Greece is Being Treated Like a Hostile
Occupied State
A new deal for Athens is the worst of all worlds and solves
nothing
By Ambrose Evans-Pritchard
July 14, 2015 "Information
Clearing House"
-
"The
Telegraph" - Like the Neapolitan
Bourbons – benign by comparison – the leaders of the eurozone
have learned nothing, and forgotten nothing.
The cruel
capitulation forced upon Greece after 31 hours on the diplomatic
rack offers no conceivable way out the country’s perpetual
crisis. The terms are harsher by a full order of magnitude than
those rejected by Greek voters in a landslide referendum a week
ago, and therefore can never command democratic assent.
They must be carried through by a Greek
parliament still dominated by MPs from Left and Right who loathe
every line of the summit statement, the infamous SN 4070/15, and
have only agreed – if they have agreed – with a knife to their
throats.
EMU inspectors can veto legislation. The
emasculation of the Greek parliament has been slipped into the
text. All that is missing is a unit of EMU gendarmes.
Such terms are unenforceable. The creditors
have sought to nail down the new memorandum by transferring
€50bn of Greek assets to “an independent fund that will monetise
the assets through privatisations and other means”. It will be
used in part to pay off debts.
This fund will be under EU "supervision". The
cosmetic niceties of sovereignty will be preserved by letting
the Greek authorities manage its day to day affairs. Nobody is
fooled.
In other words, they are seizing Greece’s few
remaining jewels at source. This is not really different from the
International Committee for Greek Debt Management in 1898 imposed on
Greece after the country went bankrupt following a disastrous Balkan
war.
A six-power league of bondholders, led by British
bankers, impounded customs duties in the Port of Piraeus, and seized
revenues from stamp duty, tobacco, salt, kerosene, all the way down
to playing cards. But at least there was no humbug about solidarity
and helping Greece on that occasion.
“It is the Versailles Treaty for the present age,”
said Mr Varoufakis this morning, talking to me from from his island
home in Aegina.
Under the new terms, Greece must tighten fiscal
policy by roughly 2pc of GDP by next year, pushing the country
further into a debt-deflation spiral and into the next downwards leg
of its six-year depression.
This will cause the government to miss the budget
targets yet again – probably by a large margin – in an exact repeat
of the self-defeating policy that caused Greek debt dynamics to spin
out of control in the last two Troika loan packages.
As the International Monetary Fund acknowledged in
its famous mea culpa, if you misjudge the fiscal multiplier and
force austerity beyond the therapeutic dose, you make matters worse.
The debt to GDP ratio rises despite the cuts.
EMU leaders have an answer to this. Like Canute’s
courtiers, they will simply command the waves to retreat. The text
states that on top of pension cuts and tax increases there should be
“quasi-automatic spending cuts in case of deviations from ambitious
primary surplus targets”,.
In other words, they will be forced to implement
pro-cyclical contractionary policies. The fiscal slippage that acted
as a slight cushion over the last five years will be not be
tolerated this time.
And let us not forget that these primary surpluses
never made any sense in the first place. They were not drawn up on
the basis of macro-economic analysis. They were written into prior
agreements because that is what would be needed – ceteris paribus –
to pretend that debt is sustainable, and therefore that the IMF
could sign off on the accords. What a charade.
Nobel economist Paul Krugman says the
EMU demands are “madness” on every level. “What we’ve learned
these past couple of weeks is that being a member of the eurozone
means that the creditors can destroy your economy if you step out of
line. This has no bearing at all on the underlying economics of
austerity,” he said.
“This goes beyond harsh into pure vindictiveness,
complete destruction of national sovereignty, and no hope of relief.
It is, presumably, meant to be an offer Greece can’t accept; but
even so, it’s a grotesque betrayal of everything the European
project was supposed to stand for,” he said.
Yes, Syriza has blinked, though there are many
chapters in this sorry saga yet to come.
The Greek banks are on the verge of collapse.
There is not enough cash left to cover ATM withdrawals of €60bn each
day through this week, or to cover weekly payments of €120 to
pensioners and the unemployed – that is the to say, the tiny
fraction of the jobless who receive anything at all.
Capital controls have led to an economic
stand-still. Almost nothing is coming into the country. Firms are
running down their last stocks of raw materials and vital imports.
Hundreds of factories, mills, and processing plants have already cut
shifts and are preparing to shut down operations as soon as this
week.
Late tourist bookings have crashed by 30pc. Syriza
faced a serious risk that the country would run out of imported food
stocks by end of this month, with calamitous consequences at the
peak of the tourist season. So yes, faced with the full horror of
what is happening, they recoiled.
There is no doubt that Syriza sold the Greek
people a false prospectus with its incompatible promises both to
tear up the Troika Memorandum and to keep Greece in the euro. They
have learned a horrible lesson.
Yet that is only half the story. We have also
watched the EMU creditor powers bring a country to knees by cutting
off the emergency liquidity (ELA) to the banking system.
Let there be no doubt, it was the decision by the
European Central Bank to freeze ELA at €89bn two weeks ago that
precipitated the final crisis and broke Syriza’s will to resist. The
lines of authority on this episode are blurred. Personally, I do not
blame the ECB’s Mario Draghi for this abuse of power.
It was in essence a political decision by the Eurogroup.
But however you dress it up, the fact remains that
the ECB is by its acts dictating a political settlement, and serving
as the enforcement arm of the creditors rather than upholding EU
treaty law.
It took a stand that further destabilised the
financial system of an EMU member state that was already in grave
trouble, and arguably did so in breach of its primary treaty duty to
uphold financial stability. It is a watershed moment.
What we have all seen with great clarity is that
the EMU creditor powers can subjugate an unruly state – provided it
is small - by shutting down its banking system. We have seen too
that a small country has no defences whatsoever. This is monetary
power run amok.
To make matters worse Greek premier Alexis Tsipras
cannot make a plausible case to his own people that he has secured
debt relief, the one prize that could have saved him. Germany
blocked even this.
It did so despite massive pressure from the Obama
White House and the IMF, and even though France, Italy, and the
leaders of the EU Commission and Council accept that a haircut of
some sort is necessary.
The IMF says debt relief must be at least 30pc of
GDP. Even this is too low. Given the damage done by six years of
economic implosion, a lost decade of investment, chronic hysteresis,
youth unemployment of 50pc or higher, a brain drain of the educated,
and a ruined banking system, it would still be inadequate even if
the entire debt was written off. That is what this EMU experiment
has done to the country.
Yet all the Greeks get is vague talk of a
“possible” extension of maturities, at some point in the future,
once they have jumped through umpteen hoops and passed their exams.
This is what they were promised in 2012. It never happened.
“If the specifics of debt relief are not written
clearly into the overall package, this is not worth anything,” said
Mr Varoufakis.
The summit document asserts with self-serving
dishonesty that Greece’s debt has come off the rails due to the
failure of Greek governments to stick to the Memorandum over the
last year. Had this not occurred, the debt would still be
sustainable.
This is a lie. Public debt ballooned to 180pc late
last year – long before Syriza was elected – and even though the New
Democracy government had complied with most Troika demands.
The truth is that Greece was already bankrupt in
2010. EMU creditors refused to allow a normal debt restructuring to
take place because it would have led to instant contagion to
Portugal, Spain, and Italy at a time when the eurozone had no
lender-of-last resort or defences.
Leaked documents from the IMF leave no doubt that
the rescue was intended to save the euro and European banks, not
Greece. More debt was shoveled onto the Greek taxpayers in order to
buy time, both in 2010 and again in 2012, storing up the crisis that
Europe faces today.
In an odd way, the only European politician who
was really offering Greece a way out of the impasse was Wolfgang
Schauble, the German finance minister, even if his offer was made in
a graceless fashion, almost in the form of diktat.
His plan for a five-year velvet withdrawal from
EMU – a euphemism, since he really meant Grexit – with Paris Club
debt relief, humanitarian help, and a package of growth measures,
might allow Greece to regain competitiveness under the drachma in an
orderly way.
Such a formula would imply intervention by the ECB
to stabilise the drachma, preventing an overshoot and dangerous
downward spiral. It would certainly have been better than the
atrocious document that Mr Tsipras must now take back to Athens.
The crushed Syriza leader
must sell a settlement that leaves Greece in a permanent debt trap,
under neo-colonial control, and so economically fragile that it is
almost guaranteed to crash into a fresh crisis in the next global
downturn or European recession.
At that point, everybody will blame the Greeks
again, unfairly, and we will go through yet another round of bitter
negotiations, until something finally breaks this grim cycle of
failure and recrimination.
For the eurozone this “deal” is the worst of all
worlds. They have solved nothing. Germany and its allies have for
the first time attempted to eject a country from the euro, and by
doing so have violated the sanctity of monetary union.
Rather than go forward in times of deep crisis to
fiscal and political union to hold the euro together – as the
architects of EMU always anticipated - they have instead gone
backwards.
They have at a single stroke converted the
eurozone into a hard-peg currency bloc, a renewed Exchange Rate
Mechanism that is inherently unstable, at the whim and mercy of
populist politicians playing to the gallery at home. The markets are
already starting to call it ERM3.
I will return to the behaviour of Germany and the
diplomatic disaster that has unfolded over coming days. For now let
me just quote the verdict of historian Simon Schama.
“If Tsipras was wearing the crown of King Pyrrhus
this time last week, Merkel is wearing it now. Her ultimatum the
beginning of the end of the EU,” he said. Exactly.
© Copyright of Telegraph Media Group Limited 2015