The euro-eating zombie economic policies shuffle along

ECB head Mario Draghi looks at the moment like he's playing Angela Merkel's game in ratcheting up pressure on Greece by refusing normal central bank funding to Greece's banks. As Keep Talking Greece summarizes it (Varoufakis: “We have Plan B” after ECB Draghi’s says No,No,No to liquidity 03/05/2015):

At a press conference today, Mario Draghi distributed money around, but to the Greek, he said three times “No”.

NO, ECB will not allow Athens to sell additional T-bills total worth 8 billion euro.

NO, ECB will not buy Greek bonds under its new assets-buying program.

NO, ECB will not accept Greek bonds as collateral.

Renee Maltezou and Jan Strupczewski report for Reuters in Greece sends EU reform list, more hurdles before early cash 03/07/2015:

Greece is running out of options to fund itself despite striking a deal with the euro zone in February to extend its EU/IMF bailout by four months.

European Central Bank President Mario Draghi has refused to raise a limit on Athens' issuance of three-month treasury bills which Greek banks buy with emergency central bank funds. He said on Thursday the EU treaty prohibited indirect monetary financing of governments.

"The ECB has still got a rope around our neck," the leftist Greek premier complained in an interview with German magazine Der Spiegel released on Friday. If the ECB continued to object, it would be assuming a grave responsibility, he said.

"Then it would be back to the thriller we saw before Feb. 20," Tsipras said, referring to the date when Greece agreed a four-month extension of its bailout with euro zone partners after market jitters ignited by political uncertainty.

Heiner Flassbeck reminds us in (The ‘right track’ for Greece and the Troika’s grave errors flassbeck-economics 06.03.2015; original 26.02.2015) that events in Latin America clearly showed the bankruptcy of neoliberal crisis policies well before the euro crisis struck:

Why was it that, during the last decade, the IMF almost completely lost its foothold in Latin America? Remarkably, this sea-change went unnoticed by many in Europe and especially by its policy-makers. Nonetheless, there are lessons to be learned. For many years, several countries in Latin America suffered economic crisis and financial disarray. The “structural reforms” of the IMF in general made the situation worse, not better. That is why many of them broke with the IMF. They let their currencies float, the privatisations were abandoned, and some utilities were even re-nationalised. Something very similar happened in Asia. The IMF tried to deal with the Asian currency crisis on the basis of a diagnosis, which was nothing short of irresponsible. It was devoid of all rationality and genuine insight. According to the IMF, the cause of the crisis was either crony capitalism (i.e. endemic nepotism) or, as they called it, ”a rotten banking system” that had to be ”cleaned out”. The Asian countries cut themselves loose from the IMF as soon as possible and reversed the IMF policies. They have also been doing well ever since. However, none of this makes an impression to the IMF. It is true, when I tried to convince the G 7 as deputy German Federal Minister of Finance of a thoroughly different diagnosis of the Latin America crisis than the one of the IMF, I was stopped in my tracks by my American colleague Larry Summers (who, I am sure, until this very day does not understand what a currency crisis really is). But more important was that I did not get any support from my French colleague Jean Lemierre or my Italian colleague Mario Draghi. None of them was (as high ranking government official and supervisor to the IMF) either able or willing to accept anything from outside the mainstream economic paradigm, let alone that they should use it to change course. [my emphasis]

And he continues with a description of how the Very Serious People syndrome played out in the euro crisis:

The second example is even more serious than the first because its effects are much worse and it is clearly due to a fatal error in theory. Frankly speaking, to the Troika – and indeed to many of the policy-makers of the national governments in Europe – there is essentially no difference between the labour market and the potato market. Even if some civil servants and officials would doubt it, it is more or less impossible for them to raise objections because it would put a question mark on their suitability for the work that they are doing. Consequently, the Troika consists of people who share the same insights, who come from similar academic backgrounds and, due to their membership in the group, adhere to very similar world views even if they and have different political convictions and belong to different parties. There is no time for doubt and no room for dissidents. The blessings of the seemingly never-ending increase in ”flexibility” of labour markets are supposed to be beyond any doubt. The policies always amount to the same conclusion: the position of the trade unions has to be weakened and wages have to be cut. These are the vital elements of any ”reform strategy.” Perversely, this problem is exacerbated in Europe by the fact that almost everyone who is in power in Europe believes that it is precisely these factors that are responsible for Germany’s economic success. There can therefore be no doubt in the aforementioned course of action: the German example has to be followed. The great majority of German politicians preach the same gospel: every state member has to improve its competitiveness, which, within the EMU framework, cannot mean anything else other than wage cuts.

But if this is wrong – and it is, most emphatically, fundamentally wrong, as we have said and shown again and again – then nothing that the Troika is trying to achieve will be achieved. ... The Troika has been fundamentally wrong in its assessments of the economies that they have under their wings. Their theories do not explain what is going on. Instead, their assumptions make it impossible for them to properly interpret the world. [my emphasis]

Flassbeck would like to see the euro saved. But he's pessimistic that the necessary anti-Merkel coalition among other eurozone countries can come together quickly enough to achieve that.