Saturday, September 26, 2015

The real existing EU: Germany and Greece under the Compassionate Pastor's Daughter

The fight of Alexis Tsipras' government earlier this year against the harsh austerity measures imposed by the German government of the Mitfühlende Pastorentochter Angela Merkel via the Troika of the EU, the ECB and the IMF has highlighted for the world Greece's need for debt structuring.

So it's not at all surprising to see that need articulated by Richard Portes, who "argues that Greece is fundamentally insolvent and that the EU and its attendant institutions should recognize that fact and work immediately toward some form of sovereign debt restructuring." (Fiscal Austerity & Greece New Economic Thinking 09/26/2015)

He has the following to say about those famous "structural reforms" we hear so much about from the advocates of neoliberalism:

Portes also suggests that Greece is a special case, a country that does not lend itself readily to easy reform. There is an ongoing banking crisis, unsustainable debt levels ..., and institutions by and large remain malfunctioning. So whilst Portes agrees with much of the prevailing sentiment that further fiscal austerity will be counterproductive, he also argues that Greece must relent as well: it must signal its commitment to deep structural reform, particularly in regard to the endemic corruption in public administration, tax evasion, and the complex oligarchic system that links political parties to the media and administration. For Portes, no further fiscal austerity makes sense, but he suggests that Greece could aid its cause by reforming product markets and services that are still oligopolistic, with numerous barriers to entry and, hence competition. A second priority is to modernize the legal framework of property rights, investor protection and corporate governance, as well as a massive reorganization and restructuring of the public administration. These, rather than further wage cuts, are the only way to raise the competitiveness of the Greek economy. [my emphasis]
This is one way that the Greek fight this year has helped turn neoliberal rhetoric against itself.

The standard neoliberal recipe for "structural reforms" includes those obvious-sounding elements he mentions: fight corruption, crack down on tax evasion, even reduce the power of "oligarchy." Oligarchy in the neoliberal vocabulary refers to the capitalist class in countries considered in disfavor by whoever is using the term. In favored countries, they are economic elites ("job creators" for US Republicans) who are eager to show their public spirit by engaging in business-government cooperation and public-private partnerships, aka, PPP for the Kool Kids. In disfavored countries, they are oligarchs practicing crony capitalism.

In the Europe of the Mitfühlende Pastorentochter, Greece is the model of a corrupt, oligarchical, inefficient southern European country full of lazy and irresponsible people, needing the tutelage of a superior country with honest business practices and a good work ethic, i.e., Germany.

The dishonest and lawless practices of a great German company like Volkswagen are certainly no sign of deficiency in the superior economic and moral standards of Germany and the EU operating under the direction of the Mitfühlende Pastorentochter! Oh, no, that was just a couple of bad apples, or something. Why, it would be frivolous to even suggest that this was a symptom of a corrupt, oligarchical political system practicing crony capitalism. (Timeline: Is Volkswagen’s ‘Bug’ an EU Feature? Emptywheel 09/25/2015)

Brendan Greeley writing for the well-known radical-left Bloomberg Businessweek (note for Republicans: that's supposed to be obvious irony) asks, Did Privilege Enable Volkswagen’s Diesel Deception? 09/24/2015:

In Italy, the privilege is called potere speciale; in France, action spécifique; in the U.K., it’s a “golden share.” Those are all different names for an ownership stake that gives a government — be it national or local — special powers above any other shareholder. That makes a crucial difference in running a business. Governments, for example, have good reason to prevent jobs from moving to more competitive labor markets. A golden share can help with that.
But for countries practicing the neoliberal dogma in ways other than the ones discussed here so far, this is not crony capitalism or corruption, you see. Not at all. It's responsible gubment support for the Job Creators through public-private partnership. Or something.

In Europe, most golden shares are held in utilities and telecoms, companies that were state monopolies before being privatized. For more than a decade, the European Union, as it expanded and liberalized its common open market, has been trying to undo the persistence of state control. But there is one golden share that has endured, a German law so breathtakingly exceptional it can only be called what it is in fact called—“das VW-Gesetz,” the Volkswagen Law. It is explicitly designed for a single company. Germany has managed to defend its golden share against the EU because VW had built a reputation as a force for good: responsible corporate citizen, pioneer in environmental progess [sic]. [my emphasis]
Fortunately for the EU, Germany staunchly defends the rules for everybody. Well, with the occasional exception:

[Germany's "Volkswagen Law"] eventually brought Germany into conflict with the EU. In 2000 the European Commission — the EU’s executive body—began enforcement actions against the golden shares that remained in the newly privatized utilities in several countries. It acted against Italy for its shares in Eni, the former state oil company; against France, for its holdings in Elf Aquitaine, another oil company; and against the U.K. and its British Airports Authority. Several countries responded by defining their golden shares more narrowly, exercised only to defend a compelling national interest.

“The case of Volkswagen is peculiar because we are not dealing with public services,” says Daniele Gallo of Luiss Guido Carli University in Rome. “We are dealing with a company that sells cars.” In 2007 the commission won a judgment in the European Court of Justice against the Volkswagen Law. Germany, which usually follows the court’s judgments, responded instead with improvisation and duct tape: It struck some of the law’s provisions, which Volkswagen immediately added to its own bylaws. Lower Saxony retained its de facto veto over major decisions. The EC challenged, but the Court of Justice upheld the rejiggered law in 2013.
But this is consistent with the actual priorities of the neoliberal agenda and the actual application of it under the leadership of the Mitfühlende Pastorentochter. Germany gets to angle narrow nationalistic advantages out the EU and especially eurozone structures and processes. And those reforms emphasized by Portes - enforcing tax laws, reducing corruption, limiting the power of the oligarchy - are not the highest priorities.

Portes also notes "that the German government in particular (which consistently insists on 'following the rules') has been a serial violator of the Stability and Growth Pact, and conveniently forgets its own history when it comes to issues of debt forgiveness." The hardline "ordoliberalism" to which the Mitfühlende Pastorentochter adheres does seems to take deficits seriously, though exceptions can be made for the convenience of model country Germany, of course.

The "structural reforms" on which the Troika under the direction of the Mitfühlende Pastorentochter has been very intent on enforcing, most cruelly in Greece's case, are those calling for privatization of public property, deregulation of private business, elimination of capital controls, weakening of labor unions, reductions of wages and salaries and protective legislation for workers (aka, "liberalization of labor markets"), reductions of social services, raising the retirement age and reducing old-age pensions.

Alexis Tsipras' government shows every sign of being serious about improving tax collection and fighting corruption. His former Finance Minister Yanis Varoufakis expects that in his new government, Tsipras is "going to make a big deal out of how uniquely positioned he is to take on the oligarchy and tax evaders because Syriza has no strings attached." (Quoted in David Patrikarakos, Varoufakis told you so Politico EU 09/23/15)

But the Troika has actually impeded them in those efforts in various ways. As Varoufakis puts it, the Troika "is in cahoots with the oligarchs. Since 2010 the oligarchs have been the greatest supporters of the Troika and the Troika has been sheltering them." And presumably will continue to do so. As long as the Mitfühlende Pastorentochter has her way. As Varoufakis says, the July MOU the Troika imposed on Greece has deprived the country of "all the instruments the state has to fight a war against them."

Varoufakis refers to some of the ways in which the Troika, in cooperation with the Greek oligarchy, is impeding one of the very reforms, combating tax evasion, that Portes considers most urgent and emphasizing others (The lenders are the real winners in Greece – Alexis Tsipras has been set up to fail The Guardian 09/21/2015):

Tsipras must now implement a fiscal consolidation and reform programme that was designed to fail. Illiquid small businesses, with no access to capital markets, have to now pre-pay next year’s tax on their projected 2016 profits. Households will need to fork out outrageous property taxes on non-performing apartments and shops, which they can’t even sell. VAT [value-added taxes] rate hikes will boost VAT evasion. Week in week out, the troika will be demanding more recessionary, antisocial policies: pension cuts, lower child benefits, more foreclosures. [my emphasis]
And it's always important to remember the cost to Europe's fundamental democratic system from the midconduct of the Troika and the Mitfühlende Pastorentochter. Varoufakis in The Guardian: "Of course, to get to this point Greek democracy has had to be deeply wounded (1.6 million Greeks who voted in the July referendum did not bother to turn up at the polling stations on Sunday) – no great loss to bureaucrats in Brussels, Frankfurt and Washington DC for whom democracy appears, in any case, to be a nuisance."

The is the real existing EU, currently under management of the Mitfühlende Pastorentochter.