Monday, August 10, 2015

The austerity madness and Greece

Brad DeLong expresses his dismay over the eurozone's abandonment of basic macroeconomics for the neoliberal, Herbert Hoover/Heinrich Brüning politicies that Germany has imposed on the eurozone. Those were bad enough before the 2008 crisis. In a depression situation, they are disastrous (Another Disaster at Political-Economic Policy Analysis by Brad DeLong! Equitable Growth 08/07/2015):

When the Greek crisis hit in 2010, my reaction was that this could well be a great blessing in disguise: Greece was so small that only trivial commitments at the scale of the eurozone in terms of real money would be necessary to resolve its entire debt, and hold the Greek economy harmless – relative to any alternative policy–while adjustment took place.

The obvious alternative was the standard IMF package: A mix of restructuring and write down coupled with substantial depreciation and a loan to keep imports flowing as long as policy reform was taking place successfully.

The absence of exchange rate depreciation was going to make adjustment very hard for the Greek economy. That absence of depreciation was something Greece was giving up in return for the bargain that was the euro. In return, if the euro bargain was to survive, Brussels and Frankfurt had to be willing to offer things of equivalent value. And it seemed very clear in 2010 what those things of equivalent value were: extra transfers over and above those that would follow from a normal IMF program, in order to to offset the extra harm from the lack of depreciation; and extra help in terms of expanding demand for Greek products from northern Europe. That meant that Brussels and Frankford [sic] would push the envelope on eurozone inflation, and within the eurozone the bulk of that inflation would be concentrated in northern Europe, where the fundamental cost disequilibrium vis-à-vis Greece was greatest ...
Heiner Flassbeck and his associates at flassbeck-economics pass the following harsh judgment on the Merkel government's position on Greece (Dear readers, 08/02/2015:

Unfortunately, the political situation in Germany and Europe gives little reason for optimism in the upcoming autumn season. Dogmatism and bigotry continues to threaten the public sphere, social cohesion and peaceful cooperation between nations. During the last couple of months, one small country [Greece] became the target of resentment and contempt in Germany. A smearing campaign, of an extremely repugnant nature, was set up against it. Almost incredibly, it laid bare emotions and mechanisms that most of us thought were left behind once and for all. The nationalistic arrogance and the search for enemies are a reminiscence of the collective madness that occurred during the middle of the last century. It seems that petty nationalism, nationalist arrogance, intolerance and the unwillingness to grapple with alternative views have not been decisively overcome. On the contrary, the storms caused by the financial crisis seem to have brought some of the old ghosts back to the surface again.

However, there are flickers of hope. The shocking and senseless German Diktat to Greece has alarmed many enlightened people worldwide and continues to inspire many people to act against it. In Germany, those who do not agree with the lopsided policies of the federal government have to raise their voices and form a broad front of opposition. Only then would we be able to prevent the intellectual isolation in economic matters that propagates the myth that “the rest of the world is challenging Germany because they are not as efficient as we are.“ [my emphasis in bold]
Stephan Schulmeister has a good piece on the eurozone, Europa auf die Couch! Blätter für deutsche und internationale Politik 8/2015. He provides suggestions using the metaphor of marriage counseling on how the two sides of the Greek negotiation - the Troika and the Greek government - could manage to improve the diplomatic climate. It seems to have been completed in July after the Greek government capitulated to the bad austerity deal on which Angela Merkel insisted.

The article has a bit of an odd sound. Because it talks about how both sides need to move toward each other. Yet the facts Schulmeister cites makes it very clear that the problem is very lopsided: the German side causing it, the Greek side incurring the most damage. He refers to the other eurozone besides Greece as "18 partners under German leadership." (All translations from the German here are mine.)

And he says of the July 13 agreement, "That is no reconciliation, and also no ceasefire, but rather a capitulation."

He points out the culpability of the lenders, German and French banks in particular, in the building up of Greek sovereign debt that became unsustainable during the crisis. Or, more precisely, after the Troika required Greece to take on large amounts of new debt in the 2010 arrangement, whose main purpose was to prevent German and French banks from incurring major losses on Greek securities. And he recalls that, as we now know, even in 2010 the IMF determined that Greece couldn't carry the debt burden it had. "But politics nevertheless decided for 'their' banks: They were paid off, while Greece's debt grew with the IMF, ECB and the euro rescue fund."

He even calls the Troika's program for Greece "the most radical austerity program in history."

And he takes note of the political and media campaign in Germany to promote contempt and hatred against the Greeks. But he also brings up a point quite embarrassing for such claims of German superiority: "From 1950 to 2008, Greece raised its total production/GDP more strongly than even Germany."

And although he argues that a Grexit is a doomsday scenario, he also makes the point strongly that the Greeks' referendum vote of July 5 was a strong public statement of support for an end to austerity while staying in the common currency. Syriza was elected on a program of just that in January. In the July 13 concession, Prime Minister Alexis Tsipras wound up excepting more severe austerity while staying in the eurozone.

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