The Genoa Bridge collapse, neoliberalism, and the Italian left-right coalition government

The deadly collapse of the Morandi Bridge in Genoa, Italy, on August 14 has focused the attention of numerous journalists and commentators on the economic situation of Italy.

• Hilary Clarke and Gianluca Mezzofiore, Genoa bridge collapse came after years of warnings CNN 08/16/2018
• Italy bridge collapse: Genoa death toll rises to 43 BBC News 08/19/2018
• Franz Kössler, Genua: Der Einsturz der Brücke und der Politik Falter 34:2018 22.08.2018 (momentan hinter Abo)
• Walter Mayr, "Schakale und Lügner" Der Spiegel 34:2018 (18.08.2018)
• Thomas Migge et al, "Ein Sommernachtsalptraum" Profil 34:2018 20.08/.2018
• Paola Subacchi, Hard Lessons from Genoa Project Syndicate 08/21/2018
• Christian Wüst in "Tod im Tragwerk" Der Spiegel 34:2018 (18.08.2018) goes into some of the technical issues around the collapse.

The political background

The EU establishment has been in a tizzy since the current Italian government took office in June. It is a coalition of the left-populist Five Star Movement (5Stars) and the right-populist Lega. The Prime Minister from the senior coalition party 5Stars is Giuseppe Conte and Matteo Salvini, the longtime head of the junior partner Lega, is the Deputy Prime Minister and Interior Minister, the latter being the country's chief law enforcement official. Conte is an attorney with very little experience in politics. So it's no surprise that Salvini seems to be the actual government leader on policy.

Salvini has been enthusiastically pressing forward an anti-immigrant policy, which has included banning ships carrying passengers rescued at sea from the high risk immigrant route from Northern Africa. (Alexander Stille, How Matteo Salvini pulled Italy to the far right The Guardian 08/09/2018) Such a ban is a serious rejection of international law. Stefan Schmidt, a sea captain with experience in Mediterranean rescues who is current commisioner for asylum and refugee issues in the German state of Schleswig-Holstein, in this interview talks about the broader issue of sea rescues in the Mediterranean, not simply in relation to Malvinini, in this German-language interview, Stefan Schmidt: "Menschenleben stehen bei mir an erster Stelle" Deutsche Welle 19.08.2018:

Salvini's actions on the chronic refugee crisis are anti-EU and narrowly nationalistic.

And defenders of democracy and the EU see good reason to worry about the direction he's going, as Stille reports:

Salvini’s rise to power has heightened concerns in Italy about the escalation of racist and xenophobic violence in the country. Dozens of attacks on black people and Roma have been recorded in the last year, all over Italy, from Treviso in the north to Gioia Tauro in the south, including Florence and Rome. The attacks range from drive-by shootings with air guns, in which the attackers were reported to shout “Salvini!” to the assassination of a Malian trade unionist campaigning for fair pay for migrant workers. An Italian athlete of Nigerian descent, Daisy Osakue, the Italian under-23 champion discus thrower, was hit in the eye by an egg thrown from a car. Police have been pursuing attackers and making arrests, but the government has been more reticent. After a torrent of criticism for his anti-migrant policies – culminating with the headline “Get behind me, Salvini” on the cover of Italy’s largest Catholic magazine – Salvini responded with a favorite phrase of Mussolini: “many enemies, much honor.” He also insisted that the idea of widespread Italian racism was “an invention of the left”.

He's also making a show of forming common fronts with other nationalist (and pro-Putin) groups, even though the whole notion in a Nationalist International is inherently bizarre. Even though that's exactly what far-right parties in Europe are trying to have. Salvini's stunt this week is to advertise his fondness for Viktor Orbán, the Prime Minister of Hungary, which joins Poland as one of two countries in the EU who seem to have become authoritarian enough to no longer meet basic EU requirements for democracy and rule of law.

Lorenzo Tondo reports in Matteo Salvini and Viktor Orbán to form anti-migration front Guardian 08/28/2018. "The Italian interior minister, Matteo Salvini, and the Hungarian prime minister, Viktor Orbán, have said they are “walking down the same path” after discussing the formation of a common anti-migration front they said would oppose the policies of the French president."

Diplomatically, it also strengthens the impression that Malvini and the Lega are in reality the dominant party in the Italian coalition.

But it's not only the anti-EU refugee policies that causes the EU establishment to worry. The new government is also committed, for the moment, to defying Angela Merkel's austerity politics, which is treated like religious truth in EU economic policy.

The obsession with austerity politics of the Herbert Hoover/Heinrich Brüning cast has meant, among other things, delays in upgrades, repair, and expansion of infrastructure. That's been true even in Germany, where Merkel's governments have been restrained on infrastructure projects.

This is a familiar story. When faced with budget shortages, deferred maintenance is one of the first budget-cutting methods governments resort to. Paola Subacchi describes the larger problem this way:

In Western Europe and the United States, bridges, roads, and railways built in the 1950s and 1960s during the post-war reconstruction and economic boom are now old, obsolete, and overused. Does any developed economy have a long-term strategy to manage its essential infrastructure? Are risks being correctly assessed and mitigated? What are the trade-offs between maintaining and replacing infrastructure approaching the end of its life? And how can citizens influence the public debate about who should pay for infrastructure and where it should be built?

It's not just in Italy this problem is occurring. It's a chronic feature of the neoliberal era ushered in by Ronald Reagan in the US and Maggie Thatcher in Britain.

This attitude toward public infrastructure is seriously different from the time before "when demand-management policies went out of fashion," as Subacchi puts it:

The Morandi Bridge was inaugurated in 1967 with great pomp by Italy’s president. Back then, political capital was built around such projects – and not only because of patronage and corruption. Nowadays, modern democracies seem stuck around the trade-off between collective benefits from infrastructure and individual rights, and large projects are often the kiss of death for a politician’s career. ...

With the can continuing to be kicked down the road while existing infrastructure approaches its expiration date, we can expect many more such headlines in the not-too-distant future.

She also means that more broadly than just for Italy.

The bridge

I'm not going to claim to have any special insight into the technical problems involved. Christian Wüst's article talks at length about how the collapse was supposed totally unpredictable. Wüst explains that the bridge was made from a steel-and-concrete combination whose flaws from rust are very difficult to evaluate.

Only very near the end do we read this:

Nur zwei weitere Brucken dieser Art (Patent Morandi M5) wurden damals gebaut, eine in Venezuela, eine in Libyen. Das Konzept erwies sich als Irrweg. Der Beton schützt die Spannelemente nicht auf Dauer var Rost, wie anfangs gedacht, er kann den Verfall sogar beschleunigen, verhindert eine zuverlässige Prüfung und erhöht unnötig die Masse der Konstruktion.

[Only two other bridges of this type (patent Morandi M5) were then built, one in Venezuela, one in Libya. The concept proved to be wrong. The concrete does not protect the elements of the span from rust over a long time, as was originally thought. It can even accelerate the decline, hinders an adequate examination, and increase the mass of the construction unnecessarily.]

In other words, it sounds like there was good reason for the company responsible for the bridge to be very concerned that the bridge posed serious risks. And that measures needed to be taken to mitigate the risks: repairs, restrictions on traffic and vehicle weights, even replacements of the bridge or parts of it.

The neoliberal bridge and Italian populism

What's that you say? The company that was responsible for it? Why, yes, the bridge was being managed by a private, for-profit company, the holding company Atlantia. According to Franz Kössler, Atlantia (he uses the older name Autostrade per l'Italia) "controls about half of the Italian highways." (my translation)

The Morandi Bridge was originally built a state-owned company, IRI, and opened in 1967. But it long since came under the neoliberal gospel, of which privatization is one of the cardinal dogmas. IRI itself, which as Franz Kössler observes, was once "Italy's largest employer and a center of economic miracle of the postwar era," now has "long since fallen victim to the privatization policy."

When a major bridge collapse like this happens, the citizens obviously should demand accountability for the problem and, at a minimum, a serious and honest answer as to what happened in the disaster. And democracies should expect that their government will take the necessary steps to make sure the country's public infrastructure is safe and adequate.

And the Italian government parties are pointing fingers. Prime Minister Conte and 5Stars are blaming Atlantia and calling attention to the large ownership role of the Benetton family of Italian oligarchs. And, as Walter Mayr reports, Atlantia's operational earnings in 2017 was €2.6 billion ($3 billion at current rates).

But Mayr's Spiegel article treat the idea that there could have been any neglect on the part of Atlantia with contempt. And takes the idea that Italy should reduce it's budget deficit to zero without any reference to actual economic conditions as self-evidently sensible.

Which comes to the left side of Italian populism. Both 5Stars and the Lega want to get out of the current fiscal constraints imposed by the EU. Malvini has blamed the EU for the bridge callapse, which conveniently fits with the Lega's narrow-nationalist, anti-EU outlook..

But the Hoover/Brüning economic policies dominant in the EU are bad. And while I've seen no reason to think the EU specifically directed neglect of the Morandi Bridge, it's also not just demagoguery to link the event to EU austerity policies. And Italy's economy does need a boost, even apart from rickety bridges.

Walter Mayr and and Franz Kössler make a point the some 5Stars figures had opposed a proposed road project that could have reduced traffic on the Morandi Bridge. And Profil that 5Stars "rejects big infrastructure programs on principle for ideological reasons." (my translation) Whether that is more a real ideological commitment of 5Stars or more of a "gotcha" point, I don't know. What does seem obvious is that some serious infrastruction

Italy's banks have been wobbly for a while and their economy is still slow in recovering from the Great Recession that began a decade ago. The Conte-Salvini (or Salvini-Conte?) government is pushing for a more expansive fiscal policy than Merkel and the EU want to allow.

But the combination of shaky banks and a government pushing back against Herbert Hooverish fiscal constraints imposed by the EU could bring a re-run of the Greek debt crisis and the eurozone confrontation of 2015. The Profil article cited above observes:

Die Populisten hatten Zeit genug, um erkennen zu konnen: Budgetdisziplin macht unpopular. Das, in Kombination mit ideologischer EU-Feindseligkeit, konnte Italien zum Sprengsatz der Eurozone machen.

[The {Italian} populists had enough time {since the 2008 economic crisis} to recognize: budget discipline makes you unpopular. That, in combination with ideological hostility to the EU, could make Italy into an explosive charge.]

Daniel Gros takes a wonkish look at the current risks in Italian risk spreads: Fiscal versus redenomination risk VoxEU 08/29/2018.

Former Greek Finance Minister Yanis Varoufakis notes in With his choice of prime minister, Italy’s president has gifted the far right Guardian 05/28/2018:

While it is true that Italy is in serious need of reforms, those who blame the stagnation on domestic inefficiencies and corruption must explain why Italy grew so fast throughout the postwar period until it entered the eurozone. Was its government and polity more efficient and virtuous in the 1970s and 1980s? Hardly.

The singular reason for Italy’s woes is its membership of a terribly designed monetary union, the eurozone, in which the Italian economy cannot breathe and which consecutive German governments refuse to reform.

The Genoa bridge collapse is another reminder that chronic austerity has longterm costs. The metaphorical collapse of the banks may be far more damaging to the economy and become the immediate cause of a new euozone crisis. But literal collapses are happening, too. And costing people who have the misfortune of being on the wrong bridge at the wrong time their lives.

Varoufakis on extend-and-pretend solution to euro and refugee problems

Yanis Varoufakis in an 11-minute interview with Bloomberg News on the two mega-problems that endanger the future of the European Union: the flaws of the eurozone currency construction, and the long-term refugee crisis:

https://youtu.be/PJB-iP9EmV4

He talks about how the current extend-and-pretend pseudo-solutions to both are are a deceptive mess. (The more I hear about Angela Merkel's recent deal on refugees with her Interior Minister Horst Seehofer, the more I'm impressed with what vapid political theater it is, a non-solution to a non-problem.) Phony solutions are a staple of normal politics, of course. But the EU program for Greece and the Merkel-Seehofer deal are both classic examples of the genre. The first is far more significant, the second more dramatic in its obvious phoniness.

He deals with the extend-and-pretend "solution" to the Greek debt crisis in Profiles in European Denial Project Syndicate 07/29/2018:

When bankers try to cover up bad loans on their books, they extend new loans to enable their insolvent borrowers to pretend to be servicing the original loan. When the new loan is exhausted, the client is allowed to suspend repayment for a few years, with interest accumulating. This keeps the net present value of their asset (the loan) constant while postponing the day of reckoning (when they have to confess to their regulator that the loan is unrecoverable).

Since 2010, Greece’s creditors have been practicing this extend-and-pretend strategy as though they were training for an Olympic event. Instead of a courageous and therapeutic haircut, or the moderate GDP-indexing solution, the Eurogroup’s recent decision, proclaimed as the “end of the Greek debt crisis” boiled down to the apotheosis of this cynical practice.

Italy and the refugees rescued from the Mediterranean Sea on the Aquarius ship

Italy is still refusing to let the ship Aquarius with refugees rescued from the Mediterranean dock in Italy. (Steve Scherer and Massimiliano Di Giorgio, Italy and France try to patch up migrant row, draw papal rebuke Reuters 06/14/2018)

This is the new Italian face on immigration, and a grim, ugly start for the new left/right coalition government of Five Stars and the League. Interior Minister Matteo Salvini of the League is the public face of the policy. But the new Prime Minister Giuseppe Conte is going along with it. And, as reported by Dominik Straub und Irene Brickner in Nach geschlossenen Grenzen nun auch gesperrte Häfen Standard 13.06.2018, the ban on letting the ship with people in distress rescued from the ocean, a illegal position in international law that is the way it is for good reasons, could not have been implemented without the consent of the Five Stars Transportation Minister.

This is not a question of national security at all. It's a very cynical, bad-faith posture by the Italian government seeking to exploit nationalist hatreds as a basic part of its political project. As Reuters notes, "The [Italian Prime Minister and the French President] confirmed a lunch meeting on Friday to discuss 'new initiatives' on immigration, a day after Italian Interior Minister Matteo Salvini announced an 'axis' with Germany and Austria to fight illegal migration." (my emphasis)

Salvini's talk has to be taken seriously, though like our American xenophobes, we can't assume they have any particular devotion to accuracy in their public claims. Austria does have an anti-immigrant government, a coalition of conservative Christian Democrats and hard-right Putinists, i.e, the Freiheitliche Partei Österreichs (FPÖ), which has a formal "working agreement" with Putin's Russia United party. (Rechtspopulisten und Putin-Partei rücken enger zusammen FAZ 19.12.2016) The FPÖ/Russia United agreement commits them to the "strenthening of friendship and raising the young generation in the spirit of patriotism and joy in labor." Kind of an "Arbeit macht Frei" kind of thing, apparently.

But whatever political "axis" there may be among the Italian League and the Austrian governing parties, both Italy and Austria are EU members and both are still bound by general international law. In Germany, Interior Minister Horst Seehofer, a rightwing leader from Bavaria who is from the CSU, one of the parties in Angela Merkel's national coalition, has been playing footsie lately with Austria's Christian Democratic Chancellor Sebastian "Babyface" Kurz on anti-foreign politics. But, for all of her government's failings on immigration issues - and the general impression in the US that Merkel is very pro-immigration is a mistaken one - she isn't making a "axis" with Italy to drown immigrants in the Mediterranean Sea. The strange courtship between Chancellor Babyface and is actually aimed politically against Merkel.

(Dont' even try to shoehorn the mixing of internal and external policies in the EU into the framwork of the discussion on the Russian meddling in the US elecitons; you'll just give yourself a headache.)

Not to understate what a prick Seehofer is being on the subject. He is claiming that as Interior Minister, he has the authority to turn back refugees at the border, Angela Merkel and international law be damned. (Asylstreit: CSU droht mit Alleingang und Ultimatum ORF 147.06.2018) So far, this looks more like a weird political stunt than an actual move on immigration policy. But I wouldn't want to underestimate the possibility of it turning into something worse.

Immigration and the eurozone are currently the two biggest threats to the future of the EU. Both have been hampered by nationalist posturing by EU countries. Although as the de facto leader of the EU, Germany, and Angela's Merkel's governments in particular, bear the heaviest responsibility for it. I think of the both as chronic crises, both of which hit acute turns in 2015. Both are currently "solved" by classic Merkel extend-and-pretend non-solutions, forcing Greece to become Bangladesh via draconian austerity policies, on the euro front, and by contracting out the solution of the Mediterranean refugee problem to Turkey, Italy, and Greece. Both are highly unstable solutions.

The sad part is that the general shape of realistic solutions are very clear. The eurozone either has to be unwound with a return to national currencies, or change it into an optimal currency area with a common budget, shared public debt obligations, and "transfer union" structures.

With immigration, the broad solution is also clear: stop supporting wars in the Middle East, whether by direct intervention, facilitating American or Russian intervention, or selling arms to belligerent parties; get real about the fact that mass immigration to Europe is for all practical purposes a permanent situation that requires a structured, systematic sharing of burdens, i.e., accepting refugees, including, yes, the richer countries like Germany and Austria; and, systematic development work in North Africa to provide safer conditions and better opportunities there. Did I mention that to stop supporting wars in the Middle East is a critical part of this? Oh, and getting emergency services in shape to handle entirely predictable future surges in immigration.

But the obvious eurozone and refugee solutions aren't being undertaken as they should be, largely because too many political parties and groups and business lobbies like weapons manufacturers in particular find it advantageous to demagogue the issues.

But reality does have a nasty way of catching up with wishful thinking and flat-out denial. Facts do matter, despite being singularly inconvenient for narrow nationalists and xenophobes. Turkey, Italy, or Greece could change the calculation overnight by just sending a bunch of the refugees they are holding to parts northward. That would be irresponsible in itself absent real practical agreements on how to do it. But Hungarian, Austrian, and German politicians would have to respond with more than slogans about "close the borders." Austrian Chancellor Babyface likes to claim credit for "closing the Balkan route," but that's a joke. Angela Merkel's agreement with Turkey is what mitigated the acute phase of the immigration crisis of 2015, not any whizbang diplomacy by Austria.

And there's this fact-based reporting from Straub und Irene Brickner, illustrating how cynical and dishonest it is for the Matteo Salvinis of the world to conjure up phony claims to justify xenophobic cruelty:

Frage: Wie viele Flüchtlinge haben die Mittelmeerstaaten heuer bisher aufgenommen?

Antwort: Italien hat in diesem Jahr bis zum 12. Juni insgesamt 14.441 Bootsflüchtlinge aufgenommen; hinzu kommen die 932 Migranten, die am Mittwoch von der italienischen Küstenwache in Catania an Land gebracht wurden. Insgesamt knapp 80 Prozent weniger als im Vorjahr. Spanien hat im laufenden Jahr bisher 11.308 Flüchtlinge aufgenommen, Griechenland 12.065. Es kann also keine Rede davon sein, dass Italien die ganze Immigration allein schultere. Wahr ist aber, dass die nördlichen Grenzen Italiens – jene nach Frankreich, in die Schweiz, nach Österreich und Slowenien – für Flüchtlinge seit langem faktisch geschlossen sind.

[Question: How many refugees have the Mediterranean states taken on up until now?

Answer: Italy has taken 14,441 boat refugees; that includes 932 migrants who were brought to land by the Italian Coast Guard in Catania on Wednesday. In all, 80% less than in the previous year. In the current year, Spain has accepted 11,308 refugees, Greece 12,1065. So that can be no claim that Italy is shouldering the whole immigration alone. But what is [true], is that the borders north of Italy - that to France, in Switzerland, to Austria and Slovenia - have in fact been closed to refugees for a long time. [my emphasis in italics]

Anti-immigration sentiment in Italy and Austria

The European Union is facing a new round of the Greek debt crisis of 2015, only this time with Italy. Anti-immigrant sentiment is also intensifying, with the new Italian government saying they want to expel hundreds of thousands of refugees. There has not been any new upsurge in refugees like that wave of 2015. But mass migration would be a longterm reality for Europe just from the effects of climate change alone. But military conflicts in the Middle East, fed and sometimes initiated by outside powers, including massive arms sales.The US, Russia, and various European countries are in on this ugly and destructive game.

Angela Merkel became known for her extend-and-pretend solutions on the euro crisis, especially with Greece, where the unsuccessful anti-austerity pushback from Greece in 2015 highlighted. Piling on unpayable debt burdens to the eurozone "periphery" countries was the core of her economic extend-and-pretend approach. In immigration, the main extend-and-pretend solution was an agreement with Turkey to house refugees coming their direction. Ironically, they also rely on Greece for the same thing. And Italy to a smaller but significant degree as well..

Meanwhile, there has been no meaningful progress on practical intra-EU arrangements in meaningfully dealing with refugees on a fair burden-sharing basis. (The xenophobic politicians in Germany and Austria prefer to call them all "migrants," to more easily brand them as moochers coming live high on the hog in good white Christian countries.) Meanwhile, Greece has knuckled under to enduring a permanent depression on the orders of the EU establishment, and of Germany more particularly, and is in chronically desperate states. Italy is also fighting the austerity trap. And name-calling and hostile statements against Turkey are popular favorites for conservative politicians in Germany and Austria. Plus, Germany has known for years that BAMF, its own refugee-resettlement agency, had severe management problems and wasn't prepared for the 2015 upsurge. And still isn't prepared. (How Germany's BAMF refugee agency became a 'political scapegoat' Deutsche Welle 30.05.2018)

So this is an inherently unstable situation. And Greece, Italy, and Turkey can threaten to send large groups on their way north.

In Italy, the new Interior Minister, the national official in charge of law-enforcement - not natural resources like the Interior in the US - is Matteo Salvini, a toxic xenophobe from the far-right League party, which is the junior partner in the new national coalition government. Chico Harlan writes (The torchbearer of Italy’s far right is now in power and wants to make good on anti-migrant promises Washington Post 06/04/20118):

With an Italy-first message, Salvini has rocketed into the center of Europe’s battle over migration. He is recasting the cultural debate about how to treat those fleeing the Middle East and Africa, highlighting examples of migrant criminality and describing the influx as an “invasion.” And now, in his first week in control of Italy’s interior ministry, he has power to do what he has pledged: more tightly close the doors of a country that, several years ago, ranked among the most welcoming in Europe.

Salvini has risen to power on a mix of grass-roots anxiety and his own political acumen. He is the leader of Italy’s far-right League, a once-fringe regional secessionist party that polls now show is on the brink of becoming the country’s most popular party. He styles himself as a friend of Russian President Vladi­mir Putin and a thorn in the side of Brussels bureaucrats. He is an irrepressible social media user. He has a public profile far larger than that of ­Italy’s new prime minister, an academic with little political experience. ...

Among those who crossed the Mediterranean last year, 64 percent landed in Italy. Some 400,000 have applied for asylum here [Italy] over the past four years ...

What makes Salvini stand apart, though, is that he so unsparingly highlights what he sees as the problems with migration. When a Nigerian immigrant was arrested this year in the killing of an 18-year-old, Salvini wrote on Facebook, “What was this maggot still doing in Italy?” Last week, during negotiations to form a government, Salvini posted video footage of what he said was a supposed migrant plucking the feathers of a pigeon. “In broad daylight in the middle of the street,” he wrote. “Go home!!!”

Michael Brooks gives a good summary of the Italian coalition in the first 12 minutes or so of this video, TMBS - 43 - How Not To Do Identity Politics 06/06/2018 (?):

Italy's new government

After being stymied by the Italian President in their first attempt to form a government, the two coalition parties, the Five Stars Movement (Cinque Stelle) and the League, are making another attempt. (Jason Horowitz, Italy’s Populist Parties Win Approval to Form Government New York Times 05/31/2018) Giuseppe Conte is still their candidate for Prime Minister. Sergio Mattarella accepted the new government and cabinet Thursday evening. (Dominik Straub, Machtwechsel in Italien: Mattarella akzeptiert populistische Regierung Standard 01.06.2018)

Italy's new Prime Minister Giuseppe Conte

Unfortunately, the reporting on this one strikes me as a bit lazy (from the Times article):

... the newly constituted government, of the anti-establishment Five Star Movement and the anti-immigrant League, still left open the question of whether the reaction of financial markets to Italy’s political chaos this week had chastened them, or whether it simply had led them to disguise their hostility as the price of admission into power.

Populist leaders in Europe and across the Atlantic looked on with delight as they gained a powerful ally in the heart of Western Europe. European leaders in Brussels, already worried about Poland and Hungary, now fear a threat to European unity from within its core. [my emphasis]

For good measure, or to conform to superficial reporting conventions, he adds that the coalition parties "also want to lift sanctions against Russia and for Italy to move closer to its president, Vladimir V. Putin, who once said he didn’t need to meddle in the Italian elections because it was all going his way."

That treatment carelessly conflates the Italian coalition with the authoritarian regimes in Poland and Hungary and makes them sound like stooges of Vladimir Putin. It's a sloppy presentation.

And does the "paper of record" now just assume that it's the role of "financial markets" to "chasten democratically elected governments? Any lazy formulation.

EU Commission President Jean-Claude Juncker made it clear to Italians what the attitude of the EU leadership is, speaking like an English colonial viceroy (Stephanie Kirchgaessner Daniel Boffey, Juncker: Italians need to work harder and be less corrupt Guardian 05/31/2018):

Days after the Italian president, Sergio Mattarella, defended Italy’s place in the eurozone against the country’s populist leaders, the president of the European commission said he was in “deep love” with “bella Italia”, but could not accept that all the country’s problems should be blamed on the EU or the commission.

“Italians have to take care of the poor regions of Italy. That means more work; less corruption; seriousness,” Juncker said. “We will help them as we always did. But don’t play this game of loading with responsibility the EU. A country is a country, a nation is a nation. Countries first, Europe second.”

Believe it or not, that actually is diplomatic wording! Translated from EU-speak, it basically means: "Italy will do what the EU Commission, Angela Merkel, and the financial markets order them to do. Everybody knows that Italians (and Greeks and Spaniards and Portuguese and Irish people) are lazy and corrupt. More importantly, if you try to depart one iota from Herbert Hoover/Heinrich Brüning economic policies in good times or bad, we will crush your miserable, inferior little country."

Although Italy's not so little.

The new Italian government faces the same basic dilemma that the Syriza government faced in Greece in 2015. To provide Angela Merkel and the EU to release them from stone-conservative neoliberal economic policies, they have to be willing to credibly threaten to leave the eurozone. Which means that if Merkel and the EU refuse to make reasonable concessions, the Italian government really would have to be willing to take Italy out of the eurozone.

But there's definitely a dark side to the new Italian government. They are taking a xenophobic line, like the governments in Hungary and Austria, among others.

So they are supposedly prepared to take a run at forcing a realistic adjustment of one of the EU's two chronic problems, the poor construction of the eurozone, which falls seriously short of being an "optimal currency area." Given the stubborn resistance of Germany and other northern European governments, that's not likely to happen, sad to say.

Bill Mitchell explains why the Financial Markets as such are not the cause of the euro's problems in (The assault on democracy in Italy Billy Blog 05/30/2018). He explains that the EU has a mechanism to save bondholders from taking a bad on their bond holdings, he writes:

The ECB clearly signalled a willingness to buy unlimited quantities of government bonds if there was the risk of insolvency.

But this intervention required that the countries succumb to a fiscal austerity package that ensured their growth prospects were minimal.

And the combination just meant that the next crisis was just around the corner.

The SMP gave way to the more recent asset-buying programs, which have seen huge volumes of government debt (other than Greece) accumulate on the ECB’s balance sheet, which have funded fiscal deficits and kept the Eurozone intact.

The interesting point is that while the ECB eventually dealt the private bond dealers out of the game they waited a time (in each episode) for those dealers to express their market preferences.

Why? It is obvious. They wanted to create a sense of public debt crisis – let the spreads of the Member State bonds rise against the German bund – to make it clear that Germany’s position was sound and the example and the rest were out of control rabble with excessive deficits.

Then they could have it both ways.

But the other chronic EU crisis, mass immigration of refugees, which also had an acute moment in 2015, is still there. The immigration wave isn't stopping. The EU countries badly, badly need an EU-wide plan for processing, housing, and integrating refugees, a plan based on some kind of reasonable burden-sharing among the member states. They also need to have adequate emergency services for refugee waves like the one that came in 2015. Xenophobic governments aren't going to get there.

Italy, the euro, and the democracy deficit

Former German Finance Minister Wolfgang Schäauble during the 2015 Greek crisis delivered a succinct statement of the conflict between neoliberal Herbert Hoover/Heinrich Brüning economic policy: "Elections cannot be allowed to change economic policy."

His then Greek counterpart Yanis Varoufakis rightly called that attitude "a great gift to those who don't believe in democracy."

"Our #democracy was crushed because the Wolfgang #Schauble line was seen through and completely & utterly adopted, that 'elections cannot be allowed to change economic policy', which is a great gift to those who don't believe in democracy" @yanisvaroufakis https://t.co/DwIFIEdkBD pic.twitter.com/vhJZKjk7aR

— DiEM25 (@DiEM_25) April 5, 2018

Unfortunately, the European establishment is still singing from the same hymnbook:

European Budget Commissioner Günther Oettinger apologized on Tuesday after facing criticism for suggesting that financial markets would show Italians how to vote.

Oettinger told broadcaster Deutsche Welle in an interview conducted in German that the reaction of financial markets would give Italian voters a signal not to vote for populists.

“My concern and expectation is that the coming weeks will show that the development of the markets, government bonds and the economy of Italy will be so far-reaching that this will be a possible signal to voters not to vote for populists on the right or left,” Oettinger said.

“Already the developments of the government bonds, the market value of banks, the general course of the Italian economy is clearly overcast, is negative. This has to do with the possible government formation.” (Emma Anderson, Oettinger apologizes after Italy remarks spark storm Politico EU 05/29/2018; my emphasis)

EU Commission President felt compelled to distance himself (publicly) from that comment, saying, "President Jean-Claude Juncker, saying that “Italy’s fate does not lie in the hands of the financial markets."

But in substance, Italian voters have every reason to believe that it's no more than lip service. The article quoted doesn't mention any criticism of the Italian President's decision that effectively blocked the seating of the duly elected national government and instead proposed to install as President a former IMF official who is (of course!) devoted to austerity economics. Anderson also reports:

Juncker’s own comments before the Italian election seemed to impact financial markets in February when he said that the EU should “brace ourselves for the worst scenario and the worst scenario could be no operational government.”

The Commission president later tried to smooth things over, by saying “whatever the outcome, I am confident that we will have a government that makes sure that Italy remains a central player in Europe and in shaping its future.”

But in case there is any doubt that the Schäuble Principle of Eurozone Government remains in effect, Vítor Constâncio, vice president of the European Central Bank (ECB) explained how things are in an interview with Spiegel Online ('Italy Knows the Rules' 05/29/2018):

SPIEGEL ONLINE: These achievements are now hanging in the balance because one country may no longer want to do its part. Even if their attempt to form a government has failed for now, Italy's two dominant parties are both skeptical of the common currency. They want to push through massive tax cuts and increase spending dramatically, despite that fact that, at 132 percent of gross domestic product, Italy has one of the highest levels of sovereign debt in the world.

Constâncio: It is certainly a challenge, first and foremost for Italy itself. When financial markets attacked Italy in 2012, it demonstrated that perceptions on the financial markets can be volatile and the risk assessment of a given debtor can change abruptly, sometimes with severe consequences - and this even though Italy already had a primary surplus at the time. We will have to see what happens now.

SPIEGEL ONLINE: Risk premiums for Italian government bonds have risen sharply again recently. At what point would the ECB intervene again, as it did in 2012?

Constâncio: I would like to stress that every intervention has to contribute to the fulfilment of our mandate and is also subject to conditionality. The Outright Monetary Transactions program for intervening in national sovereign bond markets of vulnerable countries can only be used if the country in question also agrees to an adjustment program. The rules are very clear on this. Everyone should remember that.

SPIEGEL ONLINE: So if Italy wants to circumvent the EU's fiscal rules, it can't necessarily count on the ECB's help?

Constâncio: I will only say that Italy knows the rules. They should perhaps take another close look at them. [my emphasis in italics]

I guess the latter is a sort of Italian version of the stereotypical American-movie German who says, "Ve haf vays of making zis happen."

This is how the EU's Very Serious People see things.

Wolfgang Münchau in his May 29 Eurointelligence public site writes:

But what we found most remarkable about the quality of the [German press'] discussion [about Italy's increasing resistance to austerity economics] is the opening paragraph of this story by Frankfurter Allgemeine. Apparently, the reason why Emmanuel Macron has been pressing for a deal on a European deposit insurance scheme by June this year is so that Germany rescues French banks from their Italian exposure. With such a framing in the paper of record of the largest member state, abandon all hope ye who enter the eurozone debate.

Italy's political drama and the EU

Italy's left-populist 5Stars Movement (Movimento 5 Stelle) and the right-populist League (Liga), formerly called the Northern League, had agreed on a government. 5Stars got the largest percentage in the March national election with 32%, with the Liga third with 18%.

But the President and head of state of Italy, Sergio Mattarella, a former Christian Democrat and now Independent, refused to accept the proposed Finance Minister.

Alberto Mingardi reports (Italian voters head for euro showdown Politico EU 05/28/2018)

The two parties wanted Paolo Savona, an 82-year-old technocrat who has fantasized in public about a “secret plan to leave the euro,” as the all-powerful economy minister. And they refused to back down when Mattarella pushed back. The Italian president probably feared the effect of Savona’s appointment on a number of treasury auctions this week, and that Italy losing access to the bond markets was a very concrete possibility.

Politico identifies Mingardi as "director general of Istituto Bruno Leoni, Italy’s free-market think tank, and an adjunct scholar at the Cato Institute." So it's safe to assume that he's likely to be very sympathetic to ultra-conservative economic policies that have led so many Italian voters to reject the more mainstream center-left and center-right.

The coalition's Prime Minister candidate, whom Mattarella was willing to accept, refused to accept the job unless Mattarella was willing to accept a Finance Minister that the coalition wanted. The coalition parties are contesting the austerity policy required by the EU leadership, Angela Merkel in particular.

One thing I'm noticing on the reporting about this latest turn is that the distinction between "euorskeptic" and "eurocritical" seems to be getting blurred in the news. A euroskeptic has long been considered to be a person opposed to their country's membership in the EU, while eurocritics were pro-EU but insistent on reforms to reduced the much-discussed "democratic deficit" and the EU's Herbert Hoover/Heinrich Brüning economic policies. Given the current death-lock that neoliberal economic assumptions have on the European establishment, any country that seriously wants to reform the eurozone to make it into an optimal currency zone, which it has never been, will have to be willing to leave the eurozone if their minimal demands aren't met, maybe the distinction between euroskeptic and eurocritical is becoming less relevant.

Now President Mattarella has appointed an interim Prime Minister. "Carlo Cottarelli became known as 'Mr Scissors' for his cuts to public spending in Italy." (Carlo Cottarelli: Italy president names stop-gap PM BBC News 05/28/2018) Cottarelli was a former IMF official, making both the optics even worse. The IMF website notes that "served as Director of the Fiscal Affairs Department from November 2008 to October 22, 2013."

This is another kick in the face to the electorate, for whom the austerity policies are clearly a major problem. And they are right to consider them a problem. As the BBC explains:

After meeting the president, Mr Cottarelli said he would present a programme to parliament, including a budget, to take Italy into new elections "at the beginning of 2019".

If he was unable to pass a programme, which appears likely at this stage, "the government would resign immediately... until elections are held after the month of August", he added.

The BBC's James Reynolds in Rome says early elections are exactly what the two populist parties want, giving them a chance to rally support behind their claim that the Italian and the wider European establishments are getting in the way of the will of the people.

A source from Five Star told Reuters the party could campaign with the League in a fresh vote.

If Parliament refuses to approve the government, which is a real possibility, it will be a Presidentially-imposed technocratic government. And Italian voters will have very good reason to object to that.

To be clear, I have little confidence in the rightwing, xenophobic Liga as a governing party. But Liga leader Matteo Salvini is unfortunately correct in calling Mattarella's course an attack on democracy.

This editorial from The Independent is Italy's political crisis could have devastating effects on the European economy reinforces the stone-conservative narrative on economic policy that currently dominates the EU, Italy's political crisis could have devastating effects on the European economy 05/28/2018:

One of the few things the fractious putative coalition of the League, formerly the near-separatist Northern League, and the Five Star Movement agree on is that Italy should be allowed much more financial freedom, either within the euro or, if needs be, outside it. This is because they need to be able to print huge sums of money on an irresponsible programme, popular or not. The scale of the public spending required to satisfy their populist promises amounts to around 10 per cent of Italian GDP, a figure usually reached only during an extreme economic crisis. They can do that only by a vast increase in borrowing and taking grave risks with the viability of the euro and Italy’s membership of the system.

Ending the Hoover/Brüning is a necessity in order to fix the eurozone. But no one exactly knows what the effect would be of a eurozone member leaving the eurozone. But it will be very disruptive, almost certainly worse for all sides in the short run.

But if staying in the eurozone means that in Italy or other countries means that the bankers, the IMF, EU operatives, and Germany can dismiss the results of legitimate democratic elections and install a Hoover/Brüning "technocrat" instead, then Italy and other countries really are facing a choice between eurozone membership and democracy in their countries.

Wolfgang Münchau for years has been a perceptive critic of the eurozone construction and the EU response to the Greek debt crisis. He mentions again in his current column for the Financial Times his thoughts on what needs to be done with the eurozone (Euro must be made more robust to rival the dollar 05/27/2018):

Before the financial crisis the eurozone ran a small current account surplus. By last year, it reached 3.5 per cent of economic output. The larger the surpluses became, the more dependent the eurozone had become on the rest of the world.

Instead of hyperventilating about Mr Trump, Europeans might want to reflect on what got them into this mess. The EU would be more resilient today if it had not handled the eurozone crisis the way it did, and if its founders had made the euro more robust from the outset. Technically, it would still be possible for the EU to fix the problem, but that would require a degree of political union that goes far beyond even what Emmanuel Macron, the French president, has proposed. It requires at its core a mutualised debt instrument, a euro bond, as a financial instrument to underpin a large sovereign debt market. It would also require a broader mandate for the European Central Bank.

Recycled prescriptions for the EU

An intriguing headline hinting at an important insight: It’s time for the EU to get real, an article by Jen Spahn, German Health Minister and a leading figure at the moment in Angela Merkel's Christian Democratic Union (CDU) party, in Politico EU 03/22/2018.

His fresh and innovative solution? Double-down on the most misguided macroeconomic policies on which Angela Merkel has insisted in her years as Chancellor, at great cost to millions of people in the eurozone:

The future of our shared currency, the euro, is also central to Europe’s future. Reducing the debt levels of member countries is vital, as is reinforcing the European Economic and Monetary Union and ensuring that actions and liability go hand in hand. Credibly enforcing the EU’s stability and growth pact is the key task. In this way, we can enhance member countries’ financial resilience and our ability to withstand the next crisis.

In order to make the euro-architecture more robust, the European Stability Mechanism should be further developed into a European Monetary Fund, as already proposed by former Finance Minister Wolfgang Schäuble. Such a monetary fund would have to include better early-warning and prevention mechanisms for crises and credible procedures for debt restructuring in order to protect taxpayers.

Some sort of neutral internal governance — committed to compliance with the treaties, rather than political opportunism — will be vital. That would also enhance the attractiveness of the eurozone for those countries who have not yet introduced the euro. [my emphasis]

He also has this suggestion, "A recent proposal to provide a four-week Interrail pass for all school-leavers in the EU is intriguing, as it would help foster a connection to other Europeans. These are costly projects, yes, but they would allow us to make a positive — and distinctly European — mark on the world."

Easier than creating a common eurozone fiscal policy and budget, I guess. Not to mention creating shared eurozone debt instruments.

Spahn also has the not-exactly-bold suggestion of increasing the staffing of the EU Frontex border-patrol agency. He declares, "The issue that clearly causes the most anxiety with voters is migration. As long as human traffickers, rather than border officers, decide who sets foot on European soil, we put at risk one of the greatest achievements in European integration: the freedom of movement." This is a CDU-ish nod to anti-immigrant rhetoric, i.e., "human traffickers, rather than border officers, decide who sets foot on European soil."

The European immigration problem - a continuing crisis, actually - is not due to enterprising people smugglers, uh, "human traffickers." It's due to wars in the Greater Middle East including Afghanistan, and in North Africa. Along with the increasing and long term effects of climate change. It's a European problem. One whose actual solution will involve, yes, European countries agreeing of accepting a certain number of refugees. And preparation of adequate emergency services for spikes like those of 2015. All of which will require a practical attitude of solidarity, or cooperation, if you prefer. The nationalism and national resentments generated by Merkel's handling of the euro crisis have made that much more difficult.

If vague pronouncements like, "The creeping power grab by the European institutions must end," is all the EU leadership can come up with, that doesn't promise a happy future for the EU. Particularly since the eurozone's Fiscal Pact forces most eurozone countries to adopt procyclical austerity policies during recessions.

Need for fiscal stimulus in the eurozone

Ari Andricopoulos gives a macroeconomic commentary on Angela Merkel's austerity policies in A plan to turn the Euro from zero to hero Coppola Comment 03/31/2016:

As I've explained elsewhere, reasonably large government deficits are very important for sustainable economic growth. However, in the Eurozone this is prohibited both by the Stability and Growth Pact (SGP) and by the fear of losing market confidence in the national debt. At the same time credit growth for productive investment is constrained by weak banks and Basel regulation. And the Eurozone as a whole is already running a large current account surplus; the rest of the world will not allow much more export-led growth. Helicopter money would be a solution, but politically this is a long way away. Summing up, if economic growth cannot be funded by government deficits, private sector debt, export growth or helicopter money it is very difficult to see where nominal GDP growth can come from.

In a way, this can be seen as a Prisoner’s Dilemma. Every country knows (or should know) that if all states provided fiscal stimulus, the Eurozone would benefit from more economic growth. However, for any individual state, a unilateral fiscal boost would increase their own government debt whilst giving a fair amount of the GDP growth to other states (because some of the stimulus would go to increasing imports from the other nations). And if all others provide stimulus, then it is in an individual state’s interest to take the benefit of the other states’ stimulus, and become more competitive versus the rest. [my emphasis]

And he addresses the current debt problem of southern European countries who have sovereign debt denominated in euros, not in separate national currencies:

The debt owed to the creditor nations therefore gets larger in real terms. In the end, the debts owed by the South to the North are unpayable without the Northern countries running a current account deficit and using the savings built up during the amassing of the surplus to buy goods from the South. But the Northern surpluses are only getting bigger.

On top of this, all countries in the Eurozone are committing the "original sin" of borrowing in a foreign currency. This can only be a time bomb, waiting to devastate Europe.

By all appearances, though, the eurozone will continue their current march toward a collapse of the eurozone.

George Soros on the state of the EU

George Soros has some warnings about the current state of the European Union in ‘The EU Is on the Verge of Collapse’—An Interview, George Soros and Gregor Peter Schmitz New York Review of Books 02/11/2016 issue; accessed 01/21/2016.

... the EU is on the verge of collapse. The Greek crisis taught the European authorities the art of muddling through one crisis after another. This practice is popularly known as kicking the can down the road, although it would be more accurate to describe it as kicking a ball uphill so that it keeps rolling back down. The EU now is confronted with not one but five or six crises at the same time.

He has an informed account of Angela Merkel's political survival skills and the limitations her survival strategy has imposed on her ability to manage the crises in the EU and the eurozone.

I'm not thrilled about Soros' hawkish position on Ukraine. But it's consistent with his long-held foreign policy positions.

He is very good on the failure of Merkel's policy toward Greece:

I have no reason to change my critical views on her leadership in the euro crisis. Europe could have used the kind of leadership she is showing now much earlier. It is unfortunate that when Lehman Brothers went bankrupt in 2008, she was not willing to allow the rescue of the European banking system to be guaranteed on a Europe-wide basis because she felt that the prevailing German public opinion would be opposed to it. If she had tried to change public opinion instead of following it, the tragedy of the European Union could have been avoided. ...

The European Union was meant to be a voluntary association of equals but the euro crisis turned it into a relationship between debtors and creditors where the debtors have difficulties in meeting their obligations and the creditors set the conditions that the debtors have to meet. That relationship is neither voluntary nor equal. The migration crisis introduced other fissures. Therefore, the very survival of the EU is at risk.

... Greece was mishandled from the beginning. When the Greek crisis originally surfaced toward the end of 2009, the EU, led by Germany, came to the rescue, but it charged punitive interest rates for the loans it offered. That is what made the Greek national debt unsustainable. And it repeated the same mistake in the recent negotiations. The EU wanted to punish Prime Minister Alexis Tsipras and especially his former finance minister Yanis Varoufakis at the same time as it had no choice but to avoid a Greek default. Consequently, the EU imposed conditions that will push Greece into deeper depression.

Schmitz: Is Greece an interesting country for private investors?

Soros: Not as long as it is part of the eurozone. With the euro, the country is unlikely ever to flourish because the exchange rate is too high for it to be competitive. [my emphasis in bold]

Long-festering problems in the EU

The unsolved major problems of the EU and the eurozone continue to snowball in a way that makes the survival of the former and even more so of the latter more problematic all the time. Cooperation within the EU has broken down over the refugee problem and the influx of refugees is providing a newly growing target for far-right parties. Germany has joined its very junior EU/eurozone partner France in participating directly in the Syrian civil war, the prolongation of which will worsen the refugee problem. France may use its war costs to demand loosening of its requirements under the stone-conservative Fiscal (Suicide) Pact of 2012, which could lead to further conflict with Merkel and the stone-conservative Herbert Hoover/Heinrich Brüning economic policies to which she is committed. Not to mention the incredibly complex and risky politics of the Syrian civil war itself.

The devastating extent of the post-2008 depression in the eurozone "peripheral" countries like Greece, Ireland, Italy, Portugal and Spain is largely due to the effects of the Hoover/Brüning policies Merkel imposed on them. Especially Greece. Merkel's insistence on the Hoover/Brüning policies led to various "regime change" operations in pursuit of them, including actual regime changes in Greece in 2011, Italy in 2011, even in Greece of 2015. The Merkel-bot President of Portugal in 2015 tried to block a majority left coalition from taking power after they won a majority in the elections. We'll see what happens in Spain as the new left majority there seeks to form an anti-austerity government. Such high-handed efforts to dominate and impose on other "partners" a highly destructive and massively discredited economic policy has naturally given reason for them to suspect the value of German domination of the EU and the eurozone.

Now Merkel needs other countries in the EU to support her refugee policy, which is a genuinely European problem. In particular, the Germans want Greece to do a better job in retaining refugees from outside the Schengen Area there so they won't come to Germany. But they are getting the best cooperation from their partners! Who could have foreseen such a thing?

All these problems are the culmination so far of Merkel's nationalist approach to EU affairs, by which she insisted on retaining maximum influence and advantage for Germany at the expense of the "partners." And which led to her characteristic approach to EU and eurozone problems, "extend and pretend." Postpone reaching a substantive and permanent solution to the problem, whether it is bank regulation, refugees or the unending euro crisis. Just to mention a few.

The euro crisis is still likely to be the one that provokes formal splits. Wolfgang Münchau continues in his weekly columns to point out the various reasons for his. (Daran wird der Euro zerbrechen Spiegel Online 25.12.2015

But it can't be seen in isolation to the other problems. The crass xenophobia against Greece and other "periphery" countries encouraged and in a real way propagated by the German government, including Merkel's junior coalition partner the SPD, was picked up not just by the Stammtisch (good ole boy opinion) but by both the boulevard and the "quality" press. The Austrian government was as extreme in promoting nationalist hostility as Merkel's has been. But a very similar process took place in Austria.

That nationalist sentiment carried over to the refugee crisis, which in turn reinforced it. It has led to new border controls, which partially removes one of the most concrete benefits most people have seen from the EU. Münchau puts it even more strongly: "The influx of refugees into Germany and the terrorist attacks in France have put a de facto end to Schengen. National border controls have been reinstated in many places." (Fighting Brexit with fear will backfire Financial Times 12/20/2015) Even new walls along national borders, like in the good old days of the Berlin Wall, though so far with less lethal enforcement. And the increased nationalism presents a problem for security cooperation among EU members against terrorism, while terrorist attacks increase xenophobia against immigrants, which in turn strengthen nationalism and xenophobic fear.

You're doing a heckuva job as EU leader, Angie, a heckuva job!!

Jürgen Habermas has been a sympathetic critic of the EU for a long time. In the conventional political vocabulary, "Eurocritic" has referred to supporters of the Union who argued for urgent reforms to integrate the members countries more; "Euroskeptic" has referred to usually nationalist/rightwing opponents of EU membership. After Germany's handling of the Greek negotiations in 2015, it is clear that as long as Merkel remains in powers and/or her austerity doctrine in force, any country seeking to put an end to austerity for themselves will need to be prepared to leave the eurozone if they don't get agreement. Because without a thoroughly credible threat to exit, they have to expect to be crushed like Greece was.

A 2006 article by Habermas, "Die Bewährung Europas" Blätter für deutsche und internationale Politik 12/2006, serves to illustrate the long-standing and chronic nature of the EU's current problems. The euro crisis hadn't yet broken out, and it is not on Habermas' 2006 list. A number of economists had warned that the construction of the eurozone was flawed from the start in a way that made it particularly unsuited to deal with a depression crisis like the one that struck in 2008. But Habermas pointed to real problems that today are intertwining with the euro crisis. In a perceptive observation, he described there nine years ago how neoliberal economic assumptions were already promoting a nationalism among EU nations that has now become toxic to the point of threatening the entire "European project," as it is called:

Die Rückwendung zum Nationalstaat hat in vielen Ländern eine introvertierte Stimmung gefördert: Das Europa-Thema ist entwertet, man beschäftigt sich lieber mit der nationalen Agenda. Bei uns umarmen sich in den Talkshows Großväter und Enkel in der Rührung über den neuen Wohlfühlpatriotismus. Die Gewissheit heiler nationaler Wurzeln soll eine wohlfahrtsstaatlich verweichlichte Bevölkerung für den globalen Wettkampf „zukunftsfähig“ machen. Diese Rhetorik passt zum gegenwärtigen Zustand einer sozialdarwinistisch enthemmten Weltpolitik.

[The return to the national state has promoted an introverted mood in many countries: The theme of Europe is devalued. One prefers to concerns themselves with the national agenda. With us [Germans], grandfathers and grandsons hug each other with emotion over the new feel-good patriotism. The certainly of healthy {heiler} national roots is expected to make an welfare-state-produced effeminate population "ready for the future" of the global competition. This rhetoric belongs to the present situation of an unleashed Social Darwinist world politics.]

Habermas nine years ago pointed to the following visible, major problems in the construction of the European Union:

1. The "democratic deficit," the phrase Habermas uses here. More and more decisions were being take at the EU level that were obligatory on the members without the same kind of meaningful electoral input the citizens have at the national level being in effect at the EU level.
2. The failure to achieve a cohesive foreign policy. Only a united Europe could successfully lead the pressure on the United States for "die Fortentwicklung des klassischen Völkerrechts zu einer politisch verfassten Weltgesellschaft" ("further development of the classical international law to a politically secured world community.")
3. The ongoing "Unterminierung menschenwürdiger sozialer Standards" ("undermining of humane social standards.")
4. The culturally fundamentalist divisions within Europe and within EU members states. This is a reminder that integration of national, ethnic and religious minorities as well as the handling of new immigrants certainly didn't first become evident in 2015: "Es geht darum, die Angehörigen fremder Kulturen und fremder Religionsgemeinschaften gleichzeitig in ihrem Anderssein zu respektieren und in die staatsbürgerliche Solidarität einzubeziehen." ("It has to do with respecting the members of unfamiliar cultures and unfamiliar religious communities in their difference and bring them into the solidarity of citizens.") And he makes the important point that the success of social integration of minorities within member countries also contributes to the success of international integration within the EU.
5. Habermas doesn't make the following a separate point, though in my mind it needs to rank with the others as (5): "Wir sollten George W. Bush nicht auch noch in der Militarisierung des westlichen Geistes folgen." ("We [Europeans] should also not follow George W. Bush in the militarizing of the Western spirit.")

Habermas' comment on the intersection of the second and third problems is revealing:

"Erst eine Europäische Union, die außenpolitisch handlungsfähig würde, könnte auf den Kurs der Weltwirtschaftspolitik Einfluss nehmen. Sie könnte die globale Umweltpolitik vorantreiben und erste Schritte auf dem Wege zu einer Weltinnenpolitik machen. Damit könnte sie anderen Kontinenten für den Zusammenschluss von Nationalstaaten zu supranationalen Mächten ein Beispiel geben. Denn ohne Global Players dieser neuen Art kann ein Gleichgewicht zwischen Subjekten eines gerechteren Weltwirtschaftsregimes nicht entstehen."

Here the failure of the one-time center left parties, the Social Democrats, is a central component of this interweaving of problems. With reference to Germany, Albert Scharenberg wrote in 2007 ("Dem Morgenrot entgegen?" Blätter 5/2007):

Die regierende Sozialdemokratie brachte durch ihre den Sozialstaat deformierenden „Reformen“, insbesondere durch Hartz IV, ihre ureigenste Klientel gegen sich auf – Gewerkschafter und Arbeitslose.

[The ruling Social Democracy through their "reforms" that deformed the welfare state, especially with Hartz IV {that allowed for lower-paid and less secure jobs than before in Germany}, turned their most basic supporters against them - unions and the unemployed.]

This is not just true of the German SPD, but also of the social democrats in France and other countries, including Spain. The latter party, the PSOE, has the chance to form a government in Spain after this month's elections. But their ability to do so and their ability to successful press an anti-austerity program in office has been significantly compromised by their previous embrace of Merkelnomics. (Antoio Avendaño, Un muerto viviente llamado Pedro Sánchez Andaluces.es 27.12.2015)

Spanish election - more problems for Angela Merkel's austerity program

Angela Merkel's neoliberal eurozone saw another crack open today as a result of elections in Spain.

In Sunday's national election, Mariano Rajoy's conservative People's Party (PP) lost the parliamentary majority it has held for four years. They came in first with, according to current projections (La izquierda podrá formar Gobierno Público 21.12.2015) with 122 parliamentary seats, with 176 needed for a majority.

The social democrats (PSOE), which embraced Merkel's austerity policies at the onset of the euro crisis, managed to come in second with 91 seats. That doesn't give the long-dominant two major parties a majority even between the two of them.

The new Podemos party led by Pablo Iglesias came in third with 69 seats, a real surge for the left. The PSOE has made some gestures in the way of criticizing austerity and Merkel's Herbert Hoover/Heinrich Brüning economics. With votes from some of the smaller left parties with seats in Parliament, the PSOE and Podemos could form a left government.

I should note here that when I talk about austerity, there are degrees of it that vary from country to country. It has not been been nearly so severe in Spain as in Greece, for instance. But it's been enormously damaging in Spain nonetheless.

A new rightwing party, Ciudadanos, captured 40 seats and fell short of general expectations.

I guess Angela Merkel is not Person of the Year in Spain.

And probably not in Italy, either: Francesco Guarascio, Italy's Renzi blasts German policies at EU summit Reuters 12/18/2015.

Krugman on the contiuing euro crisis

"The crisis in the euro area — as opposed to the broader global financial crisis — began in late 2009," writes Paul Krugman. "It’s still far from over," although some of the hardest-hit countries' economies are now growing again. (Adjustment in the Euro Area 12/14/2015)

He notes that "Finland — which is suffering from an idiosyncratic shock to its export industries rather than a sudden stop in capital inflows — is doing as badly as much of southern Europe. This is a reminder that the euro system creates huge problems for adjustment everywhere, that this isn’t a one-time problem."

But how would we expect countries to respond to adverse shocks? Contrary to what many people seem to believe, Keynesian-type analysis doesn’t say that countries can never recover without devaluation and/or fiscal stimulus; on the contrary, as I pointed out more than three years ago, it predicts a gradual recovery through internal devaluation — that is, a depressed economy will cause low or negative inflation, gradually improving competitiveness against other members of the currency union, and rising net exports should drive growth as long as they’re not offset by ever-tighter austerity.

And something like that now appears to be happening for Spain, on which Krugman focuses.

He concludes: "What is true is that the single currency isn’t totally unworkable. It’s just extremely costly."

Greece and Germany, Friday the 20th version

C J Polychroniou writes about the eurozone depression in Quantitative easing won't cure Europe's economic woes Aljazeera 03/20/2015:

The euro crisis has had a devastating impact especially on the peripheral eurozone countries (Greece, Portugal, Ireland, Spain, Italy and Cyprus), producing massive unemployment and increasing substantially the debt-to-GDP ratio, mainly thanks to the austerity policies that were implemented in the midst of an economic recession as part of the bailout plans (Italy excluded).

GDP in Spain, Portugal, Ireland, and Italy is on the average 7 percent below the pre-crisis levels; Greece's GDP is nearly 25 percent below its pre-crisis peak. The official unemployment rates in the peripheral countries are stratospherically high, indicating that there is no recovery. In Greece the official unemployment rate is 26 percent while in Spain it is close to 24 percent. In Portugal it is 13.3 percent, in Italy 12.6 percent, and in Ireland (the country with the highest net migration level in Europe) at over 10 percent.

And he recommends basic macroeconomic policies as the immediate treatment: "What Europe's economies need are fiscal policies that can stimulate real growth and generate jobs. Large-scale direct stimulus spending by governments will boost the real economy by increasing aggregate demand and will help to cause wages to rise."

Greek Finance Minister Yanis Varoufakis did a new blog post today Of Greeks and Germans: Re-imagining our shared future 03/20/2015. He gives this helpful historical sketch of the EU/German (so-called) bailout:

I opposed the 2010 and 2012 ‘bailout’ loans from German and other European taxpayers because:

• the new loans represented not a bailout for Greece but a cynical transfer of losses from the books of the private banks to the weak shoulders of the weakest of Greek citizens. (How many of Europe’s taxpayers, who footed these loans, know that more than 90% of the €240 billion borrowed by Greece went to financial institutions, not to the Greek state or its citizens?)
• it was obvious that, at a time Greece could not repay its existing loans, the austerity conditions for giving Greece the new loans would crush Greek nominal incomes, making our debt even less sustainable
• the ‘bailout’ burden would, sooner or later, weigh down German and other European taxpayers once the weaker Greeks buckled under their mountainous debts (as moneyed Greeks had already shifted their deposits to Frankfurt, London etc.)
• misleading peoples and Parliaments by presenting a bank bailout as an act of ‘solidarity to Greece’ would turn Germans against Greeks, Greeks against Germans and, eventually, Europe against itself.

His post also has a couple of nudge-nudge, wink-wink references to the recent days in which a good part of the German quality press made fools of themselves over a clip from a comedy/satire video that was doctored to make it look like he was flipping the bird to Germany. (Which honestly wouldn't have bothered me if he had!) For instance, he writes:

What should we do now, in 2015, that Greece remains in crisis and our people, the Greeks and the Germans, have, regrettably but also predictably, descended into a mutual ‘blame game’?

First, we should work towards ending the toxic ‘blame game’ and the moralising finger-pointing which benefit only the enemies of Europe.

Secondly, we need to focus on our joint interest: On how to grow and to reform Greece rapidly, so that the Greek state can best repay debts it should never have taken on while looking after its citizens as a modern European state ought to do. [my emphasis]

The problem with Greece

Greece is suffering from a severe depression. One recent description of its seriousness comes from Spiegel Online columnist Jacob Augstein, Wofür müssen die Griechen leiden? 01.01.2015

Die Eurokrise dauert nun fünf Jahre. Sie ist längst zur chronischen Krankheit geworden. Das Sparrezept von Frau Dr. Merkel verfängt nicht. Griechenland wird am 25. Januar wählen. Eine linke Regierung könnte dann die glücklosen Chefärzte des Neoliberalismus das Fürchten lehren. ...

Griechenland stirbt. Sechs Jahre Rezession, eine Arbeitslosigkeit, die bei 26 Prozent liegt, unter Jugendlichen sogar bei mehr als 50 Prozent, die Löhne sanken zwischen 2010 und 2013 um 23 Prozent. 36 Prozent der Griechen gelten als arm und sozial ausgegrenzt - ein Anstieg um etwa sieben Prozentpunkte seit Ausbruch der Krise.

Ja, Griechenland erwirtschaftet inzwischen wieder einen kleinen Überschuss - aber nur vor Schuldendienst. Die Last der Gläubiger hängt wie ein Mühlstein an Griechenland.

[The euro crisis has lasted for five years now. It has long sense become a chronic illness. The savings {austerity} prescription from Frau Dr. Merkel doesn't work. Greece will vote on January 25. A left government could then put the fear of God into the luckless chief physicians of neoliberalism. ...

Greece is dying. Six years of recession, an unemployment rate that stands at 26%, among young people even at more than 50%, salaries sunk betwen 2010 and 2013 by 23%. Thirty-six percent of Greeks are counted as poor as socially excluded - a rise of around sever percent points since the outbreak of the crisis.

Yes, Greece again generated in the meantime a small {national budget} surplus - but only before debt service. The burder of the creditors hangs like a millstone on Greece.]

Natalie Kitroeff and Joe Weisenthal provide an analysis of middling quality in Why You Should Care About Greece Again Bloomberg Businessweek 01/02/2015. In the first paragraph, they declare allegiance to the Merkel austerity doctrine: "The fallout of this round of turmoil will be a critical sign of whether European leaders can hold on to power long enough to stay the course on the fiscal reforms needed to lift economies in the region." (my emphasis)

The neoliberal true believers have converted "reform" into a synonym for cuts to wages, salaries and pensions; slashing and privatizing; opening borders to unrestricted capital transfers, which can allow speculators to earn massive profits at the expense of devastating whole countries. Kitroeff and Joe Weisenthal profess faith that "fiscal reforms" will someday, somehow will "lift the economies in the region." Despite the abject failure of such policies in the Great Depression. Despite six years of failure in the eurozone of the present and elsewhere.

Treating the crisis as one of debts and financial markets, rather than that of a serious economic depression in the eurozone "periphery" countries, they write:

People are calmer this time around for a few reasons, but the big one is that the current situation is less about debt sustainability and more about internal politics. If Greece were pushed out of the euro zone, it’s likely that other countries would be in OK shape, partly because the ECB is there as a backstop.

This is the Merkel-austerity public position of the moment, saying, hey, it's not a big deal if Greece leaves the eurozone (Austritt aus der Währungsunion: Bundesregierung hält Ausscheiden Griechenlands aus dem Euro für verkraftbar Spiegel Online 03.03.2015):

Kanzlerin Angela Merkel und Finanzminister Wolfgang Schäuble (beide CDU) halten einen Austritt des Landes aus der Gemeinschaftswährung für verkraftbar. Grund dafür seien die Fortschritte, die die Eurozone seit dem Krisenhöhepunkt 2012 gemacht habe, heißt es in Regierungskreisen. So sei die Ansteckungsgefahr für andere Länder begrenzt, weil Portugal und Irland als saniert gelten.

Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble (both CDU) consider an exit of the country {Greece} out of the common currency {the euro} to be manageable. The reason for this is the progress that the eurozone has made since the high point of the crisis in 2012, according to government circles. So the danger of infection of other countries is limited, because Portugal and Ireland are held to be cleaned up.

As Charlie Pierce might say, this is all my balls. If one country escapes from the austerity trap, it's likely to open a rush for the exit among other eurozone countries suffering under Merkel's brutal austerity policies.

Among other things, kicking Greece out of the euro will provide a real-world test of just how vulnerable Germany is to the Target 2 system. When "Target 2" starts appearing in the financial news, you can bet the German government is getting worried. For contrasting views on Germany's Target 2 vulnerability, see: Hans-Werner Sinn, TARGET losses in case of a euro breakup VoxEU 10/22/2012; De Grauwe and Yuemei Ji, TARGET2 as a scapegoat for German errors VoxEU 11/02/2012. This is a fairly obtuse question, rarely discussed in the business or general press. I'm inclined to think that the Target 2 system would require Germany to substantially re-capitalize the Bundesbank in the event of event a Greek withdrawal from the eurozone.

Ireland is still in sad shape. And Portugal along with Spain and Italy will require debt write-offs if they expect to return to something like healthy economies this side of Heaven.

After a few paragraphs of stale conventional wisdom and regurgitating of Merkel's propaganda line, Kitroeff and Weisenthal actually get around to stating the real point: "Still, the big issue is that the economy remains horrible across the euro zone. And until there’s a recovery, it’s going to be hard for establishment leaders to remain popular and powerful."

Merkel's position is negotiating bluff. And it's one that she and Schäuble can take because of ridiculously lazy press reporting. Tsipras has been very clear that he wants Greece to stay in the euro and the EU but insists on a stimuluative economic policy that has a chance of getting Greece out of depression - something at which Merkel's austerity policies have failed spectacularly. And he also insists that Greece's creditors recognize the reality that the existing Greek debt has to be substantially written down. The last figure I saw was that the debt-to-GDP ratio stands around 200%, a level that Japan or the US can sustain, but not a Greece that has seen it's economy shrink by a quarter since 2008 and has no hope for returning to health in any foreseeable future under Merkel's austerity policies.

Spiegel Online is running a strange article that must be some kind of weird propaganda spin. (Staatsverschuldung: Griechenland zahlt Mini-Zinsen 02.01.2015) Most readers will presumably come away from this article thinking that Greece is paying an interest rate on its debt lower than Germany's. Which is goofy. The interest Greece must pay on bonds has risen to about 10%; Germany is paying 0.6%. (Die Sorge vor dem Grexit kehrt zurück Rheinische Post 02.01.2015) The Spiegel Online piece, so far as I can see, is comparing apples (some of the rates Greece pays to the ECB) with oranges (German bond rates).

Georgios Papandreou's new party in Greece

Georgios Papandreou, former Greek Prime Minister for PASOK, the Greek social-democratic party, has just announced the formation of a new party to compete in the January 25 elections. (Papandreou sorgt mit Parteigründung für Ärger Rheinische Post 03.01.2015)

Papandreou's forced resignation as Prime Minister in 2011 was one of the most dramatic signs of how far Angela Merkel is willing to go to impose her brutal austerity policies on the eurozone. Papandreou accepted a new round of draconian austerity "reforms." But he insisted on having a referendum to allow the Greek public to vote on them.

While Merkel's ousting him was an outrageous act, that doesn't mean I have a high opinion of him. As I wrote in Greece and the politics of austerity 11/30/2012:

Georgios Papandreou was the social-democratic Prime Minister of Greece for the PASOK party from 2009-2011. By caving in to German Prime Minister Angela "Frau Fritz" Merkel's demands for destructive austerity policies in response to the Greek debt crisis, Papandreou put his party on the fast track to non-existence. PASOK is a junior member of the current conservative-led Greek government. But polls show it now polling around the 5% range. The Syriza coalition has emerged as the main left party now, and polls are showing it as having the largest support of any party at the moment.

So, for putting his country under Frau Fritz' economic jackboot and ruining his own political party, he now gets to appear as statesman-at-large.

And as Kevin Hope writes in Papandreou set to lead ‘wild card’ party Financial Times 01/01/2015:

Few analysts would have predicted a political comeback for Mr Papandreou, given his abrupt departure. He left office in November 2011 after his controversial proposal for a referendum on the country’s European future was rubbished by fellow European leaders, including Germany’s Angela Merkel, who threatened to let Greece drop out of the eurozone.

Greece accepted an international bailout in 2010, six months after Mr Papandreou took office. Yet he shrugged off responsibility for the country’s financial collapse, instead accusing the previous centre-right government of borrowing recklessly to finance its policies, while claiming that Greek interest groups had undermined his own attempts at reform.

Since his resignation, the ex-premier has spent much of his time lecturing on crisis management and the politics of austerity at US and Scandinavian universities and addressing gatherings of fund managers and bankers. [my emphasis]

But Papandreou is part of a social-democratic dynastic family in Greece and will be able to make his presence visible in the election. If it takes even more votes away from the now-tiny PASOK that Papandreou himself ruined, that could be a good thing. Politics doesn't work on the neat right-left spectrum of which pundits are so fond. But if the new party winds up opening up a "political space" for a left-leaning party advocating resistance to austerity policies that could attract PASOK voters fearful of aligning with the "radical-left" SYRIZA, that could help Alexis Tsipras build an anti-austerity coalition if SYRIZA wins the election. It's a new factor in a turbulent situation. And Papandreou presumably harbors no love for Merkel.

Jamie Galbraith wrote just after Papandreou was forced out in 2011 (The crisis in the eurozone Salon 11/10/2012):

Political fragility also explains the fury in France and Germany when George Papandreou [the calmest man in Europe, by the way, having been born and raised in Minnesota] sought to cut the knot of his rebellious ministers, irresponsible opposition and angry public by putting the latest austerity package to a vote. God help the bankers! The move was fatal to Papandreou in short order, and Greece will now be turned over to a junta of creditors’ deputies if such can be found willing to take the job. It won’t be anyone who wants to continue to live in Greece afterward.

Greece and Ireland are being destroyed. Portugal and Spain are in limbo, and the crisis shifts to Italy – truly too big to fail – which is being put into an IMF-dictated receivership as I write. Meanwhile France struggles to delay the (inevitable) downgrade of its AAA rating by cutting every social and investment program. [italics in original]

But the possible implications of the new Papandreou party that I sketched out above is an optimistic case. Kevin Hope describes another possibility:

One opinion poll published last week suggested Mr Papandreou’s group could win 4-5 per cent of the vote, taking a small but critical percentage from the current frontrunner, the hard-left Syriza party. If so, that could hand victory to the centre-right New Democracy party of premier Antonis Samaras.

The prospect of a Syriza victory has rattled investors in recent weeks, with concerns the party would cancel the country’s international bailout and halt payment on its foreign debt.

Mr Papandreou could also take votes from Pasok itself and To Potami (the River), a moderate left party formed last year.

Merkel gearing up for a confrontation with Greece

Angela Merkel is staking out her hardline austerity negotiating position in preparation for the possibility of an anti-austerity Greek government headed by Alexis Tsipras and his SYRIZA party coming to power in Greece with the Greek elections scheduled for January 25.

Griechenlands Austritt aus dem Euro verliert seinen Schrecken Rheinische Post 31.12.2104 reports on a statement by the deputy head of Merkel's CDU caucus in the Bundestag, Michael Fuchs, laying out Angie's threats. (The English-language biography on his website gives his party position as "Vice-Chairman of the CDU/CSU Parliamentary Group.")

Reuters provides an English-language report, Euro zone no longer obliged to rescue Greece, Merkel ally says 12/31/2014:

"If Alexis Tsipras of the Greek left party Syriza thinks he can cut back the reform efforts and austerity measures, then the troika will have to cut back the credits for Greece," he said.

"The times where we had to rescue Greece are over. There is no potential for political blackmail anymore. Greece is no longer of systemic importance for the euro."

The remarks are the clearest warning yet to Greek voters from a senior German politician that Athens might lose support if it flouts the terms of its 240 billion euro EU/IMF bailout after early elections next year. ...

On Monday, German Finance Minister Wolfgang Schaeuble warned Greece against straying from a path of economic reform, saying any new government in Athens would be held to the pledges made by the current government of premier Antonis Samaras.

Of course, the assistance Greece is receiving is designed to allow it to keep paying on the enormous and unsustainable debt it has, not to stimulate its depression-devastated economy. So losing that kind of aid doesn't necessarily look to all Greeks as the kind of threat the German government imagines it to be.

It's grim irony in Fuchs' bullying statement is that he accuses Tsipras and SYRIZA of "blackmail." Reuters renders it as "political blackmail." But Fuchs' statement as quoted by the Rheinische Post is more direct, "Es gibt kein Erpressungspotenzial mehr" ("There is now no potential for blackmail").

In reality, it's Merkel and her "Troika" of the European Commission, the IMF and the ECB that blackmailed Greece into accepting the assistance which came at the price of requiring them to load up with an even higher burder of debt, the problem they were officially trying to solve.

Tsipras takes the position that Greece should remain in the EU and the eurozone. But their EU partners also have to recognize that Greece's main problem is the economic depression that needs a Keynesian stimulus for the eurozone economy. He also is insisting that Greece's creditors recognized that Greece cannot repay the amount of debt it is carrying, which in the most recent estimate I saw was around 200% of Greece's GDP. The country has to "take a haircut" on the debt, i.e., a major portion of that debt has to be written off and not paid back.

Merkel and her austerity supporters have been claiming that Greece was showing a major improvement in 2014. Yanis Varoufakis explains in Greek and European prospects for 2015 – Interview in L’Antidiplomatico 01/01/2015:

Over the past two years, no fact could get in the way of the EU propaganda machine which, approximately eighteen months ago, went into overdrive in an attempt to shore up the Samaras government, terrified at the prospect of a new government in Athens that insists of speaking truth to power. Have you noticed how the ‘Greek Success Story’ narrative disappeared once elections became inevitable? What kind or ‘recovery’ was it that went up in a puff of smoke the moment an election appeared over the horizon?

The answer is: a ‘recovery’ that existed only in the realm of propaganda. A ‘recovery’ that was engineered by means of two new bubbles, one in the bond market the other in the market for Greek banking shares – bubbles that burst the moment the Greek people seemed as if they were to have a chance to express what they felt about the said ‘recovery’ in the polling stations. A ‘recovery’ evidenced in one quarter’s positive GDP growth (equal to 0.7%), after seven years of continuous decline, which was due to the sad fact that nominal GDP fell – but for the first time it fell less than average prices did.

He also addresses the blackmail issue:

Exit from the euro is not an idea that a SYRIZA government will ever entertain or use as a negotiating strategy. While it is clear that Greece should never have entered the Eurozone (and, indeed, that the Eurozone should never have been designed the way it was), exiting would inflict massive damage upon everyone. At the same time, the ‘logic’ of the current agreement is busily working toward dismantling the Eurozone. Italy’s social economy for instance is unsustainable under policies inspired by those first tried in Greece in 2010. To save the Eurozone, and indeed to save Europe’s integrity and soul, we need a New Deal for Europe. SYRIZA is determined to kickstart the conversation on what this New Deal should be. Naturally, the outcome of such a debate will be a compromise. Alexis Tsipras, SYRIZA’s leader, knows this: When you are entering a negotiation, you are aiming at a compromise with which all sides can live. To bring it about, you must stake your initial position – which is what the party’s platform does – and set thin red lines which, if the other side crosses, you walk out. One such line, in Greece’s case, must concern the demand that Greece borrows from, amongst others, the ECB to repay the... ECB for bonds that the ECB bought in 2010/1. If Berlin continues to insist on such illogical transactions, a SYRIZA government must simply say ‘No’ and refuse to do it. Whatever the threats. [my emphasis]

Harold Mayerson has a good piece explaining the background of European drama over the Greek elections later this month, Squeezed By Austerity Imposed By Germany, Greece and Spain on Verge of Revolt The American Prospect 01/02/2015:

The policies that the European Union — that is, Germany — has imposed on southern Europe run counter to every lesson history teaches us about how to counter a prolonged economic crisis. In the 1930s, Franklin Roosevelt devised the New Deal not merely to counter the Depression’s effects but specifically to bolster what was then the underdeveloped economy of the American South and Southwest. His remedies extended beyond such successful stimulus programs as the Works Progress Administration, which gave millions of Americans jobs building needed public infrastructure. His policies also were crafted to bring the Southern economy into the 20th century through such programs as the Tennessee Valley Authority and rural electrification. The Jeffersonian anti-statism of today’s South notwithstanding, it was the New Deal and postwar military spending, as well as minimum wage and civil rights legislation, that enabled the Southern economy to catch up with the rest of the nation.

A similar understanding of the economics of depression and under-development could have yielded more successful economic outcomes in the European south over the past few years. German Chancellor Angela Merkel also could have learned a lesson closer to home: It was the austerity policies enacted by Chancellor Heinrich Brüning in the early 1930s that plunged Germany deeper into depression and paved the way for the Nazi takeover. Say this for the German misunderstanding of macroeconomics: It’s consistent. [my emphasis]