Greece: bond slave to Europe
Without sovereign control of their country's debt, the
Greek people are being punished with extortion by the
ECB and IMF
Mark Weisbrot
The Guardian
17 June 2011
http://www.guardian.co.uk/commentisfree/cifamerica/2011/jun/17/greece-bailout-austerity

Imagine that in its worst year of our recent recession,
the United States government had decided to reduce its
federal budget deficit by more than $800bn - cutting
spending and raising taxes to meet this goal. Imagine
that, as a result of these measures, the economy had
worsened and unemployment soared to more than 16%; and
then the president pledged another $400bn in spending
cuts and tax increases this year. What do you think
would be the public reaction?

It would probably be similar to what we are seeing in
Greece today, including mass demonstrations and riots -
because that is what the Greek government has done. The
above numbers are simply adjusted for the relative size
of the two economies. Of course, the US government would
never dare to do what the Greek government has done:
recall that the budget battle in April,which had House
Republicans threatening to shut down the government,
resulted in spending cuts of just $38bn.

What makes the Greek public even angrier is that their
collective punishment is being meted out by foreign
powers - the European Commission, the European Central
Bank and the IMF. This highlights perhaps the biggest
problem of unaccountable, rightwing, supranational
institutions. Greece would not be going through this if
it were not a member of a currency union. If it had
leaders of its own who were stupid enough to massively
cut spending and raise taxes during a recession, those
government officials would be replaced. And then a new
government would do what the vast majority of
governments in the world did during the world recession
of 2009 - the opposite: that is, deploy an economic
stimulus, or what economists call counter-cyclical
policies.

And if that required a renegotiation of the public debt,
that is what the country would do. This is going to
happen even under the European authorities, but first,
they are putting the country through years of
unnecessary suffering. And they are taking advantage of
the situation to privatise public assets at fire sale
prices and restructure the Greek state and economy, so
that it is more to their liking.

I have maintained for some time that the Greek
government has had more bargaining power than it has
used, and the past week's events seem to confirm this.
Because of the massive opposition to further economic
self-destruction - the latest polls show that 80% of
Greeks are opposed to making any more concessions to the
European authorities - the Greek government has so far
been unable to reach an agreement with the IMF for the
release of their latest loan tranche on 29 June.

So what happened? The IMF is going to hand over the
money anyway, while the European authorities (who are in
control of IMF decision-making on matters of Greek
economic policy) continue to quarrel over how long they
will postpone Greece's inevitable debt restructuring,
roll-over, or whatever they choose to call it.

That's because the prospect of a disorderly default - as
would be triggered by the IMF simply sticking to its
programme and not lending Greece the money - is too
scary for the European authorities to contemplate. For
this reason, the many news articles about the
possibility of a financial collapse comparable to what
happened after Lehman Brothers went under in 2008 are
somewhat exaggerated. The European authorities are not
going to let that happen over a measly $17bn loan
installment. The events of the past week were all a game
of brinkmanship, and the European authorities had to
blink because the Greek government, as much as it wanted
to, couldn't get approval for the deal.

A democratically accountable Greek government would take
a much harder line with the European authorities. For
example, they could start with a moratorium on interest
payments, which are currently running at 6.6% of GDP.
(This is a huge interest rate burden, and the IMF
projects it to increase to 8.6% by 2014. For comparison,
despite all the noise about the US debt burden, net
interest on the US public debt is currently at 1.4% of
GDP.) That would release enough funds for a serious
stimulus programme, while they negotiate with the
authorities for the inevitable debt write-down. Of
course, the European authorities - who are looking at
this from the point of view of their big banks and
creditors' interests generally - would be enraged, but
at least this would be a reasonable opening bargaining
position.

The IMF's latest review of its agreement with Greece
suggests that the Euro, for the Greek economy, is still
20-34% overvalued. This makes a recovery through
"internal devaluation" - that is, keeping unemployment
extremely high and therefore lowering wages to make the
economy more internationally competitive - an even more
remote possibility than it would otherwise be. But the
big problem is that the country's fiscal policy is going
in the wrong direction; and of course, they cannot use
monetary policy because that is controlled by the ECB.

The European authorities have more than enough money to
finance a recovery programme in Greece, and to bail out
their banks if they don't want them to take the
inevitable losses on their loans. There is no excuse for
this never-ending punishment of the Greek people.

___________________________________________

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