency liquidity assistance to the beleaguered Greek banking system. Yet the reality is also that the extra austerity will now be tougher for Greece to bear and the cost of restoring the economy will be much greater.
Just as the rest of the eurozone is showing small signs of recovery the Greek economy has gone back into recession, with GDP falling by 0.4% in the last three months of 2014 and by 0.2% in the first three months of 2015. The signs are that the decline has continued, with unemployment rising again to 26%. Many companies have gone out of business as activity stalled during the uncertainty surrounding the negotiations and banks’ non-performing loans now account for some 35% of their total lending. As a result, the effort required to restore health to the economy will be much greater. It is hard to imagine it now, but strong tourist receipts last year brought the first rise in Greek GDP after a five-year decline in which the economy had slid by 25% under the IMF-inspired austerity programme.
The recent reversal has wiped out much of that progress. Years of austerity loom. More bailout money, but also more hardship and no – or very slow – growth. In itself that is not a recipe for social and political tranquillity. The creditor institutions, the old troika of the IMF, the ECB and the European commission, will be as visible as ever. So actually, not much advance on the status quo of the last few years. This gets us back to the perennial elephant in the room whenever Greece is discussed. The truth is, there won’t be sustainable growth again until the huge debt overhang (180% of GDP) is dealt with decisively. Greece would need to grow by at least 4% a year to service its current debt. If forced down that road, nothing can be seen ahead for the Greek people but continuous belt-tightening and misery.
One of the insights gleaned during the Great Depression was that it does not make a lot of sense for governments to try to balance budgets during a severe downturn, because tax increases and spending cuts reduce demand. That deepens the slump, leaving an even bigger hole in the public finances. In Greece, though, it as if the clock has been turned back to the pre-FDR days when Herbert Hoover was US president. Weak growth means that Athens continues to miss the deficit targets the troika sets for it. The troika responds by insisting on additional savings to put the budget back on track. Paul Krugman posted a chart last week based on IMF data that illustrates what happened to the underlying public finances of the eurozone members in 2014.
This measure of budgetary discipline looks at the primary budget surplus – the gap between revenues and spending excluding debt interest payments – adjusted for the state of the economic cycle. Measured in this way, Greece ran a surplus of more than 5% of GDP last year, comfortably higher than any other eurozone country. It is, however, not enough for the troika. In order to avoid a debt default and a run on its banks that would threaten its continued membership of the single currency, Greece has now had to table proposals that will suck an additional €8bn out of the economy in the next 18 months. Consumer spending will be hit by an increase in VAT and higher pension contributions, while investment will be dampened by a one-off levy and an increase in corporation tax.
Greece has a number of severe economic problems. It suffers from a lack of demand, and a five-year slump has pushed it into deflation. Falling prices have added to the real, inflation-adjusted burden of the government’s debt, which currently stands at 175% of GDP. A fresh dose of austerity will make all these problems worse. One way for Greece to get out of its mess would be for it to leave the euro, devalue its currency and renege on all or part of its debt. That is not an option if it stays in the single currency, which the public wants. Another way out would be for the creditors to cut Greece some slack. That would involve immediate debt relief and more realistic targets. The troika, though, will continue with policies that have failed before in the hope that they will succeed this time. Einstein had a definition for this – insanity.
“..the single currency’s most troublesome state will remain inside the euro as long as Greek nuisance value (GNV), both political and economic, is held to be lower inside the system (I) than it would be outside (O)..”
Acres of column inches have been expended on Greece and the future. Here are eight succinct truths to guide observers through the next few days.
1. There will be no quick and easy end to the Greek affair. Unstable disequilibria can last a long time. For four centuries, Greece was part of the Ottoman Empire. Tonight’s unhappy meeting of eurozone leaders will not be the last time they gather to consider an intractable imbroglio.
2. Greece holds a lot of the cards. No doubt some kind of deal will be done to prevent — for the moment at least — full-scale ejection from the euro EURUSD, +0.3761% bloc.
As I wrote four months ago, the single currency’s most troublesome state will remain inside the euro as long as Greek nuisance value (GNV), both political and economic, is held to be lower inside the system (I) than it would be outside (O). For the time being, GNV-I is — just — less than GNV-O. All sorts of Greek maneuvering — whether talks with President Vladimir Putin or speculation about a Greek exit bringing down the euro “house of cards” — are useful ploys to stoke up European fears of GNV-O.
3. The funds that are now leaving Greek banks to the tune of €1 billion a day, whether being taken abroad or simply kept under the mattress, are all effectively liabilities of the European Central Bank, to be paid ultimately (if things go wrong) by European taxpayers. The ECB, as an unelected body run by technocrats, cannot by itself pull the plug on Greece and declare the banks insolvent. The Greek government has no great wish to bring in exchange controls (although soon it may be forced to) since withdrawn euros represent a negotiating tool against its creditors and a store of value that many Greeks can use to hedge against a return of the drachma.
4. The IMF is unlikely to get its money back on time. An internal IMF assessment two years ago ruled that the Fund’s exceptional loan to Greece in 2010 was made on far-too-optimistic assumptions about the country’s debt sustainability and ability to carry out adjustment, breaching the IMF’s own rules. U.S. taxpayers will lose money. So please forget any idea that Congress will agree on IMF governance and voting reforms any time in the next few years.
5. Angela Merkel, the German chancellor, will be a big loser. The pressure is on her to hold the euro area together and maintain Germany’s European credentials without damaging the pocketbooks of German taxpayers and turning the euro into an overt transfer union. This is an impossible task. Her biggest adversaries are likely to be within her own coalition with the Social Democratic Party, which, however unfairly, will publicly blame her for any unsavory outcome. Shaming Merkel over Greek debt may be unscrupulous, but if it delivers the SPD a chance of winning the 2017 election, then the party will seize it.
6. Karl Otto Pöhl, the former Bundesbank president who died in December, was right when he said, a few days after the May 2010 bailout, that it was decided to save (roughly in that order) rich Greeks, and French and German banks. The Bundesbank’s qualms over the ECB’s purchases of the bonds of Greece and other peripheral countries, publicly though impotently voiced at the time, were never likely to derail the action. But we will hear more of them now that taxpayers in Germany and other creditor countries start to weigh up the bill.
Draghi and his posse of financial dimwits have created what amounts to a hideous financial scam – a disgrace to any notion of central banking which existed before 2008. Had he not announced he would massively monetize euro sovereign debt in July 2012, Greece would have been bankrupt long ago, and the peripheral borrowers like Italy, Spain and Portugal would have had their day of fiscal reckoning, too. The eurozone would have blown sky high, and the ECB would be no more. Likewise, were not the ECB now supplying $125 billion of funding to the Greek banking system—or actually more than its current level of fast vanishing deposits – the latter would have crashed and burned months ago, thereby triggering a crisis which would have eventually destroyed the euro.
Ironically, the angel of mercy now hovers in the form of Greece’s intrepid prime minister, Alexis Tsipras. Too be sure, his left-wing statist economics is a complete abomination that would cause the Greek people catastrophic suffering if were ever to be implemented. But he is absolutely correct on the matter of political self-governance: “We have no right to bury the European democracy in the land where it was born.” That’s the essence of the issue. If Greece’s democracy is to survive, it must be cut loose from the destructive regime of superstate dictation from Brussels and monetary falsification from Frankfurt. Ironically, going back to the Drachma would put Greece’s politicians right were they were before they were betrayed by the false monetary regime of eurozone central banking.
They would be forced to run a primary surplus because they would not be able to borrow on world markets after a massive default on the debt forced upon them by the eurozone, ECB and IMF. But the mix of taxing the rich, cutting the pensioners, catching the tax cheats, selling state assets, shrinking the bureaucracy and squeezing the crony capitalist leeches which feed on the Greek state would be up to them, not the inspectors and pompous bureaucrats from the IMF and European superstate. More importantly, faced with a honest bond market and real bond vigilantes, the Greek state would rediscover the requisites of sustainable fiscal governance. If they should ever again choose to run large fiscal deficits in the future, they would have to deal with an altogether different kind of committee. Namely, the pricing committee of their bond underwriters syndicate.
If the bond vigilantes needed a 15% yield to buy the state’s debt based on the facts and fiscal prospects at hand, there would not ensue months and years of can-kicking, phony restructuring plans and promises and endless PR maneuvers and leaks to the financial press. Greece’s politicians would be required to either hit the bid or cut the pension checks the very next day. Tsipras is now confronted with this kind of hard choice in an altogether different venue. If he sells out Greece one more time to the paymasters of his country’s crushing debt, it will be only a matter of time before another Greek prime minister will be forced to walk the same plank on which he now totters. By doing what’s right for Greek democracy, by contrast, he would prove to be an angel of mercy. There is no way that the euro and ECB could survive a Greexit, nor could worlwide Keynesian central banking survive the blow of their demise.
Gripped by the prospect of default in Greece? You may be looking in the wrong direction. The southern European nation may have the world’s highest debt burden, equal to 175% of its economy or gross domestic product, but according to credit rating agencies that does not make Greece the riskiest borrower for bond investors. That title is held by Ukraine, presently engaged in fighting a war with pro-Russian separatists as well as battling creditors over $15bn of debt the country says it cannot afford to service. The difference between Greece and Ukraine is reflected in the prices at which the sovereign debt of the two countries trades. Prices for Greek bonds have crashed over the past year as investors took fright at the political success of the anti-austerity Syriza party, yet they remain above 50 cents in the euro – considered a benchmark default level.
Ukraine’s equivalent bonds trade below 50 cents in the dollar, suggesting a far higher risk of a default. Indeed, this week, Ukraine was declared a “credit event”, triggering insurance payouts in the credit derivatives market. According to credit rating agency Standard & Poor’s, default is all but certain. All told, 11 countries, including Greece, are currently at serious risk of defaulting according to global credit rating agency Moody’s. Around the world the euphoric credit boom in emerging markets driven by low interest rates in the US, Europe and Japan now appears vulnerable, piling on the pressure for borrowers. A weakening trend in EM sovereign credit that began in 2013 has continued this year thanks to the slowdown in Chinese economic growth, weakness in commodity prices and higher US dollar borrowing costs, according to UBS.
(June 9): I believe the illogical movement in 10yr Treasury yields reflects the fact the Fed is losing control of its tight grip on the bond market and longer term interest rates. Note that German bunds have also experienced a similar spike up in interest rates and volatilty. In the context of my view that there was a derivatives accident somewhere in the global banking system in the last two weeks, it could well have been an OTC interest rate swap bomb that detonated. As of the latest OCC quarterly report on bank derivatives activity (Q4 2014), JP Morgan held $63.7 trillion notional amount of derivatives, $40 trillion of which were various interest rate derivatives.
If you look at the ratio of interest rate derivatives to total holdings for the top 4 U.S. banks, they all own roughly same proportion of interest rate derivatives as % of total holdings. Deutsche Bank is reported to have about a $73 trillion derivatives book. If we assume that ratio of interest rate derivatives is likely similar to JP Morgan’s, it means that DB’s potential derivatives exposure to interest rates is around $46 trillion. Interestingly, the price of the 10yr moved abruptly higher after the Fed ended QE. This is the opposite of what many of us would have expected. It wasn’t until early February that 10yr bond price began to decline (yields move higher). The 10yr bond price also crashed through its 200 day moving average – an ominous technical signal. Both of these events happened within the last week.
Again, I believe that this action in the bond market is pointing to the fact that the Fed is losing control of the markets. I also believe that the catalyst for this loss of control is a big derivatives accident of some sort in the last two weeks. Another clear indication that something has melted down “behind the scenes” recently is an ominous market call by self-made hedge fund billionaire Paul Singer, founder and CEO of Elliott Management. In his latest letter to investors, released the last week of May, he stated that the best trade in a generation is to short “long term claims on paper money.
Investors risk falling into liquidity traps as they seek to boost yields depressed by the ECB’s €1.1 trillion bond-buying program, according to Pimco. The search for yield has caused investors to buy riskier and less frequently traded bonds, which may be hard to sell quickly, said Mike Amey at Pimco, which oversees about $1.59 trillion of assets. Overall bond trading has slumped since the global financial crisis because banks have cut inventories to preserve capital in response to tighter regulations. “If you want to find some yield-enhancing assets, then make sure you’re paid for tighter liquidity,” said Amey, a speaker at Euromoney’s Global Borrowers & Investors Forum in London, which starts Tuesday. “If you’re going to take a liquidity premium, be prepared to hold the asset for years.”
One measure of bond-market liquidity is down 10% in the past year and 90% since 2006, RBS said in March. In the U.S., less than 5% of the market changes hands each month, down from about 20% in 2007, according to a November report by the Bank for International Settlements. “My biggest worry for the market going forward is liquidity,” said Kris Kowal at DuPont Capital Management, which oversees $30.8 billion of assets. Investors are “trading illiquidity for a bit more yield, and I don’t think that’s the right approach at this stage in Europe’s economic cycle.”
Structured securities and loans are among the most illiquid assets, said Wilmington, Delaware-based Kowal, who is also speaking at the Euromoney conference. Investors who need liquidity should hold cash or highly traded government bonds, Amey said. The ECB’s quantitative easing will continue to provide liquidity for the time being, said David Zahn, head of European fixed income at Franklin Templeton Investments, which manages about $890 billion of assets. Still, he is ensuring that his funds have enough liquidity to meet redemptions and to act on new opportunities.
A proposed deal between the United States and European Union is a “corporatist scam”, Ukip’s MP has said. Douglas Carswell said that TTIP, which stands for the Transatlantic Trade and Investment Partnership, was not what its proponents made it out to be. “Ukip [is] making clear we are the most staunchly free trade party in the UK,” he tweeted. “TTIP is not free trade. It’s a corporatist scam.” Tellingly, the message was retweeted by Conservative MP Zac Goldsmith, a leading contender for his party’s nomination for Mayor of London. TTIP’s proponents say it is a free trade deal that would benefit both the United States and European Union.
One controversial aspect of drafts of the deal would be to establish a quasi-judicial trade court to which the two blocs would be subject. This could allow large corporations to ‘sue’ national governments for enacting any policy that potentially harmed their profits. Critics say that this would erode democracy and increase corporate power. The deal is also controversial because of the secret way in which it is been negotiated, with press and campaigners relying heavily on leaks to determine its direction. A Ukip spokesperson told the Independent that the party feared the destruction of public services by the deal.
“Ukip is a party that believes that free trade between people is the surest way to greater prosperity,” he said. “However the TTIP agreement is not a free trade deal, but one that favours big multinational corporates over the interests of smaller businesses, and most importantly the democratic right of people to set policy through elections. “TTIP as it currently stands could hand the NHS lock, stock, and barrel to huge corporations against the wishes of the British people.”
While much of the world focused last week on whether or not the Federal Reserve was going to raise interest rates, or whether the Greek debt crisis would bring Europe to a crisis, the Permanent Court of Arbitration in The Hague awarded a $50 billion judgment to shareholders of the former oil company Yukos in their case against the Russian government. The governments of Belgium and France moved immediately to freeze Russian state assets in their countries, naturally provoking the anger of the Russian government.[..] The US government is desperately trying to cling to the notion of a unipolar world, with the United States at its center dictating foreign affairs and monetary policy while its client states dutifully carry out instructions.
But the world order is not unipolar, and the existence of Russia and China is a stark reminder of that. For decades, the United States has benefited as the creator and defender of the world’s reserve currency, the dollar. This has enabled Americans to live beyond their means as foreign goods are imported to the US while increasingly-worthless dollars are sent abroad. But is it any wonder after 70-plus years of a depreciating dollar that the rest of the world is rebelling against this massive transfer of wealth? The Europeans tried to form their own competitor to the dollar, and the resulting euro is collapsing around them as you read this.
But the European Union was never considered much of a threat by the United States, existing as it does within Washington’s orbit. Russia and China, on the other hand, pose a far more credible threat to the dollar, as they have both the means and the motivation to form a gold-backed alternative monetary system to compete against the dollar. That is what the US government fears, and that is why President Obama and his Western allies are risking a cataclysmic war by goading Russia with these politically-motivated asset seizures. Having run out of carrots, the US is resorting to the stick. The US government knows that Russia will not blithely accept Washington’s dictates, yet it still reacts like a petulant child flying into a tantrum whenever Russia dares to exert its sovereignty.
The existence of a country that won’t kowtow to Washington’s demands is an unforgivable sin, to be punished with economic sanctions, attempting to freeze Russia out of world financial markets; veiled threats to strip Russia’s hosting of the 2018 World Cup; and now the seizure of Russian state assets. Thus far the Russian response has been incredibly restrained, but that may not last forever. Continued economic pressure from the West may very well necessitate a Sino-Russian monetary arrangement that will eventually dethrone the dollar. The end result of this needless bullying by the United States will hasten the one thing Washington fears the most: a world monetary system in which the US has no say and the dollar is relegated to playing second fiddle.
Today, 23 June 2015, WikiLeaks began publishing “Espionnage Élysée”, a collection of TOP SECRET intelligence reports and technical documents from the US National Security Agency (NSA) concerning targeting and signals intelligence intercepts of the communications of high-level officials from successive French governments over the last ten years. The top secret documents derive from directly targeted NSA surveillance of the communications of French Presidents Francois Hollande (2012–present), Nicolas Sarkozy (2007–2012), and Jacques Chirac (1995–2007), as well as French cabinet ministers and the French Ambassador to the United States.
The documents also contain the “selectors” from the target list, detailing the cell phone numbers of numerous officials in the Elysee up to and including the direct cell phone of the President. Prominent within the top secret cache of documents are intelligence summaries of conversations between French government officials concerning some of the most pressing issues facing France and the international community, including the global financial crisis, the Greek debt crisis, the leadership and future of the European Union, the relationship between the Hollande administration and the German government of Angela Merkel, French efforts to determine the make-up of the executive staff of the United Nations, French involvement in the conflict in Palestine and a dispute between the French and US governments over US spying on France.
A founding member state of the European Union and one of the five permanent members of the UN Security Council, France is formally a close ally of the United States, and plays a key role in a number of US-associated international institutions, including the Group of 7 (G7), NATO and the World Trade Organization (WTO). The revelation of the extent of US spying against French leaders and diplomats echoes a previous disclosure in the German press concerning US spying on the communications of German Chancellor Angela Merkel and other German officials. That disclosure provoked a political scandal in Germany, eventuating in an official inquiry into German intelligence co-operation with the United States, which is still ongoing.
French President Francois Hollande has called a high-level emergency meeting for 9 a.m. on Wednesday after WikiLeaks reported that the U.S. had spied on him and two of his predecessors. The meeting with the defense, interior, foreign and justice ministers will “evaluate the nature” of the report posted on the WikiLeaks website, said an official in Hollande’s office who asked not to be identified. WikiLeaks, which has published unauthorized documents since it started in 2006, reported that the NSA spied on Hollande, Nicolas Sarkozy and Jacques Chirac from 2006 to 2012, listening in on discussions about the euro debt crisis and French relations with German Chancellor Angela Merkel, including secret meetings of French government ministers about the possibility of Greece leaving the euro area.
The NSA also eavesdropped on French complaints about U.S. spying, WikiLeaks said. “We are not targeting and will not target the communications of President Hollande,” said Ned Price, a spokesman for the U.S. National Security Council, which advises the White House on its foreign policy. “We do not conduct any foreign intelligence surveillance activities unless there is a specific and validated national security purpose.” Sarkozy’s office didn’t respond to requests for comment. Agence France-Presse reported that his office had said the spying as reported was “unacceptable in general, and certainly between allies.” WikiLeaks has been releasing documents about U.S. wiretapping since 2010, detailing how the NSA spied on world leaders including Brazilian President Dilma Rousseff.
Emerging markets and commodity suppliers have grappled with reduced demand from China as a property downturn weighed on the world’s second-largest economy. U.S., Japanese and German exporters did better, supplying capital goods like machines that China still demanded. That may soon change, according to a study of global exposure to China by UBS Group AG economists Donna Kwok, Wang Tao and Jennifer Zhong. “As the multiyear Chinese property downshift continues to unfold beyond this year, we may see a longer-term decline in China’s appetite for foreign industrial imports,” the analysts wrote in a report June 22. “Commodity, reprocessing, and developed country exporters alike should brace themselves for the impact of weakening China demand this year, irrespective of whether U.S. or EU imports pick up.”
That’s not good news for a world economy increasingly reliant on China. China quadrupled the number of countries to which it was the biggest export market in the decade to 2014, the UBS analysts wrote. In the same period, the U.S. almost halved the number of countries for which it held the same title. In terms of exports as a share of GDP, nearly all countries UBS covers saw their China exposure rise; some doubled – Japan, South Korea, U.S., Brazil, Canada, Chile – while some tripled – Germany, the EU – and some even quadrupled, like Australia. For commodity exporters including South Africa, Australia, Indonesia and Brazil, the impact of a slowing China has been predictably negative.
Shell is fighting to prevent the public release of an audit of their Arctic drilling operations. Last week, in response to Greenpeace’s Freedom of Information Act (FOIA) request, Shell argued to government regulators that the entire document is “confidential business information” and should be kept from public disclosure. The problem is that – in order to comment on Shell’s Exploration Plan – the public should have had access to this document months ago. The deadline for that passed on 1 May yet the government department in charge – Bureau of Safety and Environmental Enforcement (BSEE) – has had the first part of Shell’s audit since November 2014. With Shell’s fleet already heading north to Alaska the failure to disclose is becoming more serious every day.
After Shell’s disastrous 2012 attempt at drilling in the Arctic Ocean — which ended with one of their drilling rigs beached on an Alaskan island and eight felony charges related to violations on the other rig — Secretary of the Interior Ken Salazar ordered a review of Shell’s operations to find out what went wrong, including an audit of Shell’s Safety and Environmental Management Systems (SEMS). The audit was designed to ensure “that the management and oversight shortcomings identified with respect to all aspects of the company’s 2012 operation have been addressed and that the company’s management structure and systems are appropriately tailored to Shell’s Arctic exploration program” – before the firm was to drill again in the Arctic.
The audit was meant to be a full third party assessment – but Shell paid for the audit and was allowed to handpick the auditor (Houston-based Endeavor Management). A SEMS audit assesses the management and operational systems put in place on offshore oil rigs to protect worker safety and the environment, such as analysing potential hazards and operating procedures. The auditor will typically review documents and systems as well as conduct interviews and site visits. It was also disclosed that the audit would be split into two parts. Stage 1 would take place in Shell’s Anchorage, AK office, and Stage 2 would take place on board the drillship Noble Discoverer once it was operating in the waters of the Alaskan Outer Continental Shelf.
The in-office portion of the audit was completed in 2014 and the audit report was provided to BSEE towards the end of that year. However, this document has never been made public and Greenpeace submitted a FOIA request for its release. Despite the promise that the audit would be a requirement “before” Shell was allowed to return to the Arctic, Stage 2 has yet to be completed and will presumably happen this summer while Shell is drilling.
Russia surpassed Saudi Arabia to become China’s top crude supplier as the fight for market share in the world’s second-largest oil consumer intensifies. China imported a record 3.92 million metric tons from its northern neighbor in May, according to data emailed by the Beijing-based General Administration of Customs. That’s equivalent to 927,000 barrels a day, a 20% increase from the previous month. Saudi sales slumped 42% from April to 3.05 million tons. China is becoming a key market for global oil exporters as surging output from shale fields from Texas to North Dakota allows the U.S., the biggest crude consumer, to rely less on overseas supplies. The Asian nation will account for more than 11% of world demand this year, the Paris-based International Energy Agency predicted this month.
“This is a clear sign of how spoilt Asia is for choice these days, with Middle Eastern crude now having to compete with oil from other regions,” Amrita Sen at Energy Aspects said in an e-mail. “Russia is increasingly looking east and the various deals made between Rosneft and China are likely to see more Russian crude head to China permanently.” Russia is China’s top crude supplier for the first time since October 2005 as it seeks new markets for its crude amid western sanctions over its dispute with Ukraine. Rosneft in 2013 agreed to supply 365 million tons over 25 years to China National under a $270 billion deal. The same year, the company agreed an $85 billion, 10-year deal with China Petrochemical. Russia isn’t the only crude shipper to overtake Saudi Arabia last month. Angola sold 3.26 million tons to China, 14% more from April, rising two places to take second spot.
In last month’s article Where are the Unicorns?, I discussed the fact that the commercial cellulosic ethanol plants that were announced with great fanfare over the past couple of years are obviously running at a small fraction of their nameplate capacity. In fact, April was a record month for cellulosic ethanol production according to the EPA’s database that tracks this information, but that meant that at least 8 months into the learning curves for these plants actual production for that month was only about 6% of nameplate capacity. May’s numbers are now in, and the situation has gotten worse. After reporting 288,685 gallons of cellulosic ethanol in April, May’s numbers only amounted to 114,018 gallons.
This is only about 2.4% of the nameplate capacity of the announced commercial cellulosic ethanol plants. If we use year-to-date numbers, the annualized capacity is still less than 3% of nameplate capacity for facilities that cost hundreds of millions of dollars to build. Let that soak in. POET alone spent $275 million, with U.S. taxpayers footing more than $100 million of that bill. Abengoa reportedly received $229 million from taxpayers for its project. For this (plus however much that was spent by INEOS), the combined plants are running at an annualized capacity of 1.7 million gallons of ethanol, which would sell on the spot market today for $2.6 million.
We can conclude from this that the three companies with announced commercial cellulosic ethanol facilities – INEOS, POET, and Abengoa – are finding the going much tougher than expected. I believe that the costs to produce their cellulosic ethanol are higher than the price they will receive for the ethanol. This is the sort of monthly cash drain that led to the shutdown of everyone else that ever tried to produce cellulosic ethanol commercially.
Dmitri Kessel Protest against Britain’s murders of partisans, Athens 1944
Next week, on June 25, I will come to Athens (I wish Nicole could join me, but she moved to New Zealand and will be there for now). There is no large fixed agenda set, but through contacts with readers of the Automatic Earth -they’re absolutely everywhere- it’s already clear that there will be a lot to do. Obviously, I will continue to publish everyday on the Automatic Earth site as well, so we may be in for some busy days. Nothing new there.
Still need to secure a place to stay, but I’m sure something will come up. And there are of course never enough readers and friends to get in touch with, so please drop a line at “contact •at• theautomaticearth •dot• com”. I would love to meet as many of you as possible, get you in touch with each other, practice our ouzo toast, dance a zirtaki and have a ball.
Where I’m coming from is talking with people on the street is something that interests me far more than talking to politicians, though I’ll be certain to drop Varoufakis a line, and less visible members of Syriza would undoubtedly make for good conversations as well. What I want to find out, and write about, is how people have experienced the past five years, how they see the next five, and how they hold together.
That last bit is especially poignant since the structure of Greek society is very different from that of America or western Europe. In a good way, if you ask me. Not only is the economy much more ‘self-contained’ -for lack of a better word-, which by the way would make a switch to an -domestic- alternate currency much less painful then it would be in richer, export-dependent nations, but Greek families stick together way more than those elsewhere too.
Ironically, that’s why they can at times -try to- make do with a single pension to feed an entire family, something that would be unthinkable in Holland, Germany, Canada, US. And it’s those very pensions that the troika insists must be further reduced than the 40%+ they’ve already been cut. What goes for families stretches beyond them to a larger circle of friends too.
Meanwhile, my planning could be either way off or right on the nose, depending on one’s view. I see talk of a Lehman moment as early as this weekend, but it looks more likely the whole thing will go down to the wire, which is June 30.
No matter what comes down, I very much think Athens is the place to be as per next week. As you probably know, I have great sympathy and admiration for what Syriza, especially Alexis Tsipras and Yanis Varoufakis, are trying to achieve, as well as for their intelligence and even more, what they stand for.
Now, I don’t think I can go to Athens and not try to see if there’s something I can do to alleviate some of the misery in my own small way. But since that way would be extremely small given where the Automatic Earth’s financial situation and funding stand at the moment, I thought of something.
I’m hereby setting up an “Automatic Earth for Athens” fund (big word), and I’m asking you, our readership, to donate to that fund. I will make sure the revenues will go to clinics and food banks, to the worthiest causes I can find. To not mix up donations for Athens with those for the Automatic Earth, which are also badly needed, I suggest I take any donation that ends with 99 cents, as in $25.99, and single those out for Greece. Does that sound reasonable? Let me know if it doesn’t, please.
I’m not expecting a flood of cash, but I hope that you, like me, think that in a civilized country people shouldn’t have to bring their own bedsheets to a hospital, or that these hospitals should be forced to work their doctors into burnouts, or simply lack basic treatments, medicines, etc.
Or for that matter that children should go hungry.
If Brussels and Washington refuse to solve these simple problems, or even attempt to make them worse, in my view Syriza is right to stand up to them, and we, us, the Automatic Earth, have an obligation to do what we can.
Dorothea Lange Salvation Army, San Francisco, California. Unemployed young men 1939
There are many things going on in the Greece vs Institutions+Germany negotiations, and many more on the fringe of the talks, with opinions being vented left and right, not least of all in the media, often driven more by a particular agenda than by facts or know-how.
What most fail to acknowledge is to what extent the position of the creditor institutions is powered by economic religion, and that is a shame, because it makes it very difficult for the average reader and viewer to understand what happens, and why.
Steve Keen said the finance minister was frustrated with the progress of Greece’s talks with the euro zone, adding Varoufakis had compared the talks to dealing with “divorce lawyers”. Keen said the finance ministers of Europe refused to discuss certain euro policies, according to Varoufakis. [..] When asked what [Varoufakis and he] mainly discuss at the moment, Keen said, “Mainly his frustration, the fact that the one thing that he can’t discuss with the finance ministers of Europe is economics..”
“He goes inside, he is expected to be discussing what the economic impact of the policies of the euro are and how to get a better set of policies, living within the confines of the euro and the entire European Union system, and he said they simply won’t discuss it. He said it is like walking into a bunch of divorce lawyers, it is not anything like what you think finance ministers should be talking about..”
They won’t discuss these things because they have found religion, in the sense that there is for them only one truth, to the exclusion of all others. They toe the preconceived line, because if they didn’t they would lose their positions.
They are undoubtedly also very hesitant to discuss economics with Varoufakis because they are aware of his prowess in the field. They are much less knowledgeable, which makes it tempting to hide behind numbers, behind Germany, and behind their faith that their views are the only right ones. Which is precisely what Varoufakis challenges.
You won’t see the Pope in a muslim prayer five times daily with his face to Mecca, or an imam celebrating Holy Mass. And that’s sort of alright, there’s nothing that says everyone should have the same religion. But when it comes to a field such as economics, and certainly when multi-trillion dollar decisions are being taken, and people in the streets are already going broke and hungry, that is definitely not alright.
The number one priority under such circumstances absolutely must be to find a solution, find it fast, and alleviate the suffering. Not to push through any particular policy or vision. Now, you can accuse Greece of not doing that, and the institutions and their pundits in the press do that on a 24/7 basis, but that view lacks substance.
The institutions demand more austerity measures for Greece, whereas it’s plain to see that austerity is what has led to the misery of the people. In particular, pensions cuts are apparently still a point neither side wants to give in on. But not only have Greek pensions already been cut by 40% or so, they are the last straw for many entire families.
Which means the entire pension system would need to be thoroughly reformed, not just pensions cut, or more, and more widespread, misery is in the offing. And there simply is no time to achieve that thorough reform before Greek repayment deadlines set in. Don’t forget, the entire Syriza government hasn’t been able (allowed) to do anything but negotiate. And is then accused of not doing enough.
This inflexible insistence on more austerity, and hence more misery, for the Greek people, is a good example of how religion driven the IMF, EU and ECB are. As I’ve written many times, it’s about power, not about money; it wouldn’t cost all that much, but could achieve a lot, to let Greeks off the austerity hook for a bit. All it takes is flexibility when entering the negotiations. But there ain’t much of that, if any, on the creditors’ side.
Which is why this Bloomberg piece on the IMF’s ‘enforcer’ for Greece Poul Thomsen should bring a smile to our faces.
A former IMF colleague of Thomsen’s, Ashoka Mody, last month in a Bloomberg View column called for the fund to “recognize its responsibility for the country’s predicament” and forgive much of Greece’s debt. There’s little sign that the IMF and Thomsen might bend the rules or cross their red lines now. While some issues such as short-term budget targets may be negotiable, the fund’s position is that any Greek agreement must bring debt down to sustainable levels and include concrete commitment to reforms, especially cuts to public pensions.
“We are open to new ideas and different ways to achieve a country’s economic goals. We are a pragmatic institution,” Thomsen said in a statement to Bloomberg News. “But we also need to be mindful of economic realities. At the end of the day it needs to add up. And we need to ensure that we treat our member states equally, that we apply our rules uniformly.”
For all we know that’s even the way he sees things. But the IMF is neither a flexible nor a beneficial institution. It’s a power tool for the wealthy. The philosophy behind the institutions’ view of the negotiations, and indeed their entire view of economics in general, is constructed to follow the preferences of the wealthy, who have a strong vested interest in centralized control over just about everything, because more centralization makes it easier for them to exert this control.
Syriza getting its way on reforms doesn’t fit in that picture; before you know more parties want some say in their futures too. Most of all, though, different ideas on economics in general cannot be accepted. Everybody has to follow the IMF line of ‘reforms’, asset sales, privatizations, labor protection and austerity. Certainly everyone who owes the Fund money. That’s its ultimate power tool.
That the EU follows that line merely means it’s and immoral and amoral institution, and a union only in name. The ECB follows the IMF line on economics, which means there’s no room for aberrant views, no matter how well founded and thought through. There’s no place in there for people like Varoufakis, or Steve Keen.
It’s not about knowledge or brilliance, it’s about keeping the faith, because that keeps the power where it’s at. Yeah, there’s a hint of Galileo in there somewhere. The ‘philosophy’ is neo-liberal mixed with let’s say, Keynes-for-the-rich, aka QE.
A nice example of how the IMF operates, and how far its power tentacles reach, came in a Guardian piece on Chapter 11 bankruptcy for countries, and why Argentina took its case to the UN, not the IMF:
When Argentina tabled a motion calling for the UN to examine the issue of sovereign debt restructuring last autumn, 124 countries voted for it; 11, including the UK and the US, with their powerful financial lobbies, voted against; and there were 41 abstentions. Llorenti, who is chairing the UN “ad hoc committee” set up as a result of that vote, says the 11 countries that objected hold 45% of the voting power at the IMF. He believes they would prefer the matter to be tackled there, where they can shape the arguments: “It’s a matter of control, really.”
Another thing I‘ve said before is that the IMF is a prime example of why we should steer away from supra-national organizations. We can’t make them run for our own benefit, they invariably end up being run for the benefit of the few, because their inherent lack of transparency and democracy makes them an irresistible target for sociopathic individuals, who seek control, not democracy, and for the elites whose interests they invariably end up representing.
There’s the World Bank, NATO, the IMF, the EU. The UN is somewhat more democratic, but only somewhat. Behind the veil it’s not at all.
Amongst the European finance minsters there should still be a few who may have doubts about what’s happening to Greece, what’s being demanded of it. And who realize that the purely political decision to bail out the banks that had lent to Greece, and shove their debts into the lap of all Europeans, who in turn pushed it right back into Greece’s lap, is at best highly questionable.
If these Europeans want to save their union, they need to be told that what they’re doing right now is the exact wrong way to go about that, 180º wrong. What happens today is not holding or pulling the member states together, it’s driving them apart.
Perhaps it is indeed ultimately a choice between the banks and the people. And perhaps it scares them stiff not to choose the banks. With their limited knowledge of how economies function, they must believe the story of how everything will fall to pieces if the banks fail. Besides, if they question it, they’re out.
But economics cannot be a religion, it cannot have this inflexibility and resistance to change. And neither can politics, not if we want our unions, our countries and our societies to survive, if we want to survive, and our children. Economics is not a science, though it very much longs for that status. It shouldn’t be a religion either, however.
There is nothing that says, or proves, that bailing out banks and forcing austerity on people (note the combination) is the best, or only, way to rescue an economy in trouble. That austerity is the way to rebuild an economy. These are mere ideas, conceived by people who studied textbooks.
What Greece is asking for is a simple bottom beneath its society, lest it completely falls to bits, lest all it’s left with is some right wing movement or another. But instead, the institutions’ approach to economics, to democracy and to power look to make a true solution for the Greek problem impossible.
That in turn would seem to make a Grexit, in some shape or another, the only way left to go. Why would anyone want to live in a world dominated by religious fanatics and their henchmen?
Finally, as for what the euro, and hence the eurozone, were intended to do, here’s Greg Palast from 2012, talking about father of the euro, Robert Mundell:
“It’s very hard to fire workers in Europe,” he complained. His answer: the euro. The euro would really do its work when crises hit, Mundell explained. Removing a government’s control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.
“It puts monetary policy out of the reach of politicians,” he said. “[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.” He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing. [..]
The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, “voodoo economics”: the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher.
Mundell explained to me that, in fact, the euro is of a piece with Reaganomics: “Monetary discipline forces fiscal discipline on the politicians as well.” And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.
Harris&Ewing House-Capitol tunnel, Washington, DC Feb 3 1939
It’s all still about Greece, and that makes sense, if nothing else Syriza is a breath if not a tornado of fresh air. But those too pass. The question at the end remains: did anything really change? It’s quite possible, don’t get me wrong, but Tsipras and Vanoufakis are busy looking out for the people who voted for them, not the rest of the Europe, or the world for that matter. And neither should they.
They’ve already gotten good response from Obama, from France and Britain, and if only for that reason they will get more. But you have to understand what they are trying to do: getting a better life for their own people, and that’s hard enough all by itself. The best they can do for now, hopefully, is that. But Greece is merely a symptom of something bigger and deeper that is going wrong.
There’s an ideological battle happening between money and wellbeing, between people and banks. Western leaders have so far chosen to protect money and banks, instead of people and their wellbeing, and that’s why we find ourselves where we do. Choosing money before people can only end in the demise of the system that makes such a choice. That, however, is apparently terribly hard to comprehend.
And that got Greece where it is. That’s why Europe set up a ‘union’ that shares a currency but that has no provisions to transfer funds from – even temporarily – weak regions from stronger ones. Even the US has that, or it would have imploded long ago. It’s the kind of thing that makes you wonder if maybe the EU wasn’t set up from the start so Germany could exploit the Mediterranean.
But even that is not the core issue. It’s money over people that is. And Brussels should not just be ashamed for what they’ve done to Greece, they should be driven out of town with tar and feathers. That’s not how they see it, though. Brussels, in the voice of Eurogroup head Dijsselbloem, when he met with new Greek FinMin Varoufakis, had the audacity – and stupidity, his job is up for grabs – to point out that much progress had been made. As the troika demands have turned Greece into a third world nation. That’s known as progress.
If you think about it, it’s not much different from how US policies have turned Detroit, and many other places, into semi-hellholes. It’s fine if there’s a difference between West Virginia and the Hamptons, it’s just about how big that difference gets.
It all comes down to a system that is failing spectacularly. Failing, that is, even if it’s intentional: there are plenty Darwinists and neo-liberals who would swear the poor only get what they deserve. Just as Brussels apparently saw the Greeks: let ’em bleed, let ’em suffer, let ’em die, it’s only because they borrowed too much.
I can’t seem to figure out the logic there: if they borrowed so much, why are they unemployed and miserable and without health care? The answer to that of course is that they didn’t, it’s 90%+ money that flowed into western banks to make up for their gambling losses. It should by now be a non-issue, because it’s so glaringly obvious, but the narrative is strong.
This is not about Greece, this is about ideology, about economics as a belief system, a system so blind it sacrifices real people and proclaims that is a good thing: ‘much progress had been made’. Some people are saying: you need to help these people who end up on the wrong side of the economic tracks, while others invoke Darwin.
But you need to ask how they got where they are, or you’ll never solve the issue, you’ll just need up murdering people. And whether they deserve it or not, murder is not legal, Mr. Dijsselbloem. And neither is using your job to put people into misery, not even if your economic beliefs say that’s alright.
In the US, a lot of people complain about how the country has turned into a socialist bastion. And even taking into account that the word has a very different connotation stateside than it does in Europe and other parts of the world, it’s simply not correct, it doesn’t fit.
The US, like western Europe, is in the midst of a massive failure of its brand of capitalism. There are no free markets, no price discovery, there are asset bubbles being blown with money that belongs to our grandchildren as people are thrown into despair, while others attain unparalleled riches, and the whole grossly distorted movie is fed to everyone by a well-oiled spin machine.
Yes, 40 million Americans are on food stamps, 100 million are not even officially in the labor force, and perhaps as much as most Americans are receiving some sort of government assistance, but that doesn’t make it socialism. It makes it a failed capitalist system. Socialism is supposed to be about a society that cares, and that’s not what those US government handouts are about. They’re about keeping people quiet in a failed system.
Europe understands the ‘caring society’ definition of socialism much better. Or it used to. Now it has to face the ‘New Greeks’, elected to stand up against a Europe that does not care one bit. That only wants Greece to obey its budget and bailout rules, over the bodies of its own people. The Greeks have democratically voted not to take that anymore.
Can you imagine what would happen in the US if the government pay-outs were halted? If there were no more foodstamps? The epic failure of the economic system would come to light in too many ways to mention. But one thing’s for sure, it would create one big mess of chaos and unrest that would sweep across the streets of the country like a tidal wave.
Nothing to do with socialism, that’s a political ideology, like capitalism is. There’s not much between them, once you put people first in either.
Still, for now, we all live in a failed economic system, and we refuse to admit it, edged on by our self-serving leaders and media. But how is it not obvious? It is in Greece, after all.
Dorothea Lange Homeless mother and child walking from Phoenix to Imperial County CA Feb 1939
So, Matthew Lynn, I’m sure you’re a fine young man and your mommy loves you to bits, but you’re obviously in the wrong line of work. Or maybe the right one, come to think of it, since if you can make enough people see the world your way, in the end you’ll be right. That’s how journalism is defined these days. Anything goes, provided you can make people believe what you write. The problem is, that process can only end up with everyone a lot dumber than they already are. The lowest common denominator wins the day, every day.
My problem with that is, why does someone work for a finance site like MarketWatch who has no clue what finance actually is, and how it works? Your ignorance leads you, I’m sure without any bad intentions, to insult millions of people who are having a very bad time. Does that mean anything to you? See, I’m guessing it doesn’t. I think you don’t know bad times, because if you did, you would never write the offensive blubber you do.
But Matthew, this once, and only once, I’m going to say what I have to say about your mindless drivel. Because I don’t care one bit about the investor crowd whose fancy you’re trying to tickle, I’m here for the people you aim to leave by the wayside (yeah, I know, you had no idea..). And you know, normally I don’t care anymore, I can’t get angry every single time some nutjob gets his stuff upside down. But this goes too far, you’ve overstretched even your lowest common standards.
In your article, you paint the perfect example of why seeing deflation only as falling prices is so completely useless, numbing and dumbing. Hey, maybe I should thank you for that.
If you refuse to look a WHY prices fall, you never learn a thing, and you will always be behind. Apart from the fact that the idea of Greece and Spain doing well can easily be refuted by 1000 other data sources, there’s the simple fact that looking at one day or week or month tells you nothing. You need to look at consumer spending over at least the past few years. That would also show more respect for the over 25% of the working population, and over 50% of youth, who are unemployed in both Greece and Spain, and who are the topic of your ‘article’.
Prices are starting to fall across the European continent. Mass unemployment, and a grinding recession are forcing companies with too much capacity to charge less for their products. Company profits will soon be collapsing, while government debt ratios threaten to spiral out of control. The threat of deflation is so worrying, the European Central Bank is expected to throw everything in its armory to prevent it, and to get prices rising again. It may even move towards full-blown quantitative easing as early as Thursday.
You get it awfully wrong from the get-go. What you call “companies with too much capacity” are simply those who could sell their products before the recession set in, and would now have to fire people to get rid of that ‘overcapacity’, thereby lowering spending capacity, which would lead to even more ‘overcapacity’, and therefore more unemployed. I’m thinking you must have studied economics, because that’s the only place people pick up such warped notions. It’s a chicken and egg thing, Matthew, a horse and a cart, and getting them the wrong way around is not going to help.
What you describe but don’t understand is deflation. It starts with a drop in spending, caused by lower or no wages, saving or simply the demise of confidence. It doesn’t start with overcapacity. It starts with people losing their jobs.
But here’s a puzzle. The two countries with the worst deflation in Europe are Greece and Spain. And two of the countries with the best growth? Funnily enough, that also happens to be Greece and Spain. So if deflation is so terrible, how come those two are recovering fastest? The answer is that deflation is not nearly as bad as it sometimes made out to be by mainstream economists.
Matthew, I’m not a mainstream economist. I’m not an economist at all, and I see that as my saving grace. Steve Keen is a good friend, but I don’t know any other economists who make any sense to me (Steve says he know a few, so we’re covered). But I don’t think even Steve fully gets deflation either. Which of course he’ll deny.
Still, saying that Greece and Spain are doing just great despite their deflation is simply meaningless. Deflation is not about prices, it’s about spending. And people in Greece have been forced to lower their spending for years now. So much so that one single extra boat of tourists would suffice to raise its GDP. But that makes no difference for the population. Which means Greece is not doing well. Yeah, the highest GDP growth in Europe, but that only says something about the rest. Still, selling a few additional retsinas and tzatzikis may lift Greece, but not Europe. Here’s more you:
The real problem is debt. But if that is true, perhaps the eurozone would be better off trying to fix its debt crisis than campaigning to raise prices – especially as it probably won’t have much success with that anyway. There is no question that the eurozone is sliding inexorably towards deflation. Only last week, we learned that the inflation rate across the zone ratcheted down to 0.3% last month, from 0.4% a month earlier, and a significantly lower figure than the market expected. It has been going steadily down for some time. Consumer inflation has not hit the ECB’s target level of 2% since the start of 2013. It has been falling steadily since it peaked at 3% in late 2011.
I must admit, after reading that again, I have no idea where you’re going with it. The problem is debt, I get that, and I agree too, and that should be fixed, kudos, but after that, you don’t seem to have much of a train of thought, just numbers.
It would be rash to expect that to change any time soon. The oil price has collapsed, and other commodity prices are coming down as well. That will all feed into the inflation rate. Retail sales are still weak, and unemployment is still rising. People who have lost their job don’t spend money – and companies don’t hike prices when the shops are empty.
What you’re describing there is not so much deflation itself, but its consequences. And you yourself just claimed that deflation is not all that bad, didn’t you?
Most economists will tell you that is very worrying — and that the ECB needs to act immediately to stop it getting worse. People will postpone buying anything because they think it will be cheaper next month. Companies will be reluctant to invest because they see their prices and profits going down. Confidence will be sapped, and the economy will suffer. Even worse, the debts of peripheral eurozone countries will spiral out of control — because the amount they owe will remain the same, but there will be less income to service it. But there is something odd about that analysis. The two countries with the worst price data are also the two countries doing best within Europe.
What happens is that Greece and Spain have become so cheap that tourists from other countries come and spend their money on their beaches. That lifts their GDP. Nothing to do with the people in the street. Nor does it have anything to do with deflation. Deflation is defined by the speed at which people spend their money (provide the money supply remains reasonably high). If no-one spends, prices fall. The reason people don’t spend is because they’re too poor. I’m lousy at rocket science, but I do get that one.
Just take a look at the figures. In Greece, prices are falling at an annual rate of 1.7%. In Spain, they are falling by 0.4%. So presumably those are the two countries that have been hit hardest? Well, it has not quite worked out like that. The fastest growing economy in the eurozone right now is none other than Greece. True, it is not exactly China, but it is expanding at an annual rate of 1.9% right now. And how about Spain? Its economy is also growing again, at an annualized rate of 1.6%.
You see, this is where you start to be insulting. You have a nation full of people who don’t even know anymore how to pay for a doctor, and because of some empty government massaged number you want to tell those same people they’re actually doing fine? They’re still as poor as they were before Samaras published that number, and before you reported on it.
By contrast, the economies where prices are still rising are not doing as well. Over in Germany, the supposed powerhouse of Europe, the inflation rate is still just in positive territory, at an annual rate of 0.5%. But growth in the third quarter was only 0.1%, narrowly avoiding recession. The same is true in France – inflation just about stayed positive, but growth has completely stalled.
Yeah, I know, it’s shooting fish in a barrel here for me: if you don’t know what inflation or deflation is, you’re bound to get everything wrong and upside down. But even then, don’t you at least think when you write “the economies where prices are still rising are not doing as well”, that that is weird? Because it would mean that countries who are already knee deep in deflation, whether it’s your definition or mine, with lower prices and therefore higher unemployment, do better than those who have fewer jobless. Doesn’t that strike you as odd?
So there does not appear to be much of a connection between rising prices and stronger growth. Nor do falling prices appear to be hurting very much.
See, now I’m getting pissed off. Did you even read that? Falling prices, Matthew, are the result of having more than half of your young people out of work for years on end. What the f*ck do you mean, they don’t appear to be hurting that much?
So what is going on? In reality, there is nothing terrible about prices falling. It is what happens in a competitive economy. Most of us like it when the stuff we buy gets cheaper. There is no serious evidence to suggest that it deters people from buying things. If it did, no one would ever buy a television or a smartphone, because they know perfectly well that they can get a better one for less money next year. In reality, they buy plenty of both.
This is where I give up on you, Matthew, and where I call on the MarketWatch board to fir your ass. Chances are, I know, that they agree with this absurdity, but what the heck, I’m calling anyway. I mean, what the hell is this supposed to mean: “There is no serious evidence to suggest that it deters people from buying things. If it did, no one would ever buy a television or a smartphone ..”
There’s plenty evidence, go to Athens, go to their soupkitchens and hospitals, and you’ll see that deflation DOES deter people from buying smartphones. Because they need the money, if they even have any, to pay for treatments to keep their children alive that we don’t even have to think twice about. It doesn’t deter them becise deflation loewred prices, but because deflation took their jobs away.
People buy things when they need them, taking price trends into account – after all, you can’t take either the money or the phone with you when you die, so you can’t postpone the purchase forever. Neither is there much evidence that it saps the confidence of companies. Again, if it did, no one would make any kind of consumer electronics. Businesses will invest where they think they can make money, and so long as costs are falling as well it is fine for prices to come down.
No people don’t buy things when they need them when they can’t afford them, you ignorant drip. You’re completely clueless about the world out there. And I take that personal, because these are my people. They’re all my people.
The threat to growth from deflation is wildly oversold. Indeed, for most of the 19th century deflation was completely normal — and that didn’t stop the industrial revolution in its tracks. Indeed, mild deflation may actually be helping Spain and Greece. As things get cheaper, consumers feel a bit more confident – and start spending again.
Yeah, the 19th century was a great period, wasn’t it, Matthew, and completely normal to boot, whatever that may mean. Just ask Marx and Dickens how normal it was, or the millions who came to America escaping the hell that was much of Europe. All Oliver Twist needed was a bit more confidence, so he could start spending again…
The one thing that is a problem is where there are high debts, as there certainly are across the eurozone. If prices fall, then those debt ratios are just going to get worse and worse. At a certain point, they will be unsustainable. But in that case, surely the right response is to deal with the debt, not the deflation. Many eurozone countries have debts that they probably won’t ever be able to repay.
If they thought inflation was going to deal with that for them, they will be disappointed. It isn’t going to happen. By far the best thing for them to do now would be to restructure their debts. The ECB will throw everything it has at fighting deflation. But it is probably not going to work – and it might well be better if it didn’t.
See, Matthew, you actually know some things. But you don’t understand them. I know, if only because you end with this cracker:
Deflation is not nearly as bad as everyone thinks.
I don’t really know what to say in the face of so much, what do you call this, nonsense, propaganda, ignorance? I write because I don’t like what happens to the people that folks like Matthew Lynn couldn’t care less about, as long as their little economic theories seem to fit whatever little rich lives they lead.
I have nothing with that. I have something with the people. And I therefore find comments like the ones above by Matthew Lynn repulsive.
The Guardian’s Greece correspondent, Helena Smith, is deeply sceptical about the heralded recovery having any real impact on the ground. “The ‘success story’ peddled by the government differs wildly to what life is really like on the ground – with plummeting living standards, unprecedented unemployment and the inability of most to keep up with bills, including the barrage of new taxes that can change with lightning speed on any given day,” she says.
“Five years down the road the crisis, to great degree, has been ‘normalised’ but the disconnect is evident in the collateral damage caused by the massive devaluation Greece has been forced to undergo in return for emergency funding: suicides, homelessness, a middle class pauperised by austerity. “And all eclipsed by a level of uncertainty, shared by all who live in a country whose debt load – the biggest impediment to real economic recovery – has actually grown since the crisis began.” [..]
Catherine Moschonas, from Thessaloniki: “Wages still much lower than a few years ago but taxes are MUCH higher, especially land taxes – the state is now taxing real estate that people can’t find tenants for and can’t sell because nobody’s buying. Generally policies are driving rather than limiting tax evasion – otherwise people can’t make ends meet (quite apart from perceived lack of social justice in measures taken).
“For families, healthcare increasingly a major financial concern as hospitals or sections close and social insurance is cut – but most people can’t afford private healthcare. People with relatively decent paychecks are one sick parent away from disaster. I don’t see any sign that things are improving”
A small economic recovery is little consolation when one considers that in the past 5 years of recession, the Greek economy has lost a fifth of its total volume. And in a country that has seen unemployment rise to 28%, a drop of half a percentage point is not particularly noticeable.
.. the conservative Prime Minister Antonis Samaras desperately needs successes to mobilize his core voters. But real life is not helping him much. Growth in Greece is still very fragile, restructuring of inefficient state apparatuses is still very slow, tax avoidance has not been clamped down on, privatization is stalling, and austerity measures are driving more and more people to despair – younger generations in particular are struggling with a dearth of opportunities ..
.. even in these unusual circumstances, the Greek parties are not in a position to achieve even a basic consensus on how to rescue the country. Even now, they are feverishly preparing for a new election instead of trying to establish some political stability and continuity. Leading members of Syriza have even suggested demanding leftover war reparations from Germany and use them in calculations for a new budget. This might sound like a farce from the periphery of the eurozone, but it is testament to the backwardness of political culture in Greece. Anyone who wants to help the Greek people needs to keep their politicians and governments under control first.
The number of Greeks at risk of poverty has more than doubled in the last five years – from about 20% in 2008 to 44% in 2013, according to a report by the International Labor Organization.
Sorry if I get too emotional for your taste at times, but I have a hard time with sheer and especially mean hubris. Telling people things are great since their basic necessities just got cheaper, exactly BECAUSE they can no longer afford them (because that IS deflation), that must be the pits. Still, it’s how 99% of economists ‘understand’ the world. Now you know why it’s all such a mess.