[MGSA-L] Austerity Measures in Greece and the Eurozone. Repealing “Flawed Economic Policies”

[June Samaras]

http://www.globalresearch.ca/austerity-measures-in-greece-and-the-eurozone-repealing-flawed-economic-policies/5422324

Austerity Measures in Greece and the Eurozone. Repealing “Flawed Economic
Policies”

Greece, the Troika and the New York Times

By William Black
Global Research, January 03, 2015
Common Dreams 31 December 2014

 As I have explained in prior articles, there is an excellent chance that
the Troika’s infliction of austerity on the eurozone’s periphery could, as
with the austerity inflicted under the Washington Consensus continue to
produce such long-term rolling recessions that it creates a political
dynamic that discredits such economic malpractice and brings to power
leaders elected on the promise that they will adopt economically literate
policies. The first case of this in the eurozone could be Greece. (Hollande
won office on a platform of opposing inflicting austerity on France, but
purged his government of those that most strongly opposed austerity and
implemented policies that moved increasingly toward austerity. The French
economy stagnated and Hollande’s approval ratings are dismal.)

Greece’s coalition government led by Prime Minister Antonis Samaras failed,
in multiple tries, to garner enough support to continue to rule. The result
will be national elections on January 25, 2015. The results of the election
are uncertain, but the leader in the polls is the Syriza party led by
Alexis Tsipras, which is running on an anti-austerity platform.

The New York Times’ web version has four recent articles on Greece dated
December 27-29, 2014. I’ll begin with the only one that is not a complete
embarrassment, Suzanne Daley’s December 29 article titled “Greek Patience
with Austerity Nears Its Limit.” While the journalist often does not select
the article title, as I will show Daley either chose or inspired the title.
Her title signals the central problem with the article. “Patience” has
nothing to do with the issue and is most assuredly not a virtue in this
context. The title suggests that if the Greeks were simply more German,
more patient, all would be well. The reality is that the Greek people, as
with their counterparts in much of the eurozone, have been far too patient
with the economic equivalent of bleeding the patient (austerity). All other
factors held constant, the longer austerity continues the slower the
recovery and the greater the misery.

As Bill Mitchell always emphasizes, governments choose the level of
unemployment – and the Troika and the Greek leaders who succumbed to its
extortion have chosen to create catastrophic rates of unemployment in
Greece that continue a full six years after the peak of the crisis. Greece
is suffering from Great Depression levels of unemployment and lost GDP.
Indeed, Greece suffered relatively less from the Great Depression, which
reduced per capita GDP (peak-to-trough by approximately 6%). In the case of
the Great Depression, Greece was able to return to pre-Depression GDP
levels within four years. The troika, and the Greek leaders who gave to the
troika’s threats condemned Greece to a crisis that is far more severe and
far longer than was the Great Depression. No people worthy of being a
Nation would be “patient” with seeing such horrors gratuitously inflicted
on their fellow countrymen. They would rise up and put a stop to such
depraved policies.

Greece has neither a sovereign currency nor any true sovereignty. The
troika, at the insistence of the Germans, successfully extorted the Greek
elites into cancelling the referendum on austerity and forced a de facto
coup. Germany is the EU’s hyper-power. It dominates the EU’s political and
economic policies and institutions. Syriza calls for the restoration of
Greek sovereignty and ending the economic malpractice known as austerity.
If it succeeds in the election, and if it holds true to its campaign
promises, Syriza poses a grave threat to German rule. Germany openly
opposes Syriza coming to power through democratic elections and any
resumption of Greek sovereignty.

Germany’s hypocritical demand is that Greece must honor agreements that the
troika extorted. Germany, after World War I, threw off reparation
agreements extorted through foreign diktats that were economically
self-destructive to Germany and Europe. Unfortunately, Germany delayed too
long in repudiating those agreements, which helped spark the Great
Depression. Germany launched World War I and much of the war was fought on
French and Belgian soil. The moral case for reparations was substantial.
Greece certainly had many flawed economic policies but the moral case for
Germany inflicting a Greater-than-Great Depression on Greece was
nonexistent.

Daley’s article demonstrates these points extensively in these passages.

“Nowhere have austerity policies been more aggressively tried — and
generally failed to live up to results promised by advocates — than in
Greece. After more than four years of belt tightening, patience is wearing
thin, and tentative signs of improvement have not yet trickled down into
the lives of average Greeks.

Last year, the national unemployment rate reached 27 percent, and the vast
majority of out-of-work Greeks have not had a paycheck in more than two
years.

In 2010, with Greece crippled by debt and threatening the survival of the
euro, the European Union, the International Monetary Fund and the European
Central Bank [the troika] began imposing German-inspired austerity on the
country. The aim was to slash the budget deficit and address fundamental
problems like corruption and a failure to collect taxes. Such policies,
they promised, would get Greece back on its feet, able to borrow again on
financial markets.

Greeks grudgingly went along, assured that painful reform would return the
country to growth by 2012. Instead, Greece lost 400,000 jobs that year and
continued on a decline that would see a drop in the gross domestic product
since 2008 not much different from the one experienced during the first
five years of the United States’ Great Depression.

Greece’s unemployment rate was supposed to top out at 15 percent in 2012,
according to International Monetary Fund calculations. But it roared to 25
percent that year, reached 27 percent in 2013 and has ticked downward only
slightly since.

But at the street level in Greece, there is little debate anymore, if there
ever was. The images of suffering here have not been that different from
the grainy black and white photos of the United States in the 1930s.
Suicides have shot up. Cars sit abandoned in the streets. People sift
garbage looking for food.

About 900,000 of the more than 1.3 million who are out of work have not had
a paycheck in more than two years, experts say.

Even if more recent optimistic projections are to be believed, and a steady
rate of growth can be expected, it would take Greece perhaps 15 years to
regain the jobs it has lost, said Panagiotis Liargovas, the director of the
Greek Parliamentary Budget Office.

‘The mix was not right,’ Mr. Liargovas said of the austerity measures. ‘It
was a cure that has almost killed the patient.’

[Austerity’s] failures have been striking, leaving millions of Greeks
baffled and angry as their lives disintegrated while the elite often
escaped, untaxed and unbothered, experts say.

In a wide-ranging review of the Greece program last year, the I.M.F. found
that many of its predictions had failed. There was a sharp fall in imports,
but little gain in exports. Public debt overshot original predictions.
Predicted revenues from selling public assets were way off. The banking
system, perceived as relatively sound at the beginning of the bailout,
began having problems as the economy soured.

Over the last four years, the three lenders have demanded more than 800
actions a year, Greek officials say, requiring hundreds of new laws,
sometimes changed and readopted within weeks or days.

The one bright spot in the economy has been tourism. But even on Greece’s
most famous islands, such as Corfu, there is little sense of relief. Many
tourists come on cut-rate or all-inclusive packages. The wages of hotel
workers have been cut severely, and many are not paid for months, if at
all, according to union officials and Corfu’s mayor, Kostas Nikolouzos.

Mr. Nikolouzos said he was worried that drastic budget cuts could affect
the islands’ ability to attract tourists. The municipality once had a
budget of 13 million euros a year for capital repairs. This year, it will
be one million euros, though roads are buckling and some villagers can no
longer drink their tap water.

Eleni Alexaki, 56, has worked as a hotel maid for more than 20 years. She
was cleaning 20 rooms a day at the beginning of the crisis and now cleans
35, while her pay has gone from 1,600 euros a month to 985. She receives no
holiday pay and fewer days off.

‘And they terrorize us,” she said. “They say, ‘There, the door is there.’’

Pericles Mastoras, 59, a cook in a different hotel, needs an M.R.I. for a
kidney problem, but he has not been paid since October. As he sat in his
union office recently, his cellphone rang, but the conversation with his
boss was brief.

‘He said, ‘Call back tomorrow,’’ Mr. Mastoras said. ‘That means I won’t get
the money for months.’”

This is one of the rare NYT articles about the eurozone that gives serious
detail about the catastrophic costs and failures of austerity. But the
perceptive reader will already note the key analytical flaws underlying the
article – the same flaws that pervade the NYT’seurozone coverage. There is
no recognition that economists have known for over 75 years that following
pro-cyclical policies, i.e., policies that make the business cycle more
severe is insane in response to a Great Recession, is economically
illiterate and self-destructive. When demand is severely deficient (i.e.,
in a Great Recession) one does not further reduce demand by cutting net
government outlays. None of the four NYT articles on Greece and its
economic crisis even note the concept of economic “demand” or the fact that
economists have known for a very long time that slashing demand when it is
already inadequate is harmful. The discussion of IMF errors ignores the
fact that IMF studies found that fiscal stimulus was even more effective
than economists had thought – but the IMF continues to do Germany’s bidding
and demand that the EU not engage in fiscal stimulus. Indeed, the article
does not explain why Greece suffers from a Great Depression that exceeds in
severity and length the original Great Depression or why Greece has
long-term, massive unemployment. The article offers no explanation of why
austerity could cause unemployment and a recession and no explanation of
why and how counter-cyclical fiscal policies could have prevented these
disasters.

Second, even if one is determined to bleed the economy via austerity as a
quack “cure” for a Great Recession, why would one cause mass unemployment?
Why not pay people to work on productive tasks? What is the point of
sparking suicide, marriage discord (unemployed males do less homework, not
more, as they become more depressed), and mass emigration of college
graduates? What is the point of wasting the talent of people who are
willing and able to work? It takes truly depraved decision-makers to choose
mass unemployment as a policy that under the troika’s most optimistic
assumptions require 21 years (the six years since 2008 plus “15 years”)
just to “regain the jobs it has lost” (which is far from full recovery)?
Not only has the troika’s Greek austerity assumptions consistently proved
grossly over optimistic, but the idea that Greece should assume that there
will be no future recessions for 15 years is fanciful. The troika’s
optimistic scenario for Greece is that it will take Greece over five times
longer to simply get back the jobs it lost (a very low bar for a
“recovery”) in this crisis than it took Greece to achieve a far fuller
recovery from the Great Depression.

Why would anyone in a nation with heavy tourist trade choose to ruin the
infrastructure so that tourists will go elsewhere? Are they trying to prove
the validity of Marx’s description of the role of the reserve army of the
unemployed and how it gives the business owners the leverage to commit
vicious abuses of workers? This is madness of such proportions that the
only question is why it took the Greek people so long to rise up and say
“we will no longer give in to your demands that we commit these acts of
savagery against each other.”

The NYT is so hopeless in discussing the troika’s infliction of austerity
that even in an article that shows that the policy is vicious and
self-destructive the paper cannot really bring itself to quote economic
experts explaining why austerity is the toxin rather than the “cure.”
Instead, Daley claims that austerity succeeded at least partially even in
Greece.

“[T]he austerity program has had some notable successes. When Greece was
forced to ask for help, its deficit was more than four times the 3 percent
of gross domestic product allowed under European Union rules. The financial
markets had lost confidence in the country. Greece desperately needed money
to pay its bills, but the cost of borrowing on the financial markets had
become prohibitive.

Now, Greece is no longer spending far more than it receives, when debt
payments are excluded, its officials say. It has remained in the European
Union, and can again borrow in the bond markets, though at interest rates
that have been creeping up again, indicating investors’ concern about the
nation’s path.”

These two paragraphs reveal the depth of the NYT’s infatuation with
austerity and economic illiteracy. No, these are budgetary failures not
“successes” and the borrowing cost “successes” were not produced by
“austerity.” The EU “rules” on deficits forbid any substantial use of
countercyclical fiscal policies. The troika’s insistence on reducing
Greece’s deficit rapidly represented a self-destructive fiscal policy that
was a major contributor to the gratuitous infliction of misery that the NYT
article describes. But theNYT’s reporters covering the EU economic crisis
believe deep in their marrow that even sovereign nations with sovereign
currencies that run budget deficits are “bad” while nations that run budget
surpluses are “good.” They actually think that a sovereign nation with a
sovereign currency is just like a household.

The small print on calculating Greece’s deficit shows the disingenuous
nature of the NYTarticle. Yes, if you exclude debt repayments the budget
deficit looks smaller, but that’s an accounting game. Greece’s deficit is
still meaningfully above 3 percent because Greece’s economy is so weak due
to austerity that its tax estimates are overestimates and its budget
expenditures are underestimates.

Greece can borrow more cheaply today because the ECB provided an implicit
guarantee of eurozone sovereign debt, not because of Greece’s budget. The
ECB could have prevented the entire bond “crisis” in the eurozone by
providing that guarantee years earlier. Thetroika, however, found the bond
vigilante’s attacks useful to extort nations like Greece to give in to the
troika’s demands, so the ECB delayed providing that guarantee. The
troika’sbest weapon against Greece recovering its independence and
sovereignty remains the threat to withdraw the ECB guarantee. Look for a
series of threats in the run-up to the Greek election next month.

That is, by far, the best of the recent NYT articles about Greece. The next
least bad articlebegins with this utterly dishonest attempt to portray
austerity as a partial success in Greece.

“Governments and investors across Europe braced for renewed economic
upheaval on Monday after the Parliament in Greece failed to avert an early
general election, reviving the toxic debate over austerity as the way to
cure the Continent’s economic woes.

Senior European Union officials immediately urged Greek voters — now headed
to the polls on Jan. 25 — to focus on continuing the policies that have
enabled the country to ride out its previous monetary crisis and remain
part of the eurozone, and that have begun to restore the country’s battered
reputation for fiscal management.”

To the NYT it isn’t austerity that is “toxic,” it’s “debat[ing]” austerity
that’s toxic. If opponents of austerity – about seven-eighths of economists
– would just stop criticizing austerity all would be well. Austerity is not
a “cure” for inadequate demand; austerity is what is “toxic” as a response
to a severe recession because it further reduces already inadequate demand
for goods and services.

In the next sentence the NYT treats as undisputed fact the troika’s myth
that Greece should “focus on continuing the policies that have enabled the
country to ride out its previous monetary crisis and remain part of the
eurozone, and that have begun to restore the country’s battered reputation
for fiscal management.” As reality and the facts in the Daley article
should have made clear to even the least competent journalist, the “Senior
European Union officials” were (a) lying and (b) ignoring the catastrophic
damage that austerity has done to the people of Greece.

But there is a fundamental question related to the sentence I’ve been
discussing. Why are “Senior European Union officials” telling the Greek
people how they should vote in an election? Here are the specifics.

“European leaders immediately began to warn of the possible consequences of
a shift in Greek policies. The European Union’s economic commissioner,
Pierre Moscovici, warned that a ‘strong commitment to Europe and broad
support among the Greek voters and political leaders for the necessary
growth-friendly reform process will be essential for Greece to thrive again
within the euro area.’

And a top German official warned that continued European aid would be
conditional on Greece’s continuing to make major cuts in public services
and other changes to control spending.

‘We will continue to help Greece to help itself on its path of reforms,’
Wolfgang Schäuble, the German finance minister, said in a statement. But he
added, ‘If Greece embarks on a different path, it could be difficult.’”

The word “Orwellian” was designed to describe Moscovici. I’ve explained
what austerity did to the Greek people, but Moscovici has the nerve to call
it “growth friendly.” Schäuble began the threats against the Greeks
actually electing the leaders they supported.

The worst article is dedicated to explaining why the Germans don’t care if
the ECB lets the bond vigilantes attack Greece. “Why Greece’s New Crisis
Isn’t Spreading to the Rest of Europe.” The author reveals his politics
early.

“Polls point to victory by a more extreme party, the left-wing Syriza,
which is skeptical of the European Union.”

The party dedicated to ending the economic malpractice of austerity that
has devastated the Greek people is the “extreme” party while the Greek
parties who capitulated to the German threats and austerity demands and
gratuitously forced Greece into a worse-than-the-Great Depression are what?
How did understanding basic macroeconomic principles, taught to me 45 years
ago as well settled fact, and supported by the next 45 years of experience
become “extreme?”

The author then makes his own Orewellian statement, the unintentionally
hilarious metaphor that the troika might force a Greece that regained its
sovereignty to operate “outside the umbrella of the single European
currency.” An “umbrella” protects one from the rain and extreme sun.
Adopting the euro was a major factor in bringing the deluge to Greece.

Here’s the author’s bottom line.

“In other words, financial markets view Greece’s problems — and Greece’s
future — as important for Greece alone. Since 2012, the European Central
Bank has pledged to do ‘whatever it takes’ to prevent a crisis of
confidence in European bonds (read: buy them as the lender of last resort
if private markets dry up), and European governments have moved toward
jointly guaranteeing the Continent’s banks.”

We can divine from this paragraph that the author agrees that the reason
the bond vigilantes were defeated was not austerity, but the ECB’s implicit
sovereign debt guarantee. Greek bonds will be fine as long as that
guarantee is in place – which is why Germany is implicitly threatening to
yank that guarantee if the Greeks vote for Syriza. Germany wants to be able
to threaten to unleash the bond vigilantes to in order to intimidate the
Greeks from voting to restore democratic rule.

There’s a more fundamental point though – it isn’t simply the “financial
markets” that “view Greece’s problems – and Greece’s future – as important
for Greece alone.” It’s thetroika that has decided that forcing the Greek
people into a gratuitous second, more severe Great Depression is “important
for Greece alone.” German odes to European solidarity have been exposed as
pious platitudes. Germany didn’t act to bailout Greece, it acted to force
the Greeks to aid in bailing out German banks.

The NYT columnist, however, ignores the worse-than-Great Depression that
the troikapointlessly inflicted on Greece. To the columnist, “the great
risk” is that Germany’s infliction of economic malpractice will be blocked
by the election of Greeks dedicated to ending Germany’s latest assault on
the Greek people.

“The great risk, of course, is that markets are wrong. The same political
forces that appear poised to bring an extreme leftist party to power in
Greece are bubbling in other parts of Europe.”

Yes, we can’t have democracy and competent economic policies spread to
other parts of Europe – that is truly the “great risk” that the Germans and
their journalistic apologists fear. The columnist comes back to that
nightmare at the end of his piece.

“The risk is no longer that Greece’s problems will infect the rest of
Europe. It is that the same dynamics of political economy causing unrest in
Greece will soon enough arise in its bigger neighbors.”

Yes, just as the Washington Consensus’ austerity led to the election of
leaders in many Latin American nations opposed to austerity, a similar
dynamic could arise in Europe. Greece’s greatest tradition is bringing
democracy to the world, so Greece is the ideal nation to lead Europe to the
restoration of real democracy.

William K. Black, J.D., Ph.D. is Associate Professor of Law and Economics
at the University of Missouri-Kansas City. He is also the author of the
book “The Best Way to Rob a Bank is to Own One.”


-----------------------------------
June Samaras
2020 Old Station Rd
Streetsville,Ontario
Canada L5M 2V1
Tel : 905-542-1877
E-mail : june.samaras at gmail.com
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://maillists.uci.edu/pipermail/mgsa-l/attachments/20150103/61f90bcc/attachment-0001.html>