Monday, June 22, 2015

Greek negotiations

The negotiations between Greece and the Troika are dragging on, without a resolution. German Chancellor Angela Merkel sounds like she's decided to just stick with her austerity demands until Greece either knuckles under or leaves the eurozone. Doing the highwire act has worked for her repeatedly in the past. But this is a gamble with historical bigger stakes than any she's made before.

Jamie Galbraith recently wrote about The IMF’s “Tough Choices” on Greece Project Syndicate 06/16/2015:

In May 2010, the Greek government agreed to a fiscal adjustment equal to 16% of GDP from 2010 to 2013. As a result, Greece moved from a primary budget deficit (which excludes interest payments on debt) of more than 10% of GDP to a primary balance last year – by far the largest such reversal in post-crisis Europe.

The IMF initially projected that Greece’s real (inflation-adjusted) GDP would contract by around 5% over the 2010-2011 period, stabilize in 2012, and grow thereafter. In fact, real GDP fell 25%, and did not recover. And, because nominal GDP fell in 2014 and continues to fall, the debt/GDP ratio, which was supposed to stabilize three years ago, continues to rise. [my empahsis]
And observes:

... the Greeks have already made tough choices. Now it is the IMF’s turn, beginning with the decision to admit that the policies it has imposed for five long years created a disaster. For the other creditors, the toughest choice is to admit – as the IMF knows – that their Greek debts must be restructured. New loans for failed policies – the current joint creditor proposal – is, for them, no adjustment at all.
The "second generation" Frankfurt School philosopher Jürgen Habermas, a committed supporter of the EU, writes about the latest drama in Warum Merkels Griechenland-Politik ein Fehler ist Süddeutsche Zeitung 22. Juni 2015. He's cautiously critical of the Syriza's government negotiating over the last few months, unfairly so, I would say.

But he's very clear that the main fault lies on the European partners who imposed ruinous austerity policies on Greece.

And he sees the only hope for the European Union is for popular movements and parties to democratize the Union and end the current predominance of "market conformity."

But the EU will never be able to get to democratizing itself or the eurozone to establishing political union if they can't hold themselves together. And the current course doesn't look promising on that score.

This Bloomberg Markets article of 06/17/2015, European Disunion: For Two Rivals in Greek Crisis, It’s Personal by Edward Robinson describes the "wall of debt" that Greece is about to hit:

A wall of debt is rapidly approaching Athens. As of June 1, the nation’s total liabilities stood at €328 billion, or 174 percent of GDP—almost double the 90 percent average in the euro area. Within just a few months, Greece must scrape together €8.2 billion to pay down loans issued by the Frankfurt-based ECB and the IMF and another €514 million for bondholders. To stay afloat, the Tsipras-led government will have to seek a third loan package—this one for €30 billion—according to Eurasia Group, a New York–based research firm. Then the cycle of crisis will begin anew.

“It’s questionable just how much an outsider should come into countries and explain how they should reform themselves,” says Charles Dumas, chairman of Lombard Street Research in London. “It’s at the heart of the whole business of the euro zone. You’ve got different cultures and languages and politics shoved into a blender — and basically they are being told they have to be like Germany.” [my emphasis]

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