Background
Last night the majority of European Finance Ministers, told Greece to beg for an extension of the current program without even offering some window-dressing for the newly elected government. As there was a lot of publicity, it looks like the first time that this has happened. This is however the outcome of a gradual buildup.
The previous government,genuinely believing that a magic wand had been applied to Greece to bring back growth and despite standard micro and macroeconomics, promised in the summer of 2014 to the Greek people an end to the troika program, remembering once again Samaras' promises of 2010-11. Not a single party in Greece proposed extending the MOU or imposing further austerity in 2015.
However, in the fall of 2014, the reality of the economy was back on the table again: the growth of 2014 was a one off injection from a huge increase in tourist arrivals and a smaller increase in tourist receipts, and the rest of the economy continued contracting as internal demand wavered and businesses and people kept on fleeing the unfriendly tax, business and lack of financing or employment environment. The troika was well aware not only that the primary surplus was overstated as a number of expenses was hidden under the table, but that 2015 posed challenges to the optimistic counting of the Greek ministry of finance.
So despite some signals towards ending the program in 2014, the troika in December rejected all proposals of the last government even though these included additional taxes and wide-ranging further reductions in social security and pensions, without proposing something instead. They also rejected certain measures of the Samaras government which were taken unilaterally, such as the 100 installment settlement of overdue tax obligations. The Samaras government left the negotiations inconclusive and went for slightly early elections which both the troika and he knew he would lose.
So effectively in late 2014, the previous government was already given an ultimatum it could not comply with. Therefore yesterday's rejection is only a continuation of previously made decisions, although there is one big difference: the troika rejection did not have the political implications of yesterday's ultimatum as it was on a technocratic level.
So what is really going on? A hypothesis for testing
I shall formulate a hypothesis which seems plausible: The eurozone leaders, knowing in 2012 that the Greek economy had already passed the point of no return, made a decision to "help" Greece for the last time and ensure that the eurozone was able to cope with a failure of Greece to comply with the program and be forced/allowed to exit the eurozone. And as Greece moved towards the inevitable while its people kept facing economic disaster, it would serve all best if the "accident" happened in the hands of a euroskeptic party.
Substantiation
- Passing the point of no return: IMF officials had to struggle with assumptions to substantiate - but hardly convince the trained economist - that the greek program would keep the external debt manageable. Even in 2013-4, there were voices in the IMF suggesting doing debt forgiveness. So there seems to be no actual further cost from a Grexit, as the money already lent is already lost.
- Eurozone banks are now totally insulated from a Greek default, after having been bailed out from 2010 to 2013, despite a cut, with the bailout being funded mostly through new greek state loans.
- Apart from official lending, vulture hedge funds have taken their place as English law has replaced Greek law, so the Greeks will continue to be penalized for their failure if they do not submit to the ultimatum and prefer to default.
- Most EU governments face serious challenges from euroskeptic parties, with the most apparent threats in France, Spain and the UK. Crushing the first euroskeptic party to take control of a country is in their best political survival interests. The inability to think that such non-union mentality standoffs may actually fuel euroskepticism does not seem to be on their minds.
- Old cold war sentiments still arise psychological reactions to anything that is called left, especially if it is called radical left with a communist twist.
- Prejudices about Greece and Germany, both of which remain unsubstantiated (separate notes on this are in the works), are being continuously invoked.
- Greece stands out as a confirmation of the prejudices, when compared to Portugal.
- Greece will be a problem again and again unless the debt is written off, and governments will have to apologize to their people for it, so why bother when there is a scapegoat? Or else, the I-am-fed-up-with-you factor.
- Handling of public opinion: every time the issue of Greece comes up, public support for the euro drops in most countries. So finishing the Greek issue once and for all may stabilize euroskepticism.
A Further Hypothesis which I wish fails testing
It seems that the lessons from the divides that brought about WW 2 have now been forgotten in Europe as the generation of politicians who had lived that disaster has passed away. Politicians are generally not people who have worked in the challenging private sector but rather civil servants or professional politicians. The political morality of Europe over the last few years has resulted in electing those who do the fewer mistakes, not those who try to do things and unavoidably, make mistakes and enemies. Politicians have therefore built a mentality for doing the least damaging politically, and not the correct for their people.
And European Unification has suffered. While we should be strengthening the common market, currency, laws, free circulation of people, goods and services, instead barriers of various sorts are being erected under the pressure of narrow political interests and budget pressures. And not a single market unifying act has been implemented for more than 10 years, with the exception of the self serving european bureaucracy's single divorce jurisdiction directive. As one German journalist wrote "I never thought I would miss Helmut Kohl"!
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