By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog.
The establishment view in Europe is that the problem is too much debt (by profligate countries like Greece) and, therefore, that the solution must involve (a) austerity and (b) structural reforms (which increase the competitiveness of the weaker states). The problem, however, is that the establishment view is profoundly mistaken and, as a result, the proposed treatment poisons the patient. If this is so, Europe (and the world) have a lot more to fear from the ‘reasonableness’ of political parties like Fine Gael et al than from the ‘ultra-leftists’ of Syriza.
The other day, the Irish voted in favour of a hideous impossibility: They voted in favour of the EU’s fiscal compact which specifies that which is both impossible to attain and catastrophic if it is attained. What was that? The pledge by member-states that “general government budgets shall be balanced or in surplus”, that “the annual structural deficit must not exceed 0.5 percent of GDP”, that if “government debt exceeds the 60% reference level” it will be reduced “at an average rate of one twentieth (5%) per year as a benchmark” and that, failing all this, “the EU’s highest court will be able to fine a country”; a penalty equivalent to up to 0.1% of GDP”.
Suppose that every European citizen adopts the fiscal compact as her or his guiding principle and puts its implementation above all else in life. If Spain, Italy, Portugal, Ireland, France, Greece, Germany etc. (i.e. countries with debt well above 60% of GDP) were to reduce their debt by the specified 5% per annum, this would mean that all these nations should turn an average 2.8% primary deficit to something akin to 6% primary surplus. Suppose we could do it (which, of course, we cannot). Were we to succeed in this endeavour, the result would be a very deep recession equal to at least -4.5% in terms of average Eurozone-wide ‘growth’. In a period when a banking crisis is in full swing, the Periphery is in free fall, US growth is tittering of the verge, China is slowing down etc., engineering such a recession via this piece of ‘legislation’ is the macroeconomic equivalent of committing suicide.
So, why did the Fine Gael-led Dublin government push so powerfully in favour of this piece of crippling idiocy? And why did the smart, decent Irish voters said Yes, despite their tradition of saying No to euro-silliness? The answer is simple: They were blackmailed. Ireland’s voters were told: Vote No and the flow of money from the troika will cease. And so they voted Yes, even though I suspect that no government minister, no rank and file Fine Gael or Labour Party member, no man or woman on the street believes that the Fiscal Compact they voted for makes sense.
Similarly in Greece today. Voters are being bombarded by the media with precisely the same dilemma: If you vote for Syriza, as opposed to one of the pro-bailout parties, the money flow from the troika will cease and then all hell will break loose. Indeed, the same scenario is played out all over the place. In Spain, the hapless government of Mr Rajoy speaks out against Eurobonds so as to stay on the ‘right’ side of Mrs Merkel in the hope that Spanish banks will be kept afloat without an ignominious inclusion in the EFSF-ESM fold. Italy’s Mr Monti is invoking the Greeks to vote for ‘reasonable’ parties even though he knows full well that this sort of ‘reasonableness’ involves policies that constitute cruel, unusual and ineffective punishment. And so on.
For two years now I have been arguing that Europe is being quickmarched, sequentially (one country after the next) off the cliff of competitive austerity – without any winners standing at the end of this gruesome process. Something must end this madness. There must be a circuit-breaker. Ireland could have been that circuit-breaker, with a resounding No to the idiotic Fiscal Pact. It did not happen. On the one hand, the fear that Ireland will be frozen out of the ESM and, on the other hand, the elevation of the troika’s ‘model prisoner’ image (for the Irish) onto the Pantheon of Irish virtues, saw to it that madness (in the form of a Yes vote to a Compact that everyone knows to be daft) prevailed. Greece is the next hope that Reason may manage to score a belated victory.
If on 17th June Greeks voted like the Irish did last week (that is, against their reasoning and guided by fear and blackmail), the Eurozone will become history, with terrible consequences for the global economy. This is not the case of the Philosopher Kings blackmailing the plebs to do what is right. This is the case of ‘madmen in authority’, to quote Keynes, who are not only steering the vessel toward the rocks but who are, in the process, punching holes in the life vests that may carry us to safety once the shipwreck is complete. Consider what they are telling the Greek people: They are saying that Greece, to remain in the Eurozone, must,
(a) carry on borrowing from the EFSF at 4% (and thus adding to Greece’s public debt) in order to pay the ECB (which will be making a 20% profit from these payments, courtesy of the fact that it had previously bought Greece’s bonds at a 20% to 30% discount)
(b) reduce public spending by 12 billion euros in order to be ‘allowed’ to borrow for the benefit of bolstering the ECB’s profits from these transactions involving bankrupt Greece.
If the Devil wanted to guarantee that Greece is pushed out of the Eurozone, he and his evil handmaidens could not make up the above, satanic, scenario. Meanwhile, the same happens in Spain, where the government is forced to borrow money (at nearly 7%) it can hardly raise in order to shore up banks that are borrowing from the ECB (at 1%) to lend to the Spanish government at (7%) so that the latter can… bail them out. Not even the sickest of minds could make this up!
To conclude, Europe’s peoples are being marched into a catastrophe. They know that this is their predicament. They can see their march is leading them off a mighty cliff. But they are too afraid to veer off, in case there are beaten back into line, in case they get lost in the woods, for reasons that sheep know best. However, the only way this hideous march can end is if someone summons up the courage and does it. And steps out, showing the others that this march can stop and must stop – for everyone’s benefit. Who is that someone? We, Europeans, do not have many options. As I wrote above, the Irish people had a chance but did not take it. In two weeks, the Greeks have their chance. Voting for Syriza would offer us (and by ‘us’ I mean all Europeans) a chance of this circuit-breaker. A chance to say: Enough! Time to change course in order to save the Eurozone, so as to prevent the Great Postmodern Depression which lurks once the euro-system fragments formally.
Should we be afraid of Syriza’s ‘ultra-leftism’? My answer is a resounding No. I recommend that (even those who have Greek amongst their languages) you do not read their manifesto. It is not worth the paper it is written on. While replete with good intentions, it is hort on detail, full of promises that cannot, and will not be fulfilled (the greatest one is that austerity will be cancelled), a hotchpotch of policies that are neither here nor there. Just ignore it. Syriza is a party that had to progress, within weeks, from a fringe political agglomeration struggling to get into Parliament (at around the 4% mark) to a major party that may have to form government in a few short weeks. It is, in important ways, a ‘work in progress’; and so is its unappetising Manifesto. No, the reason it is safe to take a gamble on Syriza is threefold:
First, because it is probably the only party that ‘gets it’; that understands (a) that Greece must stay in the Eurozone (despite the latter’s obvious failures), and (b) that the Eurozone will not survive unless someone forces Europe to put an immediate halt on this “march off the cliff of competitive austerity”.
Secondly, because the small team of political economists that will negotiate on Syriza’s behalf are good. moderate people with a decent grasp of the grim reality that Greece and the Eurozone are facing (and, no, I am not part of that team – but I know the ones I am referring to).
Thirdly, because, in any case, a vote for Syriza is not going to establish a purely Syriza government. No party, including Syriza, will be in a position to form a government outright. So, the question is whether Europe is better off with a government in Athens which includes Syriza as a pivot or one which is supported by discredited pro-bailout parties, with Syriza leading from the opposition benches. I have no doubt whatsoever that Europe’s interests are best served by the first option.[1]
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[1] On a humourful note, perhaps we can even enlist the Fiscal Compact as a reason to support a Syriza-based government! One of the Compact’s articles, after all, says that member-states agree to take the necessary actions and measures, which are essential to the good functioning of the euro area in pursuit of the objectives of fostering competitiveness, promoting employment, contributing further to the sustainability of public finances and reinforcing financial stability.” Well, all this, at least in my estimation, requires saying No to the ‘bailout’ logic and, thus, Yes to the Syriza’s line of argument…
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If being reasonable means that the poor, elderly and disabled are made to suffer how reasonable is it really?
100%. You have given the operational definition of “reasonableness.” Well, for some.
I recall from my programming days that one sometimes used “reasonable tests” or ” sanity checks” to detect when the computr code was not behaving as intended.
Make that “reasonableness tests”.
This pact is an attempt by the EU to prevent its economy from being canabalized from the outside by CDS/Squared and other derivatives which are not connected to the earning rates of the economy but for which the economy might be made liable. It is the EU’s own insurance fund to help individual nations to get back on their feet without jeopardizing the ECB (whatever the ECB is, that should really be clarified). The only thing better is to get rid of the bailout at taxpayer expense and get rid of the odious debt burden at taxpayer expense and start over with clearer rules. Of course it would be better to tell the banksters to go take a long walk. What we really and obviously need is enough money to go around so that we do not need to take it away from one another. In Europe or in the USA.
“The other day, the Irish voted in favour of a hideous impossibility:”
No, the Irish who are “benefitting” from being colonized from Britain and Europe voted to maintain thier status of favorite dogs. They have been doing this for over 800 year (with some notable periods of resistance). The rest of the Irish can starve and go barefoot, or emmigrate to Poland..not New York or Boston, they’ll just find more of the same there, soon enough.
Your response would suggest that those who benefit are a plurality–I think the OP is, in fact, right: the Irish, like people in so many bourgeois democracies, voted against their own interest. Various dubious blandishments, yes. . .
Ireland is weird: they seem to have a cultural attitude where they just *assume* that they’re under unstoppable colonial rule even when they aren’t.
What happened to the veterans of the Irish War of Independence? I guess they’re gone.
This Greek vote as important as any world event of the last decade, or at least since 2008.
If that’s true, then I don’t see how Greece can expect anything different from the Eurozone than it is getting right now. The only power I can see that they have is the power to default and leave. The bankers seem to be unimpressed by elections, and the important leaders of Europe seem to be doing what the bankers tell them.
Greece has the power to stay in the Eurozone and force *Germany* to leave, if it plays its cards right.
And what is even MORE disturbing is that while the Irish and the Greeks have to be blackmailed, the American people are so fricking brainwashed and disinformed that they probably need another 3 DECADES of the current situation before they can even get to the point of being capable of being blackmailed.
Nope, instead we discuss the everything but the current fiscal situation with the lowliest slaves being some of the staunchest defenders of the status austerity quo:
“Everyone’s gotta pay their fair share…”
“We all must sacrifice…”
“The federal budget is just like a family’s budget…”
Pathetic and sickening.
The Irish are peasants. Americans are peasants. They do what they are told by their betters, to borrow a term from colonial Latin America, by their “patrons.” Peasants are conservative by nature and nurture, doing what they are told even if it is contrary to their real interests. You cannot expect them to rise up until conditions become so abominable that acceptance is no longer an option. We are not there yet.
Dr. Michael Hudson taught me that over forty years ago when I was studying econ at the New School in NYC.
Hopefully, the Greeks will do otherwise – but I am not confident.
Conditions will become sufficiently abominable soon, however.
The elite are so stupid that they will continue squeezing until the peasants *do* rebel.
I wish we had a smarter elite, one who remembered to provide bread and circuses, because I like a stable quiet life.
I must agree with the author, although with some caveats:
1. I still hope that Syriza gets an ample majority (dreaming is for free) and that EU commits the idiotic error of suspending Greece after Syriza forms government (it’d be the first communist government in EU and NATO ever!)
2. I hope (and expect) that they do not renounce to most of their manifesto and become some new PASOK: that would be defrauding the Greek People and would not work anyhow.
3. Most importantly, I think that if Syriza does not get a clear majority, the other “left” parties will boycott the formation of a government from the extremist pseudo-left of the KKE and the sold-out right of DIMAR and PASOK. Critically Syriza-Dimar do not seem, according to polls, able to muster a parliamentary majority even if Syriza gets 1st post. They will probably need the support of a most reluctant KKE or an undesirable mischievous PASOK, which has been punished by the People for very good reasons.
It’s still very possible that Syriza wins and can’t form government. But the alternative is a ND-PASOK government and we already know how bad that is.
…
But like Varoufakis, I am most concerned about Ireland-like false leaders who sell off their countries to the banksters. And the Ireland of today is Spain, which should let Bankia fall (full bankruptcy with minimal safety net) and found a new public savings bank from its non-toxic assets.
Anything else is deadly poison.
Maju:
The Greek Cypriot government is headed by their communist party, during the first term in coalition, and after their second election, with an outright majority.
The Irish don’t have a proud tradition of No votes on Europe – apart from Lisbon, they have consistently voted about 2:1 in favour since 1973. This vote confirmed the trend.
yet when Mr. Varoufakis is asked if Greece should leave the euro (so they can print their own money) his reply is no.
Beggars can’t be choosers!
What’s Varoufakis’s recommendation? I don’t get it.
The only way the Eurozone can survive as it is is through a United States of Europe entailing permanent fiscal subsidies from the North to the South. That’s the only way out.
Is he in favor of this? And if the northern countries’ citizens don’t approve, what then?
Jim, don’t worry about the north approving or not , if they don’t then we pull out of the eurozone and the whole thing collapses , of course we collapse too but who cares, revenge has such a nice taste ( Varoufakis is taking nonsense like every modern greek )
Don’t worry, at least some of us here in the north want out too, regardless of the fallout. After all, it’s blatantly obvious now that it’s completely impossible to implement necessary economic programs within the eurozone. As long as we are part of that monstrosity, we can never implement jobs guarantee and and citizenship salary + a debt jubilee + freeing individuals and organisations to issue private money. Things which will become absolutely necessary as automatisation keeps on destroying “jobs”.
I’d rather take the short term hit of a destroyed global economy which allows plentiful opportunities for deep, substantial reforms to defang and neuter banking than continue on this road of slow, grinding crisis which will produce nothing but prolonged misery for decades to come while the bankster criminals laugh to their coctails at how foolish we peasants are. Put the criminal scum to their place: 2 meters underground.
Keep Greece in the Eurozone, kick Germany out.
That’s the unspoken subtext.
It would work. Germany is the “odd country out”. Everyone else in the Eurozone would clearly benefit from loose money policy.
Haha! Greeks are like the smartiest nation in Europe. I don’t doubt that they could kick Germany out. Even in times when they were totally losing everything they have always managed to come as winners at the end.
>First, because it is probably the only party that ‘gets it’; that understands (a) that Greece must stay in the Eurozone
Why? In fact, why would anybody sane stay in that suicide pact? Just fucking admit already that the entire eurozone was nothing but a reactionist attempt to force the entire continent into a neo-feudal debt slavery. Fuck that shit. And fuck the eurozone. I’m sick and tired of you worthless conservative trash telling us that we should just suck it up and remain in the disaster causing pact. Dissolve the eurozone, the messier, the better. Let anarchy reign for a while.
“Just fucking admit already that the entire eurozone was nothing but a reactionist attempt to force the entire continent into a neo-feudal debt slavery.”
It certainly does look that way, doesn’t it?
Now why did GS sell them that ticking time bomb?
Jamaica has been my go-to analogy on this one.
http://www.lifeanddebt.org/index.html
Also, I hear that when you vacation in Dubai, the imported near-slaves all but wipe your butt** after you take a shit, (provided you don’t get raped in the public toilets (then again, what were you doing in the public toilets in the first place?)).
**In the Mediterranean, not so much. Could be someone just needs to understand their place in the new world order.
Just for shits and grins… Don tinfoil bonnet.
Now what currency have oil nations attempted to use, in order to get murica off their back.
Although the euro has descended into a quasi feudal mercantile system. Its original portent was to eliminate the cross boarder exchange problems and strengthen its economic position with relationship with the other big boys.
With that in mind, I find it interesting that the Piigs were the first to blow up. Largely due the the products WS & City of London sold them and after all the MSM praise of these products.
Skippy… lets not forget the long running feud between Greek shipping and the MIC – Corporate complex. Hay, remember when they sank one of Onassis ships off south America, when he was almost on his knees. Only to find out he had it treble insured by Lloyds… hahahaha!