It is my Friday Lay Day blog and it is going to be relatively quick. There was an article in the Wall Street Journal (December 23, 2015) – Economists Say ‘Bah! Humbug!’ to Christmas Presents – that says a lot about how my profession struggles to appreciate reality in all its dimensions. Every year, it…
Its the Friday lay day blog and I have a day ahead full of meetings with research partners, other parties and related matters. So I am glad I told myself I wouldn’t write much today. But we have to mention the discussions in Brussels yesterday – extraordinary on all sides. Late last night I read the letter the Greek Minister of Finance wrote to his suited confrères on the Eurogroup committee. I had to read it more than once and convince myself that I was reading it correctly rather than being duped by the hour of the evening and the flight I had taken to where I am today. I read it and read it. Each time I concluded cave in! Sure the words were still a bit like those that a proud, independent people might write to international partners. But once you cut through the defence of self-esteem to the substance the conclusion resonated strongly – the Greek government, for all their talk and bluster, have caved in. Then I read the memo from the German Ministry of Finance in all its Teutonic clarity – Fuck off, we want you to get down on your knees when you cave in not stand there without your ties and suits smiling about it. Amazing really, on all sides.
Here is the text of the Greek government’s letter:
Athens, February 18, 2015
Dear President of the Eurogroup,
Over the last five years, the people of Greece have exerted remarkable efforts in economic adjustment. The new government is committed to a broader and deeper reform process aimed at durably improving growth and employment prospects, achieving debt sustainability and financial stability, enhancing social fairness and mitigating the significant social cost of the ongoing crisis.
The Greek authorities recognise that the procedures agreed by the previous governments were interrupted by the recent presidential and general elections and that, as a result, several of the technical arrangements have been invalidated. The Greek authorities honour Greece’s financial obligations to all its creditors as well as state our intention to cooperate with our partners in order to avert technical impediments in the context of the Master Facility Agreement which we recognise as binding vis-a-vis its financial and procedural content.
In this context, the Greek authorities are now applying for the extension of the Master Financial Assistance Facility Agreement for a period of six months from its termination during which period we shall proceed jointly, and making best use of given flexibility in the current arrangement, toward its successful conclusion and review on the basis of the proposals of, on the one hand, the Greek government and, on the other, the institutions.
The purpose of the requested six-month extension of the Agreement’s duration is:
(a) To agree the mutually acceptable financial and administrative terms the implementation of which, in collaboration with the institutions, will stabilise Greece’s fiscal position, attain appropriate primary fiscal surpluses, guarantee debt stability and assist in the attainment of fiscal targets for 2015 that take into account the present economic situation.
(b) To ensure, working closely with our European and international partners, that any new measures be fully funded while refraining from unilateral action that would undermine the fiscal targets, economic recovery and financial stability.
(c) To allow the European Central Bank to re-introduce the waiver in accordance with its procedures and regulations.
(d) To extend the availability of the EFSF bonds held by the HFSF for the duration of the Agreement.
(e) To commence work between the technical teams on a possible new Contract for Recovery and Growth that the Greek authorities envisage between Greece, Europe and the International Monetary Fund which could follow the current Agreement.
(f) To agree on supervision under the EU and ECB framework and, in the same spirit, with the International Monetary Fund for the duration of the extended Agreement.
(G) To discuss means of enacting the November 2012 Eurogroup decision regarding possible further debt measures and assistance for implementation after the completion of the extended Agreement and as part of the follow-up Contract.
With the above in mind, the Greek government expresses its determination to cooperate closely with the European Union’s institutions and with the International Monetary Fund in order: (a) to attain fiscal and financial stability and (b) to enable the Greek government to introduce the substantive, far-reaching reforms that are needed to restore the living standards of millions of Greek citizens through sustainable economic growth, gainful employment and social cohesion.
Minister of Finance
You can download the actual letter from – HERE
And the German Finance Ministry tweeted:
Erste Reaktion auf Brief aus Athen: Kein substantieller Lösungsvorschlag.
“No substantial solution proposed”.
The German newspapers quickly ran headlines such as that from Bild – Deutschland sagt NEIN and the sub-heading says:
Schäuble legt Veto gegen neuen Antrag der Griechen ein …
“Schäuble vetoes new application of the Greeks …”
The questions that we will be explored ad nauseum are:
1. Was the Greek letter a cave in or a trojan horse?
2. What more could Germany want?
I will join the chorus next week but for now this is what I thought the words meant.
1. On the face of it, the letter represents a cave in with the Greek government signalling that it was willing to maintain the harsh austerity that the Troika agreement had demanded in return for some insipid (face-saving) concessions.
2. The letter agreed that the Troika has an authority – something that its pre-election rhetoric fiercely denied and any progressive person should deny. It has no authority – it is unaccountable, unelected and has behaved like a bully. The requirement that the primary fiscal surplus should be 3 per cent this year and rising next year even more is Star Chamber stuff when you think about the unemployment rate, particularly the youth issues.
There is no economic justification for that at all. It means that the Greeks are paying taxes to fund foreign debt holders while their compatriats suffer unemployment and increasing poverty.
We knew that austerity was going to be damaging but the extent of the damage in Greece has been horrific. The Economist Magazine posted this graph on March 1, 2013 in the article – Is opinion shifting?.
Things have got a lot worse since then. The Greek economy is now around 25 per cent smaller than it was before the GFC began.
As it explains:
The vertical axis shows the growth in GDP per capita since the 2009 low; the horizontal axis, the cut in the structural fiscal deficit (ie the impact of deliberate government policy). There is a very strong and negative relationship which will delight Keynesians everywhere (or rather cause them to shake their heads in disgust).
The graph was produced by a private research group (BCA) and the Guardian reported today that the representative from that group has estimated that “for every euro the Greek government has saved through spending cuts or tax increases, the economy has contracted by €1.20” (Source)
3. The Greek letter clearly acknowledged the Troika monitoring – the goons who come in and check their books – would continue. They had rejected this surveillance going into the election.
4. Germany has clearly rejected the Greek government’s request for a 6-month extension of its €172bn bailout loan. It appears that they have been upset by the wording such as “mutually acceptable financial and administrative terms”.
The Financial Times article that followed the German rejection (February 19, 2015) – Germans rebuff Greek ‘Trojan horse’ – claims that German Finance Ministry insiders consider the letter to be a:
“Trojan Horse” designed by Athens to change the conditions it must meet to receive €7.2bn in aid available for finishing the bailout.
Germany has even been arguing about the length of the letter and had prior to the meeting on Thursday demanded that Greece:
… submit no more than a three-sentence letter requesting the extension, promising to complete the programme, and committing to negotiating any changes with bailout monitors.
Bend down low!
5. The Greek response to the German rejection was reported as being:
… accept or reject the Greek request
The words are tough – but the ground that the Greeks have moved back towards Troika control, ongoing austerity with no sign of massive European investment to offset the damage being done by running a primary surplus – is vast. Unless the words mean something different to the usual English interpretation. I am not a diplomat.
6. The options now would appear to be obvious: (a) if the Eurogroup doesn’t stand up to the Germans at today’s meeting, then the Greeks have to become complete surrender monkeys. (b) The other option is that they restore their independence and get out of the dysfunctional Eurozone mess dominated by sociopaths who have not learned the lessons of history well. Bets are on that they will surrender.
7. If they stay in and Germany prevails, how then would Syriza to the Greek people its transition from fighter for Greek dignity and freedom from austerity a month ago to surrender monkey – Troika lackey today? I am not a politician.
On the topic of bending down low – here is some music
Bend down low from the Wailers. This is the original version and released on their own – Wailnsoul/Wail ‘n Soul’m records – label, which was funded by cash that Bob Marley had saved while working in the US earlier in 1966.
It was the first release from this label.
Italy – We got out of the crisis?
This 13-second video was posted on You Tube by an MMT supporter in Italy. Images speak for themselves. For those who do not read Italian, the sign at the beginning of the video says:
Il Sole 24 Ore is “an Italian national daily business newspaper owned by Confindustria, the Italian employers’ federation”.
The billboard sign in the video is advertising a new initiative from Il Sole 24 Ore – Perché preoccuparci della deflazione? Lo spiega «Il giornale della famiglia», giovedì con il Sole 24 Ore – which announces that the newspaper will be launching a new edition each Thursday to inform the readers about all the difficult economic issues that families in Italy have to face up to.
The sign says that “While a recovery began” (“Se è vero che à iniziata la ripresa”) … and the Video heading “Siamo usciti dalla crisis?” says “We got out of the crisis?”.
The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:
That is enough for today!
(c) Copyright 2015 Bill Mitchell. All Rights Reserved.