Friday, April 17, 2015

Huffing and puffing and bluffing over Greece

The publicity/propaganda battle over Greece is pretty confounding to follow. Because some of it is substantial, some of it is bluff and the negotiating strategies of Greece and Germany - and the choir of conservative and social-democratic parties in the eurozone loyally supporting Angela Merkel austerity economics - are generating their own spins on matters.

Ioanna Zikakou gives an English summary of a couple of recent pieces from the German "quality" press in German Press: ‘Greece Might Have to Leave the Eurozone’ Greek Reporter 04/17/2015.

There will be no solution for Greece’s fiscal problem in the near future, said German Finance Minister Wolfgang Schaeuble, according to Süddeutsche Zeitung. However, as the newspaper reported, that is the only way for Greece to avoid bankruptcy, therefore the decision has pretty much been made. “It appears that Greece might have to leave the Eurozone,” the article concluded.

Meanwhile, Frankfurter Allgemeine Zeitung is predicting that Greece will have to take on another bailout program, in an article entitled: “Ad calendas Graecas – The crisis will last.” The newspaper referred to the various scenarios regarding the developments in the Greek debt crisis.

“It is likely that the conflict between Greece and its European partners will continue until autumn and it may result in an election,” noted the article. “Even if a solution for the liquidity problems faced by Greece is found, the debate regarding the country’s future is still pending. The fact that Athens will need a new support program in mid-2015 is almost certain.”
The two articles referenced are not linked. One appears to be by Claus Hulverscheidt, Schäuble fürchtet sich nicht vor Euro-Austritt Griechenlands Süddeutsche Zeitung 15.04.2015. I was unable to locate the Frankfurter Allgemeine Zeitung piece online under the title given. But it appears to be this article by Werner Mussler, which shows up in a Yahoo! search under the "Ad calendas Graecas" title, but online is entitled Und jeden Tag grüßt die Krise 17.04.2015, which contains the quote the Greek Reporter renders in English.

Schäuble is even more reactionary than Angie when it comes to austerity economics. Paul Krugman took him to task in the New York Times this week (That Old-Time Economics 04/17/2015):

The point is that it’s wrong to claim, as many do, that policy failed because economic theory didn’t provide the guidance policy makers needed. In reality, theory provided excellent guidance, if only policy makers had been willing to listen. Unfortunately, they weren’t.

And they still aren’t. If you want to feel really depressed about Europe’s future, read the Op-Ed article by Wolfgang Schäuble, the German finance minister, that was published Wednesday by The Times. It’s a flat-out rejection of everything we know about macroeconomics, of all the insights that European experience these past five years confirms. In Mr. Schäuble’s world, austerity leads to confidence, confidence creates growth, and, if it’s not working for your country, it’s because you’re not doing it right.
The article to which Krugman refers is Wolfgang Schäuble on German Priorities and Eurozone Myths 04/15/2015. Here's a sample:

My diagnosis of the crisis in Europe is that it was first and foremost a crisis of confidence, rooted in structural shortcomings.
He's invoking what Krugman has famously labeled the Confidence Fairy. Its actual function in any financial discussion pretty much means: you should do what business and financial lobbies want you to do. And a big part of what they want done is to fix those "structure shortcomings" through neoliberal reforms: privatizing government services, slash wages and pensions, get rid of unions, cut back public services of every sort while they are being privatized.

One thing Greece's standoff with Germany this year has illustrated is that two common features of the neoliberal "reform" litany, fighting corruption and ending tax avoidance, are just window dressing for people like Merkel and Schäuble and the One Percenters' Confidence Fairy they serve. When Greece proposed they would get aggressive on those two fronts in particular, Merkel and her EU toadies rejected it. Austerity and antilabor policies and privatization are the only "reforms" they care about.

Investors started to realize that the member countries of the eurozone were not as economically competitive or financially reliable as the uniform bond yields of the pre-crisis years had suggested. These investors began to treat the bonds of certain countries with much more caution, causing interest rates for those bonds to rise. The cure is targeted reforms to rebuild trust — in member states’ finances, in their economies and in the architecture of the European Union. Simply spending more public money would not have done the trick — nor can it now.
Merkel and Schäuble's confidence (fairy) game has produced measurable and impressive results. Though not impressive in a good way. Krugman:

America has yet to achieve a full recovery from the effects of the 2008 financial crisis. Still, it seems fair to say that we’ve made up much, though by no means all, of the lost ground.

But you can’t say the same about the eurozone, where real G.D.P. per capita is still lower than it was in 2007, and 10 percent or more below where it was supposed to be by now. This is worse than Europe’s track record during the 1930s.
The huffing and puffing and bluffing around Greece is likely to continue until July-August. I don't think Merkel wants to have Greece leave the eurozone. But her negotiating style in the euro crisis, especially in the summer of 2012, has been to let things slide to the point of a crack-up and then do just enough to stop imminent disaster. If she miscalculates, events could spin out of her control rapidly. And a whole army of Confidence Fairies won't be able to fix things for her.

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