Sunday, February 19, 2012

"What If We All Became Greeks?"

Paul Taylor of Reuters reports, Europe left torn between outrage and anxiety on Greece:

Europe's left is torn between outrage and anxiety over drastic cuts in living standards and working conditions being imposed on Greeks by the European Union and the International Monetary Fund.

Indignation at sweeping pay and pension reductions and public sector job cuts dictated by official creditors in return for a second bailout of the debt-ridden euro zone state is strongest in south European countries that fear a similar rod.

Yet there is scant sympathy from centre-left politicians and labor leaders in northern Europe, where voters are more worried at the potential cost of bailouts, nor in former communist central Europe, where people are more inured to hardship.

"What if we all became Greeks?" left-wing French daily Liberation asked on Monday. "Is what is being imposed today on this pressured and humiliated country a foretaste of what will one day be prescribed for Italy, Portugal, and why not France?"

A planned 22 percent cut in the Greek minimum wage, with a 32 percent cut for workers under age 25, is among the most radical steps backwards inflicted in peacetime in modern Europe. Only Latvia has endured a similar EU/IMF-mandated "internal devaluation" cutting living standards.

Public sector pay in Ireland has fallen on average by 15.9 percent since 2009 due to wage cuts and a pension levy, but a 12 percent cut in the minimum wage agreed with lenders was reversed after the government found savings elsewhere.

The leader of Portugal's largest trade union, Armenio Carlos of the CGTP, praised Greek workers' "heroic resistance" against austerity measures and warned that his own country could face a similar social explosion.

"If the results in Greece were disastrous, without a doubt they will be no different here," Carlos said last week.

French Socialist politician Segolene Royal, the defeated presidential candidate in 2007, voiced outrage at the way austerity was targeting the poorest Greeks while the rich were still able to evade taxes with impunity.

Accusing European leaders of "cowardice," she singled out European Commission President Jose Manuel Barroso for criticism.

"Athens is burning ... Where is Mr Barroso? - the ultra-liberal politician chosen to head the Commission - that was a very grave error. Where is the Council of Ministers? What is the European parliament doing?" Royal asked in a radio interview.


Yet the reaction of the mainstream European left has been mostly muted, partly due to exasperation among ordinary citizens in wealthier countries at having to rescue Greece twice, but also because many centre-left parties have been associated with the austerity measures.

In Greece and Portugal, Socialist governments requested the original EU/IMF bailouts and supported the public spending cuts and painful pension reforms required as part of their fiscal adjustment programs.

Ireland's centre-left Labour party is a junior partner in the coalition government that is enforcing the country's austerity plan, which is showing first signs of success.

In Italy and Spain, left-wing parties backed budget cuts, raising the retirement age and freezes or reductions in public sector pay as part of austerity programs enacted to save those countries from being shut out of capital markets.

Italy's Democratic Party, the largest centre-left political movement, has supported technocrat Prime Minister Mario Monti's sweeping pension and structural reforms and austerity measures despite misgivings about the impact on growth and employment.

That makes the left somewhat schizophrenic about what is happening in Greece.

"The Greek riots are just the tip of the iceberg of a failed policy that focuses totally on public accounts and ignores the real economic issues of growth and jobs," said Stefano Fassina, the party's top economic adviser.

"The conservative government in Berlin is primarily responsible for imposing this cure. All of Europe is in recession because of it," Fassina said.

Germany's opposition Social Democrats (SPD) advocate a different policy mix to revive growth and jobs but they are cautious about challenging Chancellor Angela Merkel's tough line on Greece, which polls show is widely popular.

"A country that is weakened again and again ultimately won't have the power to service its debt," said Andrea Nahles, the SPD's general secretary. "This is exactly what is happening now in Greece. It is a vicious circle that must be broken."

Finland's centre-left Social Democrats and the Left Alliance are part of a coalition government that has insisted on strict conditionality and collateral in return for loans to Greece.

Given popular frustration over bailouts it would be political suicide to sound too sympathetic towards Greek workers. Instead, they are criticizing job cuts by Nokia and others in Finland.

The European Trade Union Confederation, the umbrella group for organized labour around the continent, has had little success in trying to mobilize workers Europe-wide against austerity. Apart from one big demonstration in Brussels, protests have largely been confined to national issues.

ETUC Secretary General Bernadette Segol criticized the so-called troika of European Commission, European Central Bank and IMF for imposing ever deeper cuts on Greece and said she feared "a big clash and contagion" if Athens eventually defaulted.

"It's not the right course, it's not going to lead to a solution for Greece and the Greek people," Segol said.

There is little solidarity with Greece in central European countries that lived through a harsh transition from communism to the market economy in the 1990s and are still poorer per capita than the Greeks today.

Slovakia refused to contribute to the first Greek bailout for that reason. A Slovak official noted that even after the planned minimum wage cut, Greece's would still be higher than Spain's, which has not had to request assistance, and far higher than Portugal's.

In Lithuania, where a centre-right government cut wages and benefits during a 2009-2010 financial crisis, the leader of the main centre-left party said Greeks had spent themselves into this mess and had to take their medicine now.

"Greece has no escape but to implement strict austerity measures or to face bankruptcy. It can't save itself without outside assistance," Algirdas Butkevicius, leader of the Lithuanian Social Democrat Party, said.

"Maybe it's not good to cut the minimum wage, but Greece's spending on pensions has been very generous compared with the rest of Europe," he said.

I'll be the first to tell you that Greece spent way more than it received over the last 30 years. Successive governments from the two main political parties bought votes by hiring a ton of public sector workers, offering them generous pensions at an early retirement age, and that is the primary reason why Greece is in this mess.

Moreover, its economy is sclerotic and needs to be liberalized but there are so many interests groups who want to keep their profession closed and protected from competition (like lawyers and pharmacists) and they hold tremendous political influence. The Greek media is the biggest mafia of all, routinely blackmailing people threatening to publish slanderous articles if they don't pay for advertisements (why do you think there are so many Greek newspapers?!?).

I can go on and on about what is ailing the Greek economy (read this message from a Greek entrepreneur), but I'd rather focus on what is wrong with austerity and why I think Europeans are heading down the wrong path. If you look at the results of austerity, especially in Portugal, not only are they not good, they're counterproductive and a monumental failure.

IMF and troika economists will surely disagree with me but Stiglitz, Krugman (read his latest) and others have been warning us all along. And there is a reason why austerity is failing so miserably. There is no growth and no signs of growth on the horizon, killing the morale of many unemployed and soon to be unemployed workers.

Importantly, austerity can never work when a country is in a recession. That will only ensure a depression which is what is going on in Greece right now. It's not as bad as after WWII but it's getting very bad and unless eurozone's leaders tackle growth, they're doomed.

I write this knowing full well that the odds are against Greece staying in the eurozone. Over at Zero Hedge, they're gleefully commenting that Germany, Greece is preparing for "Plan D", citing this Telegraph article. I said it before, and I will say it again, if Greece exits the eurozone, it's game over, the eurozone will fall apart over the next few years and perhaps a lot sooner.

Only fools think you can easily kick Greece out with no repercussions on the rest of the union. Importantly, it's not the size of Greece that matters, it's the psychological effect of booting out the country that matters.

How do you think the Portuguese, Spaniards, and Italians will react if Mr. Schaeuble and some of his northern European counterparts get their way? I'll tell you, it will build more resentment from austerity weary citizens who are tired of being made scapegoats for banksters and their political puppets.

Cooler heads are prevailing, however. The French premier came out to say Europe should honor its commitments to help Greece with debt deals:

European nations should do everything possible to help Greece avoid a default despite concerns about whether Athens is a reliable borrower, France's prime minister said Friday.

Tensions between Athens and other European capitals hit new highs this week as eurozone ministers delayed to next Monday a decision on a bailout agreement and demanded more commitments from Greece.

French Prime Minister Francois Fillon took Greece's side, warning that the fallout of letting the country go up in financial flames would be far-reaching.

"We must do absolutely everything so that there is not a default by Greece, that would be dramatic for Greeks themselves and dramatic for Europeans," he said on RTL radio Friday.

Now that the Greek Parliament has approved austerity measures imposed by international creditors and banks have agreed to help in the bailout, Fillon said, "the Europeans must now honor their commitments. That is the position that France is defending."

Some European politicians have downplayed the effects of such a debt default by Greece, but Fillon called that "totally irresponsible."

Eurozone ministers are due to meet on Monday to decide on the bailout. Hopes that they will clear the euro130 billion ($169 billion) bailout deal as well as a related bondholders' writedown pushed markets higher on Friday. The euro rose 0.2 percent and stock markets rose across the board.

That confidence was shaken earlier this week, however, as politicians from Germany and the Netherlands had questioned Greek promises to implement far-reaching cuts and reforms in return for the bailout.

Resentment has been mounting in Greece over what many see as the humiliation of the country and the hardship brought on by increasing demands from the country's creditors that have left the country in a fifth year of recession.

German Finance Minister Wolfgang Schaeuble in particular rankled Greeks when he urged the country to postpone its general elections, tentatively set for April, to make sure the current government has time to implement reforms.

The comments were seen as an inadmissible intrusion into a sovereign country's politics and fueled outrage within the halls of power in Athens and across the media.

"I will not accept my country to be disparaged by Mr. Schaeuble," Greek President Karolos Papoulias said Wednesday. "Who is Mr. Schaeuble to disparage Greece? Who are the Dutch? Who are the Finns? We always had the pride to defend not just our freedom, not just our country, but the freedom of Europe," he said.

Though he backed Greece's right to get its bailout without further delays, Fillon on Friday offered blunt criticism of the rioters in Athens, who on Sunday torched dozens of buildings to protest against new austerity measures.

The Greek measures "by the way, are not much bigger than what the Portuguese, Spanish or Italians are doing, and they are not burning down their capitals," Fillon said.

Fillon is absolutely right about the measures being imposed on Greece not being worse than those imposed in Italy and Portugal. As far as the riots, he doesn't know that the idiots burning down Athens are organized thugs who were shaking down business owners. In fact, there is an investigation into allegations from store owners in central Athens that groups of rioters had demanded money from them in order not to destroy their businesses last Sunday night.

Where was the Greek army? Why didn't the Greek government put them out on the streets of Athens with orders to arrest anyone protesting wearing a hood? How can you allow a bunch of hooded anarchists to burn down some of the nicest historic buildings in Athens? Some think that para-government forces were behind these rioters so the police can disperse large crowds using tear gas (see image above sent to me from last week's protests).

I have my doubts but wonder why the same idiots are always allowed to wreak havoc every single time. In London, they rounded them up and threw them in jail, which is exactly what they should have done in Athens.

Anyways, back to austerity and why I believe sooner or later, we're all going to become Greeks once more. Go back to listen to Michael Hudson on why democracy is incompatible with debt collection. Austerity with no growth is a vicious cycle with no end.

That's why thousands of European citizens marched in several cities of the continent on Saturday afternoon in solidarity to the Greek people demanding an end to the austerity measures imposed on Greece. You will likely see more supporters on this side of the Atlantic as nervous onlookers wonder how long before austerity is imposed on them.

Finally, Greeks are not like their political leaders whose support is at historic low. They're proud, hard-working people who love their country and want to remain within the eurozone but are tired of harsh austerity being imposed on them.

And no matter what happens on Monday, Greece will always be the birthplace of democracy and a magical place unlike any other on earth (watch below; h/t Yannis Koutsomitis).

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