Thursday, April 30, 2015

Joschka Fischer goes over to the Dark Side on Greece

The eurozone finance minister put up such a WATB show over having to meet with Greek Finance Minister Yanis Varoufakis - why, my good sir, he doesn't even wear a tie! - that Prime Minister Alexis Tsipras agreed to have a Vice Foreign Minister be the direct negotiator for now. (Peter Spiegel, EU frustration over Greece boils over at eurogroup meeting Financial Times 04/24/2015; Renee Maltezou and Deepa Babington, Greece moves to sideline Varoufakis after reform talks fiasco Reuters/Yahoo! News 04/27/2015; Brussels and international media cheer to have won Blitzkrieg against Varoufakis Keep Talking Greece 04/28/2015)04/27/2015; Renee Maltezou and Deepa Babington, Tsipras presses for May debt deal, threatens referendum Reuters 04/28/2015)

From the Maltezou/Babington 04/27 piece:

Varoufakis, who became an instant celebrity in the early days of the Tsipras government with his tie-less look and blunt attack on austerity policies, has seen his star wane in recent weeks and critics have called him a liability in the talks.

At Riga on Friday, he was sharply criticized by fellow euro zone finance ministers for both his lecturing style and failure to produce reforms demanded by lenders.

He was later taken to task by the media after he failed to appear at a state dinner after the meeting. He responded by tweeting a quotation by former U.S. president Franklin Roosevelt which read: "They are unanimous in their hate for me; and I welcome their hatred."
I don't think this represents any basic shift in Greece's position. Apparently, neither does former German Foreign Minister Joschka Fischer, whose recent column I'll get to below.

Phillip Inman's article What happens if Greece can’t pay its debts? The Guardian 04/25/2015 includes this sidebar on the combative Finance Minister:

The former economics professor, now finance minister, went into Friday’s meeting of eurozone colleagues in Riga repeating his demand that his counterparts admit that their policies towards Greece, Ireland, Portugal and the rest have failed. It is not a message that wins many friends. In Riga he faced a volley of criticism for his repeated expounding of Keynesian economics, with its emphasis on government spending. His opposite numbers find it childish and patronising. They understand Keynesianism, but don’t think it works. Varoufakis admits he is adverse to the compromises familiar to diplomats and politicians, and many think that rather than be responsible for a fudge he would prefer to go down in flames. [my emphasis]
In this context, saying that the Very Serious Finance Ministers don't think "Keynesianism" works means that they don't follow bonehead basic macroeconomics. So they evidently need those lectures from Varoufakis. Paul Krugman has a new, longish article on Very Serious People vs. simple macroeconomics, The austerity delusion The Guardian 04/29/2015.

As time grows shorter for a resolution of the Greek situation that would avoid a default, probably August at latest, some players are reassuring themselves that a Greek default or even exit from the euro wouldn't be such a big deal for the eurozone. This is largely based on the assumption that the harm could be restricted to Greece.

As yet, the markets aren't showing signs of financial panic. One major factor that has changed since 2012, when the last acute phase of the crisis occurred, is the the ECB has taken on de facto the role of buyer of last resorts of euzozone countries' sovereign debt. This is a normal function of central banks that the ECB is not de jure authorized to assume. But they're doing it through the back door. Krugman refers in the linked article to the ECB "doing its job as lender of last resort."

Mike Dolan, Absence of contagion changes whole Greek game 04/29/2015

... regional calm is mainly thanks to several euro-wide emergency firewalls - such as the European Central Bank's Outright Monetary Transactions or the European Stability Mechanism - built painstakingly over the past four years.

Chief among them is the trillion euro bond buying, or 'quantitative easing' program launched just last month.

"QE is probably the primary defense against contagion," Deutsche Bank economist Mark Wall told clients.

By accident or design, the ECB's rationing of QE via its so-called 'capital key' has an in-built stabilizer of its own.

That model means the ECB is set to buy more bunds than anything else with its 60 billion euro per month splurge to September 2016. But, partly as a result, three quarters of all bunds now yield less than zero and a quarter of that universe is illegible for QE purchases because yields are under the -0.2 percent threshold below which the ECB refuses to buy.

That has two implications. Any prior euro shock typically herded euro domestic investors to the perceived safety of bunds. Now they face blindingly expensive securities that even bond guru Bill Gross last week called the 'short of a lifetime'.

But more powerfully, the growing inability of the ECB to buy bunds will likely force it to alter its capital key and skew purchases more toward the large, higher-yielding peripheral bond markets of Italy and Spain - further protecting these markets in the event of any Greek shock in the interim.
A lot depends on what the actual resolution this year turns out to be. If Greece defaults within the eurozone, the ECB and the eurozone partners will be in the situation of having to clean up the consequences for themselves, e.g., losses on Greek debt held by other eurozone countries.

If the eurozone kicks Greece out, though, that could lead to a rush for the exit on the part of other countries. Greece would likely have some serious negative immediate results. But without debt payments weighing the down to the current extent, they could implement stimulative policies that would actually get their economy growing again. Which basically can't happen under the current "Troika" agreements binding Greece.

Which brings us to Fischer's turn to Angela Merkel's pound-the-Greeks-into-the-ground position in Tsipras in Dreamland Project Syndicate 04/29/2015. There are parts of it in which he's basically just sneering at Alexis Tsipras' government, painting Tsipras as an irresponsible leftwinger. The most generous thing I can say about those parts is that Fischer seems to be reading his own experience in the 1990s as the party leader of the German Greens into that of Greece today, and it's a very bad fit.

But Fischer is in Angie-bot mode in this piece:

The Tsipras government, with some justification, could have presented itself as Europe’s best partner for implementing a far-reaching program of reform and modernization in Greece.
Which, of course, it did. But Merkel and her subservient eurozone elite didn't want to hear about improving tax collection and reduce corruption, because even though those measure would improve revenue collection and "good government," they would inconvenience the wealthy who benefit the most from both corruption and tax dodging. Merkel wants austerity to continue and that is what the prissy eurozone finance minister have insisted on while sniffing that Varoufakis doesn't wear a tie to their meetings.

But Syriza’s inability to escape its radical bubble does not explain why it formed a coalition with the far-right Independent Greeks, when it could have governed with one of the centrist pro-European parties. I hope that they do not share policy priorities, particularly a change of strategic alliances, which would be equally bad for Greece and for Europe.
This is just straight Angie-bot propaganda. As I discussed at the time Tsipras formed his government, those "center-left" parties Fischer and Merkel favor did not share SYRIZA's position on the most critical economic priority on which they won the national election: ending the Herbert Hoover austerity policies while keeping Greece in the eurozone. Anel, the "far-right" party to which Fischer refers does share that position. SYRIZA was two votes short of a clear majority for itself in Parliament, so they didn't have to make big policy concessions to Anel to get their few votes to form a majority.

... Greece’s government needs to understand that other eurozone members will not be willing to accommodate its demands if it means delegitimizing their own painful reforms.
Or to rephrase it, because other government have adopted Herbert Hoover policies that damaged their economies, they want to see the far more severe damage to Greece continue with the same policies. And the fact that Greece's voters rejected that horrible alternative? Well, what matter is what Berlin wants. At least for Merkel and, on this critical issue, Joschka Fischer.

But even if there were no troika and no monetary union, Greece would urgently need far-reaching reforms to get back on its feet. What it also needs is time and money, which the EU should provide if, and when, the Greek authorities face up to reality.
This is just another statement of the Herbert Hoover/Heinrich Brüning that have brought matters to this pass in the first place. In the real world, Greece does not have to implement every neoliberal reform that the idol-worshippers of Merkel's policies in the eurzone finance ministries favor. It needs an end to austerity. And if the debt load could be lifted, they wouldn't need external assistance, either.

Fischer also gripes about Tsipras' "flirtation with Russian President Vladimir Putin, and his attempt to isolate Germany within the eurozone, which never could have worked."

Gosh, why, why, would Greece seeks to improve relations with Russia? With such good friends as their eurozone partners, why would they need anyone else.

I pay attention to what Joschka Fischer says. But this is the first time I've seen him come off like a cranky grouch.

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