French elections and austerity economics

French parliamentary elections took place on Sunday. François Hollande won the Presidency five years ago and his Socialists won a majority in Parliament by campaigning against Merkel's austerity policies. Then they got into office and spent five years trying to implement Merkel's austerity policies. The Socialists came in fifth place on Sunday. According to the estimates in Spiegel Online, they could wind up losing 88% of their parliamentary seats.

President Macron's conservative party that was formed a year ago, La République en marche (LREM) won first place. And it looks like Macron will have a solid majority of parliamentary seats, even without a coalition with the conservative Gaullist Republican Party, which came in a distant second place. (So mächtig wird En Marche Spiegel Online 12.06.2017)

BBC News reports (French election: How dominant will Macron party be? 06/122017):

With 32.32% of the vote, even if it was on a low turnout, LREM crushed its rivals on both the right and left.

Ahead in 400 constituencies out of the 577 that make up France's National Assembly, the party is heading for a convincing majority far higher than the 289 seats needed to control parliament. That does not even take into account the 100-odd seats where Mr Macron's centrist MoDem allies are in the lead.

His centrist alliance could control 415 to 455 seats after the second round on 18 June, experts predict. His first-round success is even more impressive than the first round of the presidential election, which he won with 24.1% of the vote.

Jean-Luc Mélenchon’s new, actually-left France Unbowed party came in fourth ahead of the socialists. This Guardianpiece by Angelique Chrisafis, Emmanuel Macron's party set for landslide in French parliamentary elections 06/11/2017, calls France Unbowed a "new hard-left movement." In Angela Merkel's EU, any party that advocates something like Richard Nixon's brand of Keynesian economics counts as "far left." The Socialists, though, came in fifth place and could wind up losing something like nine-tenths of their Parliament seats. (Stefan Simons, Der Durchmarche Spiegel Online 12.06.2017) This was a crushing defeat for the ruling party of the last five years.

The combined vote for France Unbowed (the English initials FU are kind of unfortunate) and the crushed austerian Socialist Party was bigger than that for the far-right National Front. That means that being identified with Trump and Putin has become a much bigger political liability in Europe in the last few months.

The BBC News report linked above explains some of Macron's proposals, which include the stock neoliberal budget cuts, pension reductions reduced work protections, cutting taxes for corporations.

Jakob Augstein (Jeremy Schulz oder Martin Macron? Spiegel Online 12.06.2017) says of Macron, "Er ist einfach ein Monsieur Merkel à la française. Und wie sozial dieser angebliche Sozialliberale seinen Landsleuten noch vorkommt, wenn er erst einmal mit ihnen fertig ist, das wird man sehen." ("He is simple a Monsieur Merkel à la française. And how social this alleged social-liberal will appear to his people if he gets the chance to do what he wants, we will see.")

Alex Main of the Center of Economic and Policy Research (CEPR) talks about Macron's challenges in France's New President Wins Parliament Vote, But Faces Problems Implementing Program The Real News 06/12/2017:

French Politics leading up to the 2017 Presidential race and rightwing populism

France is now in the process of their Presidential election, the final round of which will come in the spring of 2016.

The conservative, Gaullist party is now called the Republican Party. Last Sunday, former conservative President Nicolas Sarkozy came in third in the Republican primary. There will be a runoff on November 27 with François Fillon, who got the largest plurality on Sunday, and Alain Juppé. Juppé is thought to be more moderate than Fillon, who once served as Sarkozy's Prime Minister and who seems to be a real piece of work (Sarkozy defeated in primary for French right's presidential candidate Guaradian 11/20/2016):

Fillon has called for a rapprochement with the Russian president, Vladimir Putin, on Syria. After the US election, he welcomed a new alliance between Putin and Trump. Asked early in the campaign whether France should cooperate with Syria’s Bashar al-Assad to fight Islamic State, he said France should unite with all possible forces, “democratic or not”. He told the website Atlantico in October: “De Gaulle, Churchill, Roosevelt allied with Stalin to defeat nazism.”

Fillon said the French people “wanted authority” and his was a “powerful project” to reform France.

Now, I'm not on board with the New Cold War talk. But viewing the Islamic State as analogous to Hitler is the kind of comparison that encourages the worst kind of threat inflation. Hitler was the head of the militarily most powerful state in the world at that time. He could not be appeased ("appeasement" before 1938 just referring to concessions in a negotiation), he could not be contained and he was bent of military aggression. The Islamic State is a Sunni terrorist group heavily funded by Saudi Arabia and hardly qualifies as a "state" at all, even though that's what it calls itself.

I can't say I'm thrilled at the strong possibility that a new French President eager to find New Hitlers to fight might be taking office next year.

The main contender against the Republican candidate is expected to be Marine Le Pen, head of the French Deplorable Party, more formally known as the National Front.

The current Socialist President François Hollande is currently held to be a sure loser, who likely won't make in into the final round of next year's Presidential vote. Leaving the final choice for French President as one between the Republicans committed to Angela Merkel's stone-conservative Herbert Hoover/Heinrich Brüning economics and Le Pen and her Deplorables.

Hollande is one in a growing set of Socialist leaders who managed to blur the distinctions of his party's positions to the point that they are scarcely discernible any more compared to the conservatives. Pro-EU reformers who wanted to see a change in eurozone economic policy to one that made macroeconmic sense were heartened in 2102 when Hollande was elected on a platform of opposing the Fiscal Compact, and disastrously bad proposal of Merkel's that would effectively ban any economic policy that actually did make any macroeconmic sense from being used by the eurozone. It's formal name is the European Stability and Growth Pact. But Fiscal Suicide Pact would be a much more descriptive name. (See my Irish referendum today (Thursday) on eurozone fiscal suicide pact 05/31/206 for more on that misbegotten agreement.)

Hollande had promised to force Merkel to renegotiate the Fiscal Suicide Pact if elected. But once in office, he capitulated completely on the agreement, which he endorsed and Parliament ratified. In accord with neoliberal/Merkel/Brüning economic policies including the Fiscal Suicide Pact, he supported Merkel and the Troika in their brutal economic retaliation against Greece in 2015 for the offense of electing a government of which Frau Merkel did not approve. And Hollande has spent much of 2016 pushing for reducing the protections of current labor laws, provoking huge protests by, well, members of the Socialists' labor base.

Gosh, I wonder if that has something to do with his poor standing in the polls?

The Inside Story episode reports on the politics in France; although it's dated 11/20/2106, it was clearly recorded before Sunday's election results were called, Who can stand up to the National Front? Al Jazeera English 11/20/2016:

This is part of the problem Jürgen Habermas addresses in his interview, , Für eine demokratische Polarisierung Blätter 11:2016/For A Democratic Polarisation: How To Pull The Ground From Under Right-Wing Populism Social Europe 11/17/2016:

The economic globalisation that Washington introduced in the 1970s with its neoliberal agenda has brought in its wake, measured globally against China and the other emergent BRIC countries, a relative decline of the West. Our societies must work through domestically the awareness of this global decline together with the technology-induced, explosive growth in the complexity of everyday living. Nationalistic reactions are gaining ground in those social milieus that have either never or inadequately benefited from the prosperity gains of the big economies because the ever-promised “trickle-down effect” failed to materialise over the decades. ...

Since Clinton, Blair and Schröder social democrats have swung over to the prevailing neoliberal line in economic policies because that was or seemed to be promising in the political sense: in the “battle for the middle ground” these political parties thought they could win majorities only by adopting the neoliberal course of action. This meant taking on board toleration of long-standing and growing social inequalities. Meantime, this price – the economic and socio-cultural “hanging out to dry” of ever-greater parts of the populace – has clearly risen so high that the reaction to it has gone over to the right. And where else? If there is no credible and pro-active perspective, then protest simply retreats into expressivist, irrational forms. ...

In my estimate, domestic politicians mishandled right-wing populism from the start. The mistake of the established parties lies in acknowledging the battlefront that right-wing populism is defining: “We” up against the system. Here it matters hardly a jot whether this mistake takes the form of an assimilation to or a confrontation with “right-wing”. Take either the strident would-be French president Nicolas Sarkozy who is outbidding Marine Le Pen with his demands, or the example of the sober-minded German justice minister Heiko Maas who forcefully takes on Alexander Gauland in debate – they both make the opponent stronger. Both take him/her seriously and raise his/her profile. A year on we here in Germany all know the studiously ironic grin of Frauke Petry (AfD leader) and the demeanour of the rest of the leadership of her ghastly gang. It’s only by ignoring their interventions that one can cut the ground from under the feet of the right-wing populists.

I would dissent from Habermas' description there about the problem in dealing with the populist right for the left-center parties has been "acknowledging the battlefront that right-wing populism is defining: 'We' up against the system."

The basic political construction of populism is the People vs. the Elite. How the narrative is formed around which the popular coalition is formed against the Elite matters a lot. Occupy Wall Street was identified with the oligarchic One Percent. Which really does exist. And really does act in collective ways to push governmental policies that further enrich themselves at the expense of the well-being of the broader public, the Ninety-Nine Percent in the Occupy construction. John Judis points out a very important distinction between the right and left varieties (All The Rage New Republic 09/19/2016):

The central feature of all these [historical] populist campaigns has been the attempt to champion “the people” against an elite or establishment. But how the people and the elite are defined has changed with the campaigns. The People’s Party represented “the plain people” against the “plutocracy,” Huey Long the “poor man” against the “money power,” Wallace “the man in the street” against “big government,” Trump the “silent majority” against the “special interests,” and Sanders “we the people” against the “billionaire class.”

But there is another element of populism that is less understood, one that divides the tradition into two distinct political strains. In the left-wing strain, epitomized by Long, Perot, Occupy Wall Street, and Sanders, populists champion the people against the elites. In the right-wing strain, it’s also the people versus the elites — but the elites are attacked for coddling and subsidizing a third “out group,” such as African Americans (Wallace) or immigrants who have entered the country illegally (Buchanan, the Tea Party, and Trump). [my emphasis]

The latter variety can be usefully characterized as "sucker populism." (See: Jim Hightower, Don't Be a Sucker—Donald Trump Does Not Have a Populist Bone in His Body Alternet 09/21/2016.)

But maybe Habermas is just using a overly-broad characterization there. Because the more specific point he's making there is that centrist parties are making a serious mistake in trying to outdo the rightwing populists in pandering to fear and hatred of those third party out-groups that Judis references. We certainly see that mistake in France, which Habermas cites. (See: Philippe Marlière, French politicians are now marching to Marine Le Pen’s immigration tune Guardian 11/19/2016)

Habermas is right about the direction the solution has to take. In Europe, the pro-EU but anti-austerity voters need parties with a clear pro-EU but anti-austerity position. The social-democratic parties for years and years now have been offering only a vaguely different variation on the conservative assumption of TINA: There Is No Alternative to Hoover/Brüning economics:

... the political scene is predominantly grey on grey, where, for example, the left-wing pro-globalisation agenda of giving a political shape to a global society growing together economically and digitally can no longer be distinguished from the neoliberal agenda of political abdication to the blackmailing power of the banks and of the unregulated markets.

One would therefore have to make contrasting political programmes recognisable again, including the contrast between the – in a political and cultural sense – “liberal” open-mindedness of the left, and the nativist fug of right-wing critiques of an unfettered economic globalization. In a word: political polarisation should be re-crystallised between the established parties on substantive conflicts. Parties that grant right-wing populists attention rather than contempt should not expect civil society to disdain right-wing phrases and violence. Therefore, I regard as the greater danger a very different polarisation towards which the hard-core opposition within the CDU is moving when it casts a leery eye on the post-Merkel period. In Alexander Gauland it recognises anew the pivotal figure of the Dregger wing of the old Hesse CDU, or flesh of its own flesh, and toys with the idea of winning back lost voters by way of a coalition with the AfD. [my emphasis]

Another sad step toward failure for the EU (Updated)

British Prime Minister David Cameron won concessions from the other EU members that loosens Britain's ties and commitment to the Union, concessions that make him willing to campaign for Britain staying in the Union in the referendum coming up in possibly in June. (Daniel Brössler und Alexander Mühlauer, Cameron setzt sich bei Brexit-Verhandlungen durch Süddeutsche Zeitung 20.02.2016)

I don't want to be so pessimistic as to say it's another nail in the coffin of the EU. The EU may well continue to exist for many years. But its one-time promise is dying. Or rather it was killed by failure of leadership by people like Cameron, Angela Merkel and François Hollande on major issues like the euro crisis and the years-long refugee crisis.

This week I've been reading a paper by Jürgen Habermas that he delivered in November 2007, "Europapolitik in der Sackgasse" ("Europe at an Impasse"), published in Philosophie und Politik/Philosophy Meets Politics 9:2008. He was pleading for continuing the process of increasing European integration, emphasizing how the EU could become a major force offsetting US cowboy foreign policy, and how it could serve as a model worldwide for regional cooperation.

It reads now like nostalgia, a fond remembrance of a hopeful path not taken, and now the chance is gone.

Today we have the grandees of the EU congratulating themselves that they have encouraged nationalism within the EU by caving to Britain's demands for special treatment and less integration with its partner nations.

The refugee crisis grinds on, with no decent solution in sight.

And there's this, from Wolfgang Münchau, Four signs another eurozone financial crisis is looming Financial Times 02/15/2016:

The rout in European financial markets last week was a wat­ershed event. What we witnessed was not necessarily the beginnings of a bear market in equities or an uncertain harbinger of a future recession. What we saw — at least here in Europe — is the return of the financial crisis.

Version 2.0 of the eurozone crisis may look less frightening than the original in some respects but it is worse in others. The bond yields are not quite as high as they were then. The eurozone now has a rescue umbrella in place. The banks have lower levels of leverage.

But the banking system has not been cleaned up, there are plenty of zombie lenders around and in contrast to 2010 we are in a deflationary environment. The European Central Bank has missed its inflation target for four years and is very likely to miss it for years to come.

He also observes:

Looking back, the cardinal error committed by the European authorities was the failure in 2008 to clean up their banking system after the collapse of Lehman Brothers. This was the original sin. Many other mistakes subsequently compounded the problem: pro-cyclical fiscal austerity, the ECB’s multiple policy failures and the failure to create a proper banking union. It is interesting that every single one of these decisions was ultimately the result of pressure brought by German policymakers.

You're doing a heckuva job, Angela Merkel, a heckuva job!

Varoufakis on the problems of the EU and the eurozone

Former Greek Finance Minister Yanis Varoufakis recently did an interview with Globo TV in Brazil. And he provides a transcript on his blog (Our movement to democratise Europe & developments in Latin America and China – Interview with Brazil’s GLOBO TV 01/19/2016). It includes various interesting and provocative observations, such as this one on France and Germany:

[French] President [François] Hollande never speaks against [German] Chancellor [Angela] Merkel when she speaks about the Eurozone, even when he disagrees. Remember he was elected in other to counter her perspective of what should happen in the Eurozone. The day he was elected he stopped speaking about it. Now, why is that?

There is a reason. If the Eurozone breaks up, and France and Germany go back to their own currencies, the French franc and the Deutsch mark, what will happen? There will be an exodus of money from France to Germany. Why? Because everybody will anticipate, correctly, that going back to their own currencies means that the Deutsch mark will go up and the French franc will go down.

Yes, but France and Germany are the axis of the EU. So, François Hollande – or whoever happens to be the President, Sarkozy, Hollande, this is not a personal issue – knows that if euro breaks up then France will be destroyed, and there will be a flood of money towards Germany. So he is scared of any disagreement because it may end up destroying his country. ...

Germany doesn’t have this fear, as a euro break up would lead to a flood of money to Frankfurt. Of course, German industry will be injured by the rise of the new German currency but its financial system will not collapse – as France’s would. This asymmetrical fear guarantees that whenever the Chancellor of Germany says something the President of France does not respond. Now, this is an immense power in the hands of the German Chancellor. She knows that if we make our Eurozone absolutely indivisible, impossible to break up – which is what we have to do to fix it – then the office of Chancellor will lose with asymmetric power, because the French president, whoever the French President might be, will no longer fear the break up and will start to speak his mind. So, the immense political power that the German Chancellor has comes from the fact that we are not fixing the euro. So, there is the political incentive for not fixing the euro. [my emphasis]

He also makes an important observation about the intertwining of the euro crisis and the refugee crisis:

If you look at the way Europe has been fragmented in the last 6 years, 7 years, since the 2008 great financial crisis in the United States, Europe and the world; if you look at the way we have failed to deal with that crisis consistently, and during this process of sequential failures, and the denial of the structural aspects of this crisis, our nations in Europe have been pulled apart. Turned against one another.

The events in the Middle East are absolutely independent of the structure of the Eurozone. Even if we had designed the Eurozone well, we would still have had the Americans invading Iraq, creating a rapture between Sunnis and Shiites, the Iranian and Iraqi war before that would have precipitated the whole thing, the collapse of the structural rigidity of Iraq would have spilled over into Syria, independently what Europe did.

But what we did within Europe, our failure to deal with the euro crisis, fragmented us, so when the refugee crisis came, we were not capable of dealing with it in a rational European fashion. We could not deal with a common problem in a systematic, common manner. So, there is a connection. [italics in original]

Friday's Paris terrorist attack and the dream of rebooting history

The Austrian news service, Nachrichten.at, the website of the Oberösterreichische Nachrichten, ran an editorial on Saturday, Europa in Krieg (Europe At War) 14.11.2015:

Unser Mitgefühl gilt allen Opfern, unsere Solidarität Frankreich.

Dabei hat das wahllose gestrige Morden nicht Frankreich allein gegolten. Es ist ein Anschlag auf Europa, unsere Werte, unsere Form des Zusammenlebens, unsere Prinzipien, die offenen Grenzen, das Nebeneinander verschiedener Kulturen, die Freiheiten. Die Codewörter dazu sind eindeutig: Syrien, Islamischer Staat, radikaler Islam. Unabhängig von der Zahl der Toten, die sich stündlich erhöht, steht der gestrige Tag gleichauf neben 9/11, er wird die globale Politik verändern. Europa befindet sich im Ausnahmezustand. Uns muss klar sein.

Es wird sich wehren und den Kampf aufnehmen. Es wird ihn überall dort führen müssen, wo der Angriff auf unsere Werte seinen Ausgang nimmt. Auch dazu bestehen keine Alternativen.

[All the victims have our sympathy, France has our solidarity.

In the event, the innumerable {sic} murders yesterday did not affect only France. It is an attack on Europe, our values, our form of living together, our principles, the open borders, the co-existence of different cultures, the freedoms. The code words there are clear: Syria, Islamic State, radical Islam. Regardless of the number of dead, that keeps increasing, yesterday stands next to 9/11, it will change global politics. Europe finds itself in a state of emergency. We must be clear.

It {Europe} will defend itself and take up the fight. It will have to conduct it everywhere from which the attack on our value originated. And there are no alternatives available.]

The euro crisis alone should have taught everyone that TINA (There Is No Alternative) can be a bad guide to action. At least, if the goal is to actually solve problems.

This kind of pompous, melodramatic declaration is painfully familiar to Americans. At least to the majority who don't want the Permanent War for Permanent Peace to which Donald Trump, Dr. Ben Carson and the rest of today's Republican Party leaders are committed.

Realism and reason go out the window with this kind of posturing. And it's not just newspaper editors. The French President struck a similar tone (Adam Nossiter et al, Three Teams of Coordinated Attackers Carried Out Assault on Paris, Officials Say; Hollande Blames ISIS 11/14/2015):

“It is an act of war that was committed by a terrorist army, a jihadist army, Daesh, against France,” President François Hollande told the nation from the Élysée Palace, using an Arabic acronym for the Islamic State. “It is an act of war that was prepared, organized and planned from abroad, with complicity from the inside, which the investigation will help establish.”

The Oberösterreichische Nachrichten editorial is sadly reminiscent of the war and revenge talk after the 9/11 attacks in the US.

The 9/11 attacks were planned in Germany, but at least we didn't attack Germany. Early indications on the Paris attack Friday are that two of the places "from which the attack ... originated" could be Germany and Belgium. Hopefully, France will have the restraint not to invade either of those two countries. But defending our civilized values by bombing the crap out of some Arab (or maybe Persian) country has become a dreary cliche in American politics. So far, over 14 years after 9/11, our interventions and freedom bombs have left us with civil wars in Afghanistan, Iraq, Syria and Libya. The "war on terrorism" obviously hasn't done away with terrorism as a form of military conflict. And Europe is already experiencing a refugee crisis, many of whom are fleeing conflicts connected with our Afghanistan War and Iraq War, neither of which are entirely over.

The editorial's comment that the Paris attack "will change global politics" reminds me so much of the comment that Deputy Secretary of State Richard Armitage made to the Pakistani head of intelligence just after 9/11, "History starts today." But history didn't reboot itself. Nuclear-armed Pakistan is still supporting the Taliban in Afghanistan, and their long-standing dispute with nuclear-armed India over Kashmir still takes precedence over Washington's demands in their strategic decisions, in which the current Afghan government is a "pro-Indian" danger in their eyes. (James Mann quotes the Armitage comment in Rise of the Vulcans, 2004)

And the justifiable outrage over the Paris attacks won't make any French intervention in Syria any easier. History didn't reboot on Friday any more than it did on 9/11/2001. Many of the current problems in the Middle East go directly back to the ways in which Britain and France enacted their civilizing mission to the Arab countries after they dismembered the Ottoman Empire after the First World War. France got Syria as a colony, uh, "mandate." France and Britain took the lead in their most recent effort to civilize Libya with bombs, which the US joined. Even supporters of that intervention have a difficult time seeing the results as anything but grim.

Friday didn't "change global politics" in any way that will make an military intervention in Syria and Iraq easier. Outside powers will still have to make choices among supporting the Syrian government, of Daesh/ISIS, or the Al Qaeda affiliate there. They will still have to navigate the conflicting allegiances of Israel, Saudi Arabia, Iran, Turkey, Qatar and Russia.

It's not as though nationalist delusions haven't already done tremendous damage to the EU with the euro and refugee crises, neither of which are over. A massive escalation of war in Syria will make the latter even worse. More border controls, more (literal) walls between countries, more refugees. The actions to come by France and NATO can certainly "change global politics" in some way. Further disintegrative pressures on the EU could definitely have that effect.

If the comment, "Europe finds itself in a state of emergency," is meant for, say, this weekend, it is just routine hyperbole. But if France or the EU were to respond to Friday's attack by creating something like a permanent state of emergency, well, Carl Schmitt will be laughing heartily in whatever nasty precincts of the Great Beyond he currently finds himself.

I see that France is already dropping their freedom bombs, which will surely kill no innocent civilians as the terrorists did in Paris on Friday. (Francia lanza primeros ataques aéreos contra ISIS en Siria La Opinión/BBC Mundo 14.11.2015)

By the way, the Obama Administration is still dropping our freedom bombs in Libya: Libya IS head 'killed in US air strike' BBC News 11/14/2015. Also magically avoiding killing civilian noncombatants, no doubt.

France and German austerity

I'm not inclined to give French President François Hollande much the benefit of the doubt on economic policy. He was elected President in 2012 on a platform of opposing Merkel's austerity policies and immediately capitulated to Merkel, agreeing to the Fiscal (Suicide) Pact that he had promised to demand be renegotiated. (See my Angela Merkel's policy for the euro crisis: put the pedal to the metal, head straight for the cliff 06/27/2012 and EU summit result: Angie pwns Hollande, rolling train wreck continues 06/29/2012)

But one thing that has emerged this year from Greece's desperate attempt to escape the Merkel-imposed austerity that has been destroying the Greek economy for years is that France sees itself in a position of definite subordination to Germany. Even an object of coercion. And Merkel's government sees France the same way.

As this report from France 24 shows, Joseph Stiglitz also perceives their relations in that France, France 'intimidated' by Germany on economic policy: Stiglitz 08/31/2015

"There is a kind of intimidation," Stiglitz, an outspoken opponent of austerity policy, said of the influence of Germany over the economic policy pursued by President Francois Hollande.

Stiglitz also said he agreed with former Greek finance minister Yanis Varoufakis that Germany's intransigence against Athens was aimed at striking fear in Paris and convincing the French government to continue austerity policies.

"The centre-left government in France has not been able to stand up against Germany" on its budget policy, eurozone policy, or on the response to the Greek crisis, said the former World Bank chief economist and advisor to US president Bill Clinton.

But what is France waiting for in fighting the austerity policies, if that's what they intend to do.

That's why it's hard for me to get optimistic over these reports. If France intended to take a stand against austerity, this year's negotiations with Greece were an ideal opportunity. But France backed Germany's punitive anti-Greek policies, even if they did grumble about them behind the scenes.

The advent of the new government in 2012 with a majority in Parliament would have also been an excellent time to openly resist. But they didn't then, either.

In another France 24 report states the issue this way (As Germany squeezes Greece, where does France stand? 02/20/2015):

It was not so long ago that France – not Greece – was the champion of Europe’s anti-austerity camp. In the run-up to his successful presidential bid in 2012, François Hollande was full of fiery rhetoric about ditching belt-tightening and promoting growth. The German chancellor, he said, would simply have to back down. As it turned out, Angela Merkel has barely budged.

In his first weeks in office, Hollande huffed and puffed but precious little happened. Paris did secure a vague pledge to promote growth in the EU, but Germany’s hallowed “stability pact” – which places a strict 3% cap on budget deficits across the EU – remained intact while Hollande’s cherished Eurobonds were junked.

I say that the French/German difference "emerged" during this year's negotiations with Greece. But there were press reports last year about such dissent, e.g., France's economy minister slams German austerity measures AFP/Yahoo! Finance 08/23/2014.

But why did that supposed resistance on France's part not get beyond closed doors during the critical negotiations this year with Greece.

So what will it take to get the Hollande government to resist Germany's Herbert Hoover/Heinrich Brüning economic policies?

More Varoufakis: "Plan B"

Former Greek Finance Minister Yanis Varoufakis is still causing consternation in the eurozone a Member of the Greek Parliament.

There was some melodramatic rending of garments and gnashing of teeth over a recording of Varoufakis on July 16 (Peter Spiegel, Varoufakis unplugged: the London call transcript FT Brussels Blog 07/27/2015; emphasis in FT transcript):

That would have created a parallel banking system while the banks were shut as a result of the ECB’s aggressive action, to give us some breathing space. This was very well developed and I think it would have made a very big difference, because very soon we could have extended it using apps on smart phones. It would become a functioning and functional parallel system. Then of course this would be euro denominated, but at a drop of a hat, it could be converted to a new drachma.

Now let me tell you, and I thank this is a quite fascinating story, what difficulties I faced. The general secretariat of public revenues, within my ministry, is controlled fully and directly by the troika. It was not under control of my ministry, of [unclear] ministry, it was controlled by Brussels. The general secretary is appointed, effectively, through a process that troika-controlled and the whole mechanism within. It’s like Inland Revenue in the United Kingdom being controlled by Brussels. I am sure as you’re hearing these words, your hair is standing up. Ok. So problem number one.

The general secretariat of information systems, on the other hand, was controlled by me as minister. I appointed a good friend of mine, a childhood friend of mine, who had become a professor of IT at Columbia University in the States, and so on, I put him there because I trusted him to develop the system. At some point, a week or so after we moved into the ministry, he calls me up and says to me: “You know what, I control the machines, I control the hardware. I don’t control the software.” The software belongs to the troika-controlled general secretariat for public revenues.

What do we do? So we had a meeting, just the two of us, nobody else knew. He said: “Listen, if I ask for permission from them to start implementing this programme then the troika will immediately know we are designing a parallel system.” Well, I said, “That won’t do, we don’t want to reveal our hand at this stage.” So I authorised him, and you can’t tell anyone that, this is totally between us, to hack ...

Despite the fainting-couch routine from Varoufakis' critics, this is pretty straightforward. (Peter Spiegel and Kerin Hope, Yanis Varoufakis defends ‘Plan B’ tax hack Financial Times 07/27/2015) There is no reason I can see to think the hack was actually done, since Prime Minister Alexis Tsipras didn't give Varoufakis the go-ahead for the additional preparations for a new national currency that would have required the hack:

So, we decided to hack into my minister’s own software programme in order to be able to bring it all, to just copy, just copy the codes of the tax systems’ website onto a large computer in his office, so he can work out how to design and implement this parallel payment system. We were ready to get the green light from the prime minister when the banks closed in order to move into the general secretariat of public revenues, which was not controlled by us but is controlled by Brussels, and to plug this laptop in and to energise the system.

I’m trying to convey to you the kind of institutional problems that we had, and institutional impediments to carrying out an independent policy for ameliorating the affects of having our banks being closed down by the ECB. [emphasis in FT transcript]

And even if they had done the hack, if it was a necessary move to set up a new currency in the face of ECB strangling their national financial system to force them into compliance with Angela Merkel's draconian austerity program, what's the problem?

And from what Varoufakis says, maybe François Hollande has been putting up more resistance to Merkel behind the scenes than I was aware of:

The French are terrified. They’re terrified because they know if they’re going to shrink their budget deficit to the levels that Berlin demands the Parisian government will certainly fall. There is no way that they can politically handle the kinds of austerity which is demanded of them by Berlin. And when I say by Berlin, I mean by Berlin, I don’t mean Brussels. I mean Berlin.

So they are trying to buy time. This is what they’ve been doing now, as you know, for a couple of years. They’ve been trying to buy time in terms of an extension of the time period during which they will have to reduce their deficit to below 3.5 per cent, 3 per cent, the Maastricht criteria in the Stability and Growth Pact.

At the very same time, Wolfgang Schäuble has a plan .... This is one of the very sweet moments in one’s life when one does not have to theorise, because all I did was to convey the plan as Dr Schäuble described it to me. The way he described it to me is very simple. He believes the eurozone is not sustainable as it is. He believes there has to be some fiscal transfers, some degree of political union. He believes for that political union to work without federation, without the legitimacy that a properly-elected federal parliament can render, can bestow upon an executive, it will have to be done in a very disciplinarian way. He said explicitly to me that a Grexit, a Greek exit, is going to equip him with sufficient bargaining power, with sufficient terrorising power in order to impose upon the French that which Paris is resisting. What is that? A degree of transfer of budget-making powers from Paris to Brussels. [emphasis in FT transcript]

Varoufakis' parliamentary office put out this statement, which he put on his blog (07/27/2015):

During the Greek government’s negotiations with the Eurogroup, Minister Varoufakis oversaw a Working Group with a remit to prepare contingency plans against the creditors’ efforts to undermine the Greek government and in view of forces at work within the Eurozone to have Greece expelled from the euro. The Working Group was convened by the Minister, at the behest of the Prime Minister, and was coordinated by Professor James K. Galbraith. (Click here for a statement on the matter by Professor Galbraith).

It is worth noting that, prior to Mr Varoufakis’ comfirmation of the existence of the said Working Group, the Minister was criticized widely for having neglected to make such contingency plans. The Bank of Greece, the ECB, treasuries of EU member-states, banks, international organisations etc. had all drawn up such plans since 2012. Greece’s Ministry of Finance would have been remiss had it made no attempt to draw up contingency plans.

Ever since Mr Varoufakis announced the existence of the Working Group, the media have indulged in far-fetched articles that damage the quality of public debate. The Ministry of Finance’s Working Group worked exclusively within the framework of government policy and its recommendations were always aimed at serving the public interest, at respecting the laws of the land, and at keeping the country in the Eurozone.

Regarding the recent article by “Kathimerini” newspaper entitled “Plan B involving highjacking and hacking”, Kathimerini’s failure to contact Mr Varoufakis for comment and its reporter’s erroneous references to “highjacking tax file numbers of all taxpayers” sowed confusion and contributed to the media-induced disinformation. The article refers to the Ministry’s project as described by Minister Varoufakis in his 6th July farewell speech during the handover ceremony in the Ministry of Finance. In that speech Mr Varoufakis clearly stated: “The General Secretariat of Information Systems had begun investigating means by which Taxisnet (Nb. the Ministry’s Tax Web Interface) could become something more than it currently is, to become a payments system for third parties, a system that improves efficiency and minimises the arrears of the state to citizens and vice versa.” That project was not part of the Working Group’s remit, was presented in full by Minister Varoufakis to Cabinet, and should, in Minister Varoufakis’ view, be implemented independently of the negotiations with Greece’s creditors, as it will contribute considerable efficiency gains in transactions between the state and taxpayers as well as between taxpayers.

In conclusion, during the five months of negotiations that gripped Europe and changed the debate throughout the Continent, the Ministry of Finance did everything possible to serve the public interest against many odds. The current media campaign to besmirch these efforts will fail to dent the legacy of a crucial five month struggle for democracy and common sense. [emphasis in original]

The Jamie Galbraith statement to which he links is also at Varoufakis' blog (07/27/2015):

I spent five months from early February through early July in close association with the Greek Finance Minister, Yanis Varoufakis, and was part of the Working Group that did contingency planning for potential attempts to asphyxiate the Greek government, including aggressive moves to force the country out of the euro. Since a great deal of public confusion has now arisen over this effort, the following should be stated:(1) At no time was the Working Group engaged in advocating exit or any policy choice. The job was strictly to study the operational issues that would arise if Greece were forced to issue scrip or if it were forced out of the euro.

(2) The group operated under the axiom that the government was fully committed to negotiating within the euro, and took extreme precautions not to jeopardize that commitment by allowing any hint of our work to reach the outside world. There were no leaks whatever, until the existence of the group was disclosed by the former Finance Minister himself, in response to criticism that his ministry had made no contingency plans when it was known that forces within the Eurozone were planning the forced exit of Greece.

(3) The existence of preliminary plans could not play any role in the Greek negotiating position, since their circulation (before there was a need to implement them) would have destabilized government policy.

(4) Apart from one late, inconclusive telephone conversation between MP Costas Lapavitsas and myself, we had no coordination with the Left Platform and our Working Group’s ideas had little in common with theirs.

(5) Our work ended for practical purposes in early May, with a long memorandum outlining major issues and scenaria that we studied.

(6) My work in this area was unpaid and unofficial, based on my friendship with Yanis Varoufakis and on my respect for the cause of the Greek people. [my emphasis]

Greek crisis: Tsipras' mistake in negotiations with the Troika

Georg Diaz in a thought-provoking column, Glossar zur Krise: Der Wandel in den Worten Spiegel Online 24.07.2015, talks about how the euro "crisis" has morphed into a permanent condition, a kind of state of emergency as normalcy.

So there will continue to be new chapters of the Greek crisis. Here I want to comment on what I understand to be the fault of Alexis Tsipras' government in the recent negotiations.

My perspective is very different from the disputes within his Syriza Party. One of Tsipras' responses to his internal Syriza critics is provided by The Greek Analyst, Tsipras’s nonpaper slamming SYRIZA dissenters 07/21/2015.

Tsipras made a very practical call taking into account the risks and opportunities within the very narrow range of options that German Chancellor Angela Merkel had successfully established as the dominant leader in the EU. Syriza had a clear policy of solving their debt crisis within the eurozone. It was the program on which they were elected. It was established in internal discussions and disputes within Syriza. It was a clear distinction from the explicit goal of leaving the eurozone and establishing a separate currency, which everyone seems to assume would be called the drachma, like the last separate Greek currency.

That goal was advocated by the Communist Party and the far-right Golden Dawn, as well as by some members of Syriza. But that approach was rejected by Syriza. Part of Syriza's hope, which presumably persists, is that hopefully sooner than later, they will gain effective allies in other eurozone countries. Upcoming Portuguese and Spanish elections could provide some of that support. In fact, Merkel's hardline opposition to any departure from the draconian austerity program in Greece is due to her determination to scare Portuguese and Spanish voters from elected anti-austerity governments.

How realistic Syriza's hope in that regard is, is another question. Recent public grumbling by the social-democratic governments of France and Italy have provided some encouragement on that front. On the other hand, France's President François Hollande was elected in 2012 promising to oppose Merkel's austerity program. Once elected, he hardly made any pretence of resistance to it. Maybe one of these days, he will actually get around to it.

Prime Minister Matteo Renzi of the Democratic Party in Italy has even more rational reasons than the government of France to oppose austerity measures. But since taken office in early 2014, he has been singing from the neoliberal hymnbook pretty faithfully. And the language of faith is appropriate here. Austericide economics is very much a faith-based devotion, not evidence-based economics. Susanna Böhme-Kuby in Bulldozer Renzi Blätter für deutsche und internationale Politik 07/2015 describes his demonstrated commitment to deflationary, neoliberal policies.

The one big miscalculation that I can see in the Tsipras government's approach to the negotiations is that, given the enormous determination by Merkel and her Finance Minister Wolfgang Schäuble to crush Greece's political resistance to their austerity program was that to attain meaningful concessions within the eurozone, he had to be prepared to actually exit the eurozone. And that Tsipras wasn't willing to do.

Wolfgang Münchau describes this correctly, if in a way somewhat less sympathetic to Tsipras' dilemma than I would be, in Grexit remains the likely outcome of this sorry process Financial Times 07/19/2015

Alexis Tsipras should never have hired Yanis Varoufakis as his finance minister. Or he should have listened to him, and kept him on. But instead the Greek prime minister chose the worst of all options. He followed Mr Varoufakis’ advice of rejecting the offer of the creditors - until last week. But having done this, Mr Tsipras committed a critical error by rejecting Mr Varoufakis’ plan B for the moment when the country’s banks closed down: the immediate introduction of a parallel currency - IOUs issues by the Greek state but denominated in euros. A parallel currency would have allowed the Greeks to pay for their daily transactions when cash withdrawals were limited to €60 a day. A total economic collapse would have been avoided.

In Wie Deutschland den Euro sprengt Spiegel Online 20.07.2015, he emphasizes how shortsighted a self-destructive Germany's behavior in those negotiations really were. The short-term destruction, of course, hits Greece. The longer-term destruction will eventually wreck Germany's leadership in the EU if it is not corrected by future, post-Merkel governments. There he writes:

Die Griechenlandkrise hat uns gezeigt, dass eine ökonomisch nicht nachhaltige Situation in kürzester Zeit alle politischen Tabus sprengt. Das Primat der Politik kann sich langfristig nicht über ökonomische Logik hinwegsetzen.

Aus ökonomischer Sicht ist Griechenland im Euroraum nicht mehr lebensfähig. In diesem Punkt hat Wolfgang Schäuble recht. Aus griechischer Sicht wäre ein Austritt besser.

[The Greece crisis has shown us that an economically unsustainable situation can int the shortest time blow up all political taboos. The primacy of politics cannot in the long run prevail over economic logic.

From an economic point of view, Greece is no longer viable in the euro area. On this point, Wolfgang Schäuble is correct. From the Greek point of view, an exit would be better.]

Christiane Amanpour interviewed Varoufakis for CNN International ( Mick Krever, Varoufakis: 'We made mistakes' 07/20/2015):

Varoufakis said he had sympathy for his former boss [Tsipras].

"He was faced with a choice: Commit suicide or be executed."

"Alexis Tsipras decided that it [would] be best for the Greek people for this government to stay put and to implement a program which the very same government disagrees with."

"People like me thought that it would be more honorable, and in the long term more appropriate, for us to resign. This is why I resigned. But I recognize his arguments as being equally powerful as mine."

The video is here, Varoufakis: 'We made mistakes' 07/20/2015:

Why debt sustains corruption in Greece and vice versa

Christos Koulovatianos, John Tsoukalas Vox 20 July 2015

Olaf Boehnke (Greece and Germany's game of chicken European Council on Foreign Relations 07/17/2015) holds out optimism that Merkel may come to her senses:

Although many observers expected that Angela Merkel and Wolfgang Schäuble would have been feted for their victory upon their return to Berlin, the exact opposite has been the case. The tersest reaction came from Thomas Strobl, vice chairman of the Christian Democrats (CDU) and Schäuble’s son-in-law. Prior to the CDU’s steering committee meeting after the euro summit last Monday he said: "The Greek has now annoyed long enough." While Strobl has since been heavily criticised for this remark, this chauvinistic attitude does reflect strongly the sentiment of many people in Germany and in Strobl’s party in particular. ...

These elements - plus the broadening criticism of German hegemony in Europe- may well bring her to the point where she has to demonstrate political leadership in a way Mario Draghi did when he announced that the ECB will “do whatever it takes to preserve the euro”. Once all Eurozone member states have agreed to the new negotiations it would be wise for Merkel to demonstrate her political commitment to the Greek people with a speech in front of the Greek parliament or a public place in Greece in order to reinforce what she has been best at: getting conflicting parties back to the table and finding a compromise. In her speech today, she paid special attention to the importance of the French-German cooperation. If she is really interested in achieving a reliable solution for the current crisis, she and Francois Hollande must include Alexis Tsipras in finding a political agreement which gives him and the Greek people real, not forced, ownership of such a deal.

I don't think Merkel sees the world that way. She the leader of the economically most powerful country in the eurozone and she's done very well from her German point of view with her strategy of domination. One of the greatest risks for political and business leaders is there is an inevitable tendency to continue doing what has been successful in the past. Unfortunately for the eurozone and for the periphery countries especially, what has been successful for Merkel and her hardline neoliberal outlook is horribly destructive for the countries practicing her austerity policies, especially for Greece.

Angela "Thucydides" Merkel vs the rational Greeks

Situations like Germany's brutal humbling of Greece and its Syriza government this week are where my sympathy for the "realist" foreign policy position starts to kick in, even though I always kind of hate myself for it.

The more flexible realists like Stephan Walt recognize that national leaders make choices and encourage them to make ones that are preferably rational and far-sighted. But the fact is that when a country has the ability to throw their weight around to their own short-term advantage like Germany does in the current eurozone, the temptation to do it is very big.

For all his hackery and petty-mindedness and corruption, Helmut Kohl actually understood that the conditions for the European Union to function well according to its original purpose included German leaders resisting the temptation to go all Bismarck on their partners. Merkel is more Thucydides-minded that “the strong do what they will, and the weak suffer what they must.”

Also, she really, really believes in her Herbert Hoover/Heinrich Brüning economics.

This article (Backlash brews in Germany over Berlin's role in Greece debt talks Al Jazeera/AFP 07/15/2015) by itself would leave a better impression of the major media outlets quoted than they deserve (Spiegel Online, Süddeutsche Zeitung, the FAZ/Frankfurter Allgemeine Zeitung). Most of the columns and news stories I've seen in all three pretty faithfully reflected Angie's preferred position. Spiegel Online had so many stories based on anonymous sources giving press-release-type quotes backing Angie's approach that I was beginning to wonder whether they were using Judith Miller as a ghost-writer.

The humiliation continued for Greece on Wednesday, as Alexis Tsipras and his government essentially self-immolated their own program on orders from Merkel and the Troika. Renee Maltezou and Angeliki Koutantou report in Greek parliament approves bailout measures as Syriza fragments Reuters 07/15/2015

The Greek parliament passed sweeping austerity measures demanded by lenders to open talks on a new multibillion-euro bailout package to keep Greece in the euro, but dozens of hardliners in the ruling Syriza party deserted Prime Minister Alexis Tsipras.

The package was approved with 229 votes in the 300-seat chamber. There were 64 votes against it and six abstentions. But Tsipras required the support of pro-European opposition parties to push the measure through, leaving a question over the future of his government.

Tsipras said there was no alternative to the package, which he acknowledged would cause hardship, but he stood by the decision. "I am the last person to shirk this responsibility," he told parliament.

Yanis Varoufakis voted against the surrender agreement:

The measures were branded "social genocide" by the firebrand speaker of parliament Zoe Constantopoulou and there were violent clashes between protestors and police outside parliament as the debate went on before the vote.

Among the 38 Syriza rebels was former Finance Minister Yanis Varoufakis, who was sacked by Tsipras last week and who denounced the bailout deal as "a new Versailles Treaty" - the agreement that demanded unaffordable reparations from Germany after its defeat in World War One.

I feel more sad than disappointed in Tsipras over this. Reuters quotes him saying, "I acknowledge the fiscal measures are harsh, that they won't benefit the Greek economy, but I'm forced to accept them." (my emphasis)

Merkel's government was harsh beyond any reasonable expectation. She could use some good "realist" advice on her foreign policy as it affects the eurozone. Because her dogmatic commitment to austericide measures for Greece and the rest of the eurozone periphery are far overriding even any selfish but sensible pragmatism.

As a postmortem on the negotiations, for a more successful possible outcome, Tsipras had to be prepared to call Merkel's bluff and proceed to set up a separate currency. He wasn't. He was convinced that "Grexit" would be worse than a continued depression.

The current Greek Finance Minister Euclid Tsakalotos in his 2013 book with Christos Laskos, Crucible of Resistance: Greece, the Eurozone and the World Economic Crisis, described the kind of political pressure Merkel and the Troika were putting on Syriza even three years ago when Syriza began surging in the election results:

The response from elites throughout the world, from Angela Merkel to Christine Lagarde of the IMF, was telling. A victory for SYRIZA would spell the end of Greece's participation in the euro, massive capital flight, bank runs, mass poverty and possibly the opening of the heavens and a deluge of frogs as well. Domestic elites were closely attuned to the same themes, and promoted a campaign of fear not seen since the [Greek] civil war [of 1946-1949].

Laskos and Tsakalotos there give an account of the debates within Syriza, which itself was an amalgamation of various left groupings, that shaped the party's strategic position on "Grexit":

One section of the Greek Left converged on a strategy of debt default and exiting the euro, together with restructuring the economy through devaluation, nationalization of the banks and the renationalization of public utilities, industrial policies, etc. ... The exit strategy has two main elements. The first relies on a desconstruction of the argument that the EU provides a privileged terrain for left-win strategies. The second relies on showing how debt default and euro exit provide the indispensable starting point for such strategies. The second relies on showing how debt default and euro exit provide the indispensable starting point for such strategies. It is the very cost of debt default, apparently, that will provide an inner dynamic, making (in quick succession) monetary policy independence, capital controls, nationalizations and industrial policies seem indispensable for national survival.

This was not the strategic approach on which Syriza settled. Instead they articulated a program of staying within the eurozone and politically compelling a solution within it.

The grounds for such a rejection [of the euro-exit strategy] were both tactical and strategic. Greece had every interest in internationalizing the problem of debt. The governments of austerity presented a simple dilemma to the Greek electorate: either accept the demands of our creditors (while hoping that negotiations can mitigate some of the worst 'excesses' of the adjustment programmes) and remain within the Eurozone, or face 'Grexit' and the extreme social costs that accompany any disorderly default. The euro exit strategy accepted the terms of this dilemma. The alternative was to challenge these terms: by pointing out that something far more systemic was at stake than a mere debt crisis; and that the debt aspects of the crisis constituted a Eurozone-wide problem best addressed at the supranational level. Such a response could appeal to the forces of labour in the South, in the first instance, but also to those in the North as well.

Those assumptions weren't wrong. Or, at least they were not unreasonable.

But the support that Greece got this year from progressive opposition groups in Europe and social-democratic governments in France and Italy were not enough to deter Germany from imposing its punitive program. And I'll believe the social-democratic governments that expressed mild sympathy for Greece's dilemma when they put up even an quarter of the resistance to Merkel's austerity policies that Tsipras and Varoufakis put up this year. Austria's Social Democratic Chancellor Werner Faymann criticized Merkel's handling of the negotiations that concluded in Greece's humiliating surrender on Monday. (Faymann: Deutsche Rolle in Griechenkrise war nicht positiv Standard 15.07.2015) But his government backed Merkel anyway.

But as Varoufakis has now told us and recent days' events have made painfully obvious, the German game seems to be to force Greece out of the euro, and do a lot of retaliatory damage to them in the process. This is a truly reckless and extreme course. But that certainly looks like the road Merkel and her Finance Minister Wolfgang Schäuble are on.

So even if Tsipras had been willing to call her bluff and prepare for an imminent Grexit, there's a good chance it wouldn't have worked. Merkel and Schäuble may well have been happy to push them out a bit faster. But for the Greek negotiating strategy to have had a chance of working under those conditions, they would have had to be prepared to proceed to a separate currency. And they weren't.

Jamie Galbraith and Ambrose Evans-Pritchard on Greece

The Institute for New Economic Thinking has an interview by Lynn Parramore with economic Jamie Galbraith, The Greek Revolt Against Bad Economics Threatens European Elites 07/09/2015. Definitely worth reading the whole thing. Here's part (emphasis in original):

What happened on the 26 th of June was that Alexis (Tsipras) came to realize, at long last, that no matter how many concessions he made he wasn't going to get the first one from the creditors. That's something Wolfgang Schäuble had made clear to Yanis (Varoufakis) months before.

But it was hard to persuade the Greek government of this because its members naturally expected, as you would when you're in a negotiation, that if you make a concession the other side will make a concession. That isn't the way this one worked. The Greeks kept making concessions. They'd present a program and the other side would say —as you can read in the press — oh, no, that's not good enough. Do another one. Then they'd complain that the Greeks were not being serious.

What the creditors meant by that was this: when you come around and agree to what we tell you, then you're serious. Otherwise not. This is the way bad professors treat extremely recalcitrant students. You come in with a paper draft and they say, no, that's not good enough. Do another one.

Galbraith also refers to this article, which he says "is very much on the mark": Ambrose Evans-Pritchard, Europe is blowing itself apart over Greece - and nobody seems able to stop it Telegraph 07/07/2015:

This ultimatum came as a shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors' cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke.

Creditors insisted on further pension cuts of 1pc of GDP by next year and a phase out of welfare assistance (EKAS) for poorer pensioners, even though pensions have already been cut by 44pc.

They insisted on fiscal tightening equal to 2pc of GDP in an economy reeling from six years of depression and devastating hysteresis. They offered no debt relief. The Europeans intervened behind the scenes to suppress a report by the International Monetary Fund validating Greece's claim that its debt is "unsustainable". The IMF concluded that the country not only needs a 30pc haircut to restore viability, but also €52bn of fresh money to claw its way out of crisis.

OXI wins in Greece!

A photo-shopped image from labatallacultural.org illustrates the results of Sunday's referendum in Greece very well, with Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel:

The problem in Dean Baker's words: "As a practical matter, it appears that the Germans and their allies are as dug into their positions as deniers of global warming. They care little about the evidence, even the research from the I.M.F. showing the harm from austerity." ((Greece and the Euro After the Referendum Truthout 07/06/2015))

Griechen sagen deutlich Nein: Ohrfeige für die EU Oberösterreichische Nachrichten 06. Juli 2015 provides a list of quotes of early reactions to the Greek referendum:

Zitiert

„Unterschätzen Sie nicht, was ein Volk machen kann, wenn es sich erniedrigt fühlt. Man kann den Willen einer Regierung ignorieren, aber nicht den Willen eines Volkes. Ich bin sicher, dass wir einen neuen Weg öffnen werden für alle Völker Europas.“
Alexis Tsipras, griechischer Regierungschef

„Was man mit Griechenland macht, hat einen Namen: Terrorismus. Warum haben sie uns gezwungen, die Banken zu schließen? Um Angst unter den Leuten zu schüren.“
Yanis Varoufakis, griechischer Finanzminister

„Wir müssen wieder anfangen, miteinander zu sprechen – niemand weiß dies besser als Angela Merkel. Wenn du einen Pensionisten vor einer Bank weinen siehst, begreifst du, dass ein für die Welt und seine Kultur so wichtiges Land wie Griechenland nicht so enden darf.“
Matteo Renzi, Ministerpräsident Italiens

„Was immer der Ausgang der Abstimmung ist. Wir müssen morgen die politischen Diskussionen wieder aufnehmen.“
Emmanuel Macron, französischer Wirtschaftsminister

„Griechenland ist Teil der Europäischen Union und auch der Eurozone, und ich hoffe, es bleibt dort. Der Euro ist nicht und kann kein Club à la Carte sein. Es gibt Normen und Regeln, um sein Überleben zu sichern.“
Manuel Rajoy, Spaniens Ministerpräsident

My translations:

Don't underestimate what a people can achieve if they feel humiliated. One can ignore the will of a government, but not the will of a people. I am sure that we will open a new path for all of the people of Europe." - Alexis Tsipras, Greek head of government [Prime Minister]

That's what Merkel and the pro-austerity EU parties both conservative and social-democratic are afraid of, that the democratic revolt against austerity will spread to Portugal, Spain and Italy - for starters.

What is being done to Greece has a name: terrorism. Why have they [the Troika] forced us to close the banks? To promote fear among the people." - Yanis Varoufakis, Greek Finance Minister

Varoufakis resigned as Finance Minister early Monday after the referendum that was a distinct victory for him as well as Tsipras and the Syriza party. More on that in a separate post. This quote is from an interview published in El Mundo (Spain): Irene Hdez. Velasco, Varoufakis: 'Lo que hacen con Grecia tiene un nombre: terrorismo' 06/07/2015

We must start to talk to each other agaig - no one knows that better than Angela Merkel. If you see a retiree crying in front of a bank, you understand that a country so important for the world and its culture as Greece should not end up this way." - Matteo Renzi, Italian Prime Minister

We'll see how well Angela Merkel "knows that" very soon. That strikes me as a very awkward statement. It casts Greece as a depressed, old, poor person who needs charity. It's a framing of the dispute that encourages voters in the wealthier countries like Germany to resent any kind of realistic program of debt relief for Greece. Renzi has acted as a total Angie-bot this year so far.

"Whatever the outcome of the referendum is. Tomorrow we have to take up the political discussion again." - Emmanuel Macron, French Minister of Economics

We'll see if François Hollande actually steps up to the plate for an alternative to Merkel's austerity policies.

Greece is part of the European Union and also the eurozone, and I hope it remains so. The euro is not and cannot be a Club à la Carte. There are norms and regulations to secure its survival." - Mauel Rajoy, Spain's Prime Minister

Rajoy has to be worried about his conservative party's poll numbers. The austerity program he's willing embraced and implemented in Spain is turning out to be very unpopular. Imagine that.

July 5, 2015 11:25 pm
Wolfgang Münchau, Why the Yes campaign failed in Greece Financial Times 07/05/2015:

The biggest was the clearly concerted intervention by several senior EU politicians, who said that a No vote would lead to Grexit, a Greek exit from the eurozone. One of them was Sigmar Gabriel, the German economics minister and SPD chief. He even doubled up on this threat right after the results came out. The Greeks correctly interpreted these threats as an attempt to interfere in the democratic process of their country. The news last week that eurozone officials tried to suppress the latest debt sustainability analysis of the International Monetary Fund did not help either. The IMF report essentially revealed that the Greek government had been right after all to demand debt relief. The rest of the EU gave the impression that it wanted to rig the referendum, and it did not even bother to conceal this. ...

What I found most galling was the argument that Grexit would bring about an economic catastrophe, as though the catastrophe had not already happened. If you have been unemployed for five years, with no prospect of a job, it makes no difference whether the money you do not get is denominated in euros, or in drachma.

Münchau offers this thought about next steps:

Perhaps the most realistic solution now would be an agreement that only covers the refinancing of the Greek banking system. The Greek government defaults on its creditors, while the creditors stop paying Greece any new money. That would minimise everyone’s commitment, but such an arrangement, too, is fraught with difficulty."

In his German-language column for Spiegel Online, Griechenland nach dem Referendum: Was 2015 mit 1914 gemeinsam hat 06.07.2015, austerity-opponent Münchau writes:

Griechenland kann nur dann im Euro bleiben, wenn exakt vier Voraussetzungen gegeben sind:

• ein Erlass der Schulden,
• eine Refinanzierung des Bankensystems,
• echte Strukturreformen und
• ein Ende der aggressiven Sparpolitik.

[Greece then can remain in the euro{zone} if exactly four condition are there:

• a remission {writedown} of the debts,
• a refinancing of the banking system,
• true structural reforms and
• an end to the aggressive austerity policy.]

He doesn't elaborate on the "structural reforms." That phrase in the EU is normally used to denote neoliberal reforms that slam down the income of ordinary workers and privatize public functions, including the sell-off of public property at fire-sale prices. But if he wants an end to austerity, the structural reforms that reduce ordinary income and the size of the public sector work against that goal.

And in a commentary on the pitiful state of the SPD, he writes:

Politische Karrieren entscheiden sich in Momenten wie diesen. Sigmar Gabriels wiederholte Drohungen von einem Grexit machen es jetzt der SPD unmöglich, sich von Angela Merkels katastrophaler Europolitik zu distanzieren. Die Genossen haben sich wirtschaftspolitisch damit zu einem Anhängsel von CDU und CSU degradiert.

Die einzige kleine Chance auf eine Rückkehr zu einer rationalen Position liegt bei Merkel selbst.

Political careers are decided in moments like this. {SPD Chairman} Sigmar Gabriel's repeated threats for a Grexist make it impossible now for the SPD to distance itself from Angela Merkel's catastrophic euro policy. The Genossen {SPD members} have degraded themselves to an appendage of the CDU and CSU.

The only small chance of a return to a rational position lies with Merkel herself.

When your best hope for a rational position on austerity economics is Angela Merkel, you're really down to the seeds and stems, as the hippies used to say.

Dean Baker provides some facts and figures in a sensible analysis:

The best solution would be a turn by the euro zone leadership away from austerity. The euro zone economy has recovered from the low points of the recession, but is still far below its potential. As a result millions of people across the euro zone are needlessly unemployed. Taken as a whole, the euro zone economy is still smaller than it was in 2008 before the crisis hit. As a result, employment is down by more than 3 million from its pre-recession level even as the population of the region has grown.

And the impact of this continuing weakness has not been even. Germany and Austria both have unemployment rates that are comparable or lower than their pre-recession level. On the other hand, Spain, Italy, Ireland, and of course Greece struggle with double digit unemployment. It is important to realize that the weakness of the euro zone economy is the main factor behind Greece's deficit problems, not its refusal to curtail its profligate spending.

The I.M.F. estimates that Greece's structural deficit has been reduced by more than 15 percentage points of GDP since 2008. This is the equivalent of a reduction in the annual deficit in the United States of almost $2.7 trillion, or more than $30 trillion in our standard 10-year budget window. The reason this deficit reduction has not led to balanced budgets for Greece and a shrinking debt is that the spending cuts and tax increases used to reduce the deficit also shrank Greece's economy. [my emphasis]

Paul Kirby takes a look at various possible scenarios for the future in Greece debt crisis: Will 'No' vote lead to Grexit? BBC News 07/05/2015.

Larry Elliott recalls the 1953 debt relief that Germany received from its creditors in What was good for Germany in 1953 is good for Greece in 2015 Guardian 07/06/2015

Helena Smith looks at Yanis Varoufakis: why bold, brash Greek finance minister had to go Guardian 07/06/2015. The article

Apparently "Biblical economics" as conservative Christians understand it requires austerity policies in Greece: Anugrah Kumar, Greeks Reject Europe's Bailout Terms; Atheist Prime Minister Hails 'No' Vote a 'Victory of Democracy' Christian Post 07/06/2015

The state of Europe before the Greek referendum

Jamie Galbraith, a friend and former professional colleague of Greek Finance Minister Yanis Varoufakis, has some interesting observations on the state of the negotiations leading up to tomorrow's Greek referendum. At this writing, it's already tomorrow there. (Greece: Only the 'No' Can Save the Euro The American Prospect 07/01/2015; also appears in Social Europe 07/04/2015)

Galbraith isn't impressed with the current leadership of the eurozone:

To understand the bitter fight, it helps first to realize that the leaders of today’s Europe are shallow, cloistered people, preoccupied with their local politics and unequipped, morally or intellectually, to cope with a continental problem. This is true of Angela Merkel in Germany, of François Hollande in France, and it is true also of Christine Lagarde at the IMF. In particular North Europe’s leaders have not felt the crisis and do not know the economics, and in both respects they are the direct opposite of the Greeks.

He also has a view on why the EU elite so despises the DFH Varoufakis:

For the North Europeans, the professionals at the "institutions" set the terms, and there is only one possible outcome: to conform. The allowed negotiation was of one type only: more concessions by the Greek side. Any delay, any objection, could be seen only as posturing. Posturing is normal of course; politicians expect it. But to his fellow finance ministers the idea that the Greek Finance Minister Yanis Varoufakis was not posturing did not occur. When Varoufakis would not stop, their response was loathing and character assassination.

And he stresses the stone intransigence of Angela Merkel and her supporters:

Ultimately, the Greek government found that it had to bow to the creditors' demands for a large and permanent primary surplus target. This was a hard blow; it meant accepting the austerity that the government had been elected to reject. But the Greeks did insist on the right to determine the form of austerity, and that form would be mainly to raise taxes on the wealthiest Greeks and on business profits. At least the proposal protected Greece's poorest pensioners from further devastating cuts, and it did not surrender on fundamental labor rights.

The creditors rejected even this. They insisted on austerity and also on dictating its precise shape. In this they made clear that they would not treat Greece as they have any other European country. The creditors tabled a take-it-or-leave-it offer that they knew Tsipras could not accept. Tsipras was on the line in any case. He decided to take his chances with a vote.

Here are two PBS Newshour reports on the upcoming referendum.

Yes or no on bailout referendum, how should Greece vote? 07/03/2015

That piece relies a little too heavily on the this-side-says, the-other-side-says approach. The discussion features two economists, Jacob Kierkegaard and Mark Weisbrot. Kierkegaard is from the Peterson Institute for International Economics, whose main purpose is to promote dogmatic neoliberal economics. Weisbrot is from the Center for Economic and Policy Research (CEPR), which actually produces serious macroeconomic commentary and analysis.

Kierkegaard's comments in this segment are pretty much hack work we should expect from the Peterson Institute.

Weisbrot was optimistic in Germany is bluffing on Greece Aljazeera America 06/12/2015: "Take partner-in-chief German Chancellor Angela Merkel: If there’s one thing she doesn’t want to be remembered as, it’s the politician who destroyed the eurozone." But he seems to have underestimated Merkel's willingness to bet the farm on trying to push Greece's Syriza's government into submission, or out of office altogether. Merkel and her supporters scarcely hide the fact that they want "regime change" in Athens.

By the end of June in this fast-changing situation, he was writing (Are European authorities trying to force regime change in Greece? Globe and Mail 06/30/2015):

There is considerable evidence that this has been the European authorities’ strategy since the anti-austerity Syriza party was elected in January. Just 10 days after the election, the ECB cut off its main line of credit to Greek banks, even though there was no obvious reason to do so. Shortly thereafter, the ECB put a limit on how much Greek banks could lend to the government – a limit that the previous government did not have.

From the European authorities’ point of view, “regime change” is the only logical strategy. They do have a nuclear weapon, which is to cut credit to Greece entirely – thus precipitating a financial meltdown that would force the country out of the euro. But German Chancellor Angela Merkel doesn’t want this, and neither does her ally, U.S. President Barack Obama. So European authorities continue to take steps to undermine the Greek economy and government, hoping to get rid of the government and get a new one that will do what they want.

In Congress Weighs in on Holding IMF Accountable for Damage Caused by Failed Policies in Greece The World Post 07/02/2015, he describes further the steps the Troika is taking in their current effort at regime change in Greece:

It is not surprising that the very idea of a referendum would provoke the ire of the eurozone authorities. Unlike the European Union, which has a different history, the eurozone project has become a fundamentally anti-democratic project. It has to be; the people currently running it want to reverse, as much as possible, decades of social progress on issues that are vital to Europeans. But you don't have to take my word for it: there is a paper trail of thousands of pages that spell out their political agenda. ...

The European authorities took advantage of the crisis and post-crisis years to impose parts of this agenda on the weaker eurozone economies: Spain, Italy, Portugal, Ireland and most brutally of all, Greece. More than 20 governments fell as a result, until finally, in Greece on January 25, a government was elected that said no. The goal of the European authorities, therefore, is to topple this government. This has been apparent since the ECB cut off its main line of credit to Greece on February 4.

In the PBS segment, he argues, "The European authorities are not offering anything. And it’s becoming more and more clear actually — and I have been writing about this for a while — that the real goal of these authorities is to really get rid of the Greek government. That’s what they’re trying to do. And that’s why they won’t allow the economy to recover so far."

How is Greece likely to vote in austerity referendum? 07/04/2015:

The PBS "special correspondent" in Greece for both segments is Malcolm Brabant, who doesn't seem to have that good of an understanding of the financial situation. The second one is particularly shallow and fatuous, because he makes it sound like Greece in on the verge of a civil war immediately after the vote.

Greece: Merkel keeps on the squeeze

Greece has a major debt payment due this week. Finance Minister Yanis Varoufakis says they will be able to meet it.

But in ongoing negotiations for the release of the next tranche of funds due to Greece from the institutions-formerly-known-as-the-Troika (IMF, EU Commission, ECB), Angela Merkel and her EU allies continue to play hardball on stalling the payment.

The climax is likely to come this summer, when Greece will be faced with defaulting on some of its external debt if the institutions-formerly-known-as-the-Troika don't come through.

Keep Talking Greece reports in Greece’s Credit Event risk averted, but EU keeps up the dirty work with political pressure 04/06/2015:

However – and as expected – Varoufakis’ promise [on the April payment] does not hinder the usual “EU suspects”, the notorious “anonymous sources” to continue pressure on Greece, pulling their last cards to continue the atmosphere of insecurity.

According to Financial Times, the Europeans want Prime Minister Tsipras to get rid of SYRIZA’s “hard leftists” Left Platform and his coalition party nationalist Independent Greeks in order to facilitate a more pro-EU approach and voting in favor of more austerity in Greek parliament.

“Alexis Tsipras must choose if he wants to be the prime minister of Greece or the leader of the SYRIZA leftist party, the European officials say. If he wants the former, he must form a coalition with center-left parties To Potami and PASOK.” (source)

Sinking and falling apart PASOK? Not, Merkel’s and Rajoy’s friend Antonis Samaras and Nea Dimokratia? wow...

PS I told you before, the issue is political and not economical.

So, be prepared! Creditors and especially the so-called EU-partners will continue to play with our nerves.

In other words, Merkel is still trying to dictate who the rulers of Greece will be and what they national policies will be, i.e., whatever Angie dictates. To Potami and PASOK are both Merkel-subservient parties.

Peter Spiegel in Brussels and Kerin Hope report in the piece apparently referenced by Keep Talking Greece, Frustrated officials want Greek premier to ditch Syriza far left Financial Times 04/05/2015. I enjoyed this part, indicating once against what a whiny bunch of WATB jerks the Very Serious People can be:

Eurozone frustration has spilt over into relations with Yanis Varoufakis, Greece’s charismatic finance minister who is viewed as lukewarm towards the country’s future in the eurozone.

European officials argue that he is frequently condescending and lecturing to his eurozone counterparts in meetings — a tendency that has alienated even potential allies.

With the bailout talks moving at a snail’s pace and a cash crunch looming, Mr Varoufakis flew to Washington on Sunday for a meeting with Christine Lagarde, IMF managing director.

Mr Varoufakis requested the meeting partly to reassure Ms Lagarde that Greece would be able to repay a €450m loan tranche, due this week, despite a liquidity squeeze, but also to send a message that he is still in charge of the bailout talks.

Efforts to sideline Mr Varoufakis have occasionally burst into public. Michael Noonan, the Irish finance minister, suggested last month that bailout negotiations were being taken away from Mr Varoufakis’s finance ministry and handed over to Yannis Dragasakis, the deputy prime minister, who some see as more pragmatic.

Reuters reports (Greece needs deal with lenders on April 24 -finance minister to paper 04/16/2015):

Greece must reach an outline funding agreement with its lenders at a meeting of euro zone finance ministers on April 24, its finance minister told a Greek newspaper on Monday.

"At the Eurogroup (meeting) of April 24 there must be a preliminary conclusion (of the talks), as per the Eurogroup accord on Feb. 20," Yanis Varoufakis told daily Naftemporiki.

Greece offered a new package of reforms last week in the hope of unlocking remaining funds from its bailout program, but its EU and IMF lenders have yet to sign up to the proposals.

Time for another round of V for Varoufakis: