Will Greece jump or be pushed out of the EU. Will there be a deal and if so what kind of deal? Will the deal satisfy all member states or will Italy, Spain, Portugal, Latvia, Ireland and others come knocking at the door asking for a new deal too.
It’s a mess but a mess of Europe’s own making. Tying 16 nations to the euro before it was thought through was primarily a political decision not an economic one. J.E. Stiglitz termed it, “…a flawed monetary arrangement,”. A ‘flawed arrangement’ is a view shared by another Nobel Prize winning economist Paul Krugman. The euro is flawed because it has no euro wide fiscal policy.
JE Stiglitz, The Price of Inequality p276 Paul Krugman, End This Depression Now!
The EU is a ratbag of economies. As the poorer nations joined (see above) they tended to grab every euro on offer with open hands. There was no oversight. No thought to consequences. The European Central Bank (ECB) and the European Commission (Euro C) should have kept a close eye on events but the politics of unity over shadowed all other considerations. An attitude of: ‘it’ll be alright on the night’ prevailed. It seems everyone was at the party so no one wanted to spoil the atmosphere. The magic mushrooms were magic, man.
Then came the hurricane of the banking crisis of 2008 and the damage was severe. Businesses were uprooted and havens blown away. There was nowhere to hide.
The party goers came out looking for sunshine with such a headache, moaning that no one understood the pain they were experiencing. The smiley faces had disappeared and they were in a quandary. It was a case of jump the first train leaving the station and hope to get home. Some may have opted for a bubble bath.
Of the two trains standing in the station, both economic classics, one was the Keynesian, ready to drive forward as soon as fuel was loaded. The other the Austrian School would not budge, it demanded a whole hearted forage into the regions to cut down any tree to use as fuel. Only when satisfied that sufficient fuel was collected would it edge tentatively forward.
It was the same school of thought, the Chicago School and Milton Friedman that had advised Margaret Thatcher in the early 1980s which led to massive unemployment in 1979-1984 up 124%. And to mass privatisation of all the nations utility companies which are happy ripping us all off. The big boys have made a financial killing. This is classic neoliberal economics.
Problems have a habit of sticking around until they have been solved. All the member states who had partied, and all had partied, had over indulged. Now they were asked to make good the costs of the shindig. It was to be a slash and burn frenzy. Paul Krugman in studying the policy of the EU and the ECB, who had fed the habit, commented, “This aid has, however, come with strings attached: the debtor countries’ governments have been forced to impose savage austerity programs, slashing spending even on basic items like health care”.
Unfortunately, the little guy on the street, the ordinary Joe whose pockets were practically empty are forced to cough up more.
However, little Greece stood up and campaigned against the imposition of the austerity programme by the Goliath’s of the EU. They didn’t seem too scared of the head honchos enforcers: the IMF, the ECB and the Euro C known locally as the Troika. Nobody usually messes with those boys. Greece held a vote and decided that they’d be ready for a fight.
This was an unknown quantity, the big boys were aghast. The Greeks were prepared to talk, so the EU mob considered their options and decided to show the others how fair they could be. They listened, and then told the Greeks to do as instructed by the Troika or face the consequences.
But an election was held the Greeks pointed out, its democracy. No one listened. A mediator stepped in on the side of the Greek people: “Removing such questions from the province of democratic deliberation and passing them on to technocrats or international bodies is the worst solution”. Dani Rodrik, The Globalization Paradox p242. The fight ensues. Tremble little EU states the EU mob will not be trifled with.
ECB unelected IMF unelected Euro C unelected
To kick start the fight the ECB has made it known that they will not buy Greece’s junk bonds. (Telegraph 5/2/15) With interest rates at around 20% Greece is effectively locked out of the lending market. The German finance minister has told the government of Greece to honour the arrangements with the Troika. (Reuters 5/2/15)
Greece is between a rock and a hard place. To revert to the drachma would bring the vultures circling, sorry speculators, which could prove disastrous. They can’t go cap-in-hand to the banks as interest is too high and there’s the question of defaulting on the loan. The EU doesn’t want Greece to leave the collective as that could seriously undermine the whole concept of the EU itself.
Nonetheless, Greece’s PM Tsipras says his country will not accept the austerity plan though the bank has only enough liquidity to hold out for two weeks. (Reuters 9/2/15)The other problem is Greece needs to pay the first tranche of its bail-out package, around £5-7bn in the next few weeks. What is to be done? “the massive austerity cuts have prolonged Greece’s economic recession and depressed tax revenues”. www.cia.gov/library/public With unemployment at 26% and youth unemployment at just over 50% further austerity doesn’t seem like a good plan.
What they say!
Alan Greenspan, former head of the US central bank: Greece will be forced out.
Jens Weidmann, Bundesbank chairman: Greece should not be bailed out.
Emmanuel Macron, French finance minister: “We must step away from this ‘religious war’ between Europe’s North and South..” (Reuters 29/1/15)
Schaueble, German finance minister: Greece must comply.
George Osborne, UK Chancellor of Exchequer: UK making contingency plans in the event that Greece leaves.