Zeitgeist summary, featuring Greece, Italy and the US Democratic Party

I don't really think there is such a things as a Zeitgeist. A Weltgeist, maybe.

But if there were a Zeitgeist, Duncan "Atrios" Black sums up the American version of it remarkably succinctly here: "We're sort of reaching the breaking point of the decades long battle between the party that promises to kick those other people, and the party that promises not to kick them quite so hard." Nice Things Eschaton 12/23/2016

He elaborates:

ACA, for all its benefits, just couldn't be implemented without making it fucking hard for people. That the subsidies aren't generous enough makes it too expensive for people, and that's a problem, but it's one thing to be forced to buy a car you can't really afford, another to buy a car that you can't afford that you have to take in for repairs every other week. The government can't just provide the nice things it once provided because reasons. Hell, once upon a time they built community pools and golf courses. Now your HOA might have a pool.

We're the richest damn country in the history of the world (close enough, anyway). Life shouldn't be so hard. Not against The Data, but the data doesn't really capture what's going on for "the middle class." It isn't that wages are stagnant or shrinking - though that's an issue too! - It's that doing the right thing and having a tiny bit of luck is no longer enough to achieve economic security anymore. Life's a crap shoot from 18-67 (soon to be longer, if Republicans get their way). We're all one medium sized economic hit (including medical) away from the downward spiral. And thanks to that glorious bankruptcy bill, once you get into a hole you're probably trapped there. Bipartisany goodness to make David Broder swoon. 74-25 in the Senate, 302-126 in the House. But the Dems are the good guys! Yah, well, not enough of them and not consistently enough. Vote for Dems and the share of them voting for horrible things will shrink slightly!

He also makes a pitch for recognizing the dominance of the current neoliberal economic ideology in Europe and the US.

That dominance has been characterized more severely in Europe than even in the US by the capitulation of the center-left parties to Herbert Hooover/Heinrich Brüning policies.

The result in Europe is chronic crisis in the eurozone, now flaring up again in more urgent fashion in Italy (Philippe Legrain, Italy on the Brink Project Syndicate 12/08/2016) and Greece (Frances Coppola, Greece: The Game Is On Again Forbes 12/28/2016). But note that Legrain takes the neoliberal posture, lamenting that outgoing Italian Prime Minister Matteo Renzi "was the pro-EU establishment’s best – and perhaps last – hope for delivering the growth-enhancing reforms needed to secure Italy’s long-term future in the eurozone." Growth-enhancing reforms in the neoliberal vocabulary means deregulation, reduction of the public sector, weakening of labor unions and labor law, reduction of income for the majority.

I would read the failure of the Greek negotiating strategy against Angela Merkel in 2015 differently that Coppola does. But she's clear-headed about the stakes involved:

Now it is the IMF’s turn to misread the psychological framing. This is not a four-handed poker game, it is a duel to the death. And it is not really about Greece. The surface conflict is between Greece and its creditors, but the underlying power struggle is between the German-led creditor bloc and the European Commission. The eventual outcome will determine the shape of the Eurozone, and indeed the whole EU, in the future.

Neither the Greek government nor the European Commission want the IMF involved. The only reason the IMF is still involved is that the creditors want it to be. And the reason the creditors want the IMF involved is that they do not trust the Commission to deliver the harsh penance they have prescribed for Greece. The IMF has been cast in the role of creditors’ second.

Unfortunately, this is not how the IMF sees itself. It is still trying to act as a neutral broker, crafting a deal acceptable to both sides. It has repeatedly called for substantial debt relief, but has also demanded deep reforms to the Greek economy. But because it is no longer perceived as neutral, its call for debt relief is ignored while its reform initiative is inevitably seen as a disguised demand for more austerity.

And despite noises recently from the IMF that it may realize the disastrous effects of austerity policies, Coppola recounts how the European Commission (aka, Merkel) is actually defending a marginal departure from extreme austerity by the Greek government against the criticism of the IMF.

What.A.Mess

Sometimes even the IMF makes sense ...

Actually, the IMF has economists who do critical-minded work that don't necessarily follow the organization stereotypical neoliberal line.

Paul Taylor reports in MF's 'never again' experience in Greece may get worse Reuters 06/10/2015 that the IMF has been more realistic on some occasions than the EU elite consensus on Greece:

In 2013, the IMF published a critical evaluation of its own role in the first Greek bailout in 2010, arguing that it should have insisted on a "haircut" on Greece's debt to private creditors from the outset. Instead it went along with European governments frightened of a Lehman-style market meltdown and keen to shield their banks from losses.

The report, compiled by Fund staff, said IMF officials had doubts about Greece's ability to repay its loan at the time but agreed to the plan because of fears of contagion from Greece's predicament affecting other European states.

A 2010 IMF staff position note described default on any debt in advanced economies as "unnecessary, undesirable and unlikely", yet 18 months later the IMF advocated a 70 percent "haircut" on Greek government debt as a condition for continued involvement in lending to Athens.

Now IMF chief Christine Lagarde is hinting that European governments need to give Greece debt relief to make the numbers add up, but since this is politically unacceptable in Germany, she has had to talk in code in public.

"Clearly, if there were to be slippages from those (fiscal) targets, for the whole program to add up, then financing has to be considered," Lagarde told a news conference last week.

Behind closed doors, IMF officials are telling the Europeans that Greece will not survive without a third bailout program, which will require debt restructuring by European governments.

Greek Prime Minister Alexis Tsipras to the IMF: bite me!

The IMF backed down on the latest cliff-hanger, the payment that Greece was due to make Friday that they couldn't (Karolina Tagaris and Angeliki Koutantou, Greek PM rejects 'absurd' offer from lenders, delays IMF payment Reuters 06/05/2015):

On Friday the government decided to bundle together some 1.6 billion euros it is scheduled to pay the IMF in June into a single payment at the end of the month, skipping a 300 million euro payment due on Friday.

It was the first time in five years of crisis that Greece has postponed a repayment on its 240 billion euro bailouts from euro zone governments, the European Central Bank and the IMF.

The IMF said the maneuver was unorthodox but permissible.

This is a good illustration of something John Maynard Keynes supposedly said: "If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours."

This is why Greece has so much negotiating clout in this situation. It's just that it wasn't until Tsipras became Prime Minister and Yanis Varoufakis Finance Minister that a Greek government was willing to use it.

Ekathemerini reports Tsipras dismisses lenders’ proposals but sees deal soon 06/05/2015:

Prime Minister Alexis Tsipras told Parliament on Friday that the proposals of the country's lenders are “unrealistic” but that he still believes the government is close to achieving an agreement with the institutions.

“The proposals submitted by lenders are unrealistic,” said the premier. “The Greek government cannot consent to absurd proposals,” he added in reference to the plan presented to him earlier this week by European Commission President Jean-Claude Juncker.

“I would like to believe that this proposal was an unfortunate moment for Europe, or at least a bad negotiating trick, and will very soon be withdrawn by the same people who thought it up,” said the prime minister.

It's good to see a government in the EU fighting for the real interests of their people. I hope the example spreads!

IMF chief Legarde takes a hard line publicly on Greek debt

The IMF's Managing Director Christine Lagarde recentlyt took a public stance against a debt conference over the Greek debt (Simon Carswell, Christine Lagarde gives cool response to EU debt summit idea Irish Times 01/19/2015:

“As a principle, collective endeavours are welcome but at the same time a debt is a debt and it is a contract,” she told The Irish Times. “Defaulting, restructuring, changing the terms has consequences on the signature and the confidence in the signature.” ...

“As a principle, collective endeavours are welcome but at the same time a debt is a debt and it is a contract,” she told The Irish Times.

“Defaulting, restructuring, changing the terms has consequences on the signature and the confidence in the signature.”

The accompanying video shows her talking about the need for "infrastructure" spending in the EU. But she clearly still worships at the altar of neoliberal "structural reforms."

Argentina's Finance Minister on the state of the vulture fund fight #GrieFault #GriesaFault

Tomás Lukin interviewed Argentine Finance Minister Axel Kicillof, who has been in Washington for the meeting of the International Monetary Fund (IMF) and the World Bank there. (“El sistema financiero mundial está bajo reforma” Página/12 12.10.2014)

The title comes from something Kicillof told him, "Hoy el sistema financiero internacional está bajo reforma por el caso argentino. Hasta el FMI cuestionó la interpretación que hizo el sistema judicial de Estados Unidos.” ("Today the international financial system is being reformed because of the case of Argentina. Even the IMF has questioned the interpretation made by the judicial system of the United States.")

He's referring, of course, to the radical decision by the Nixon-appointed zombie judge Thomas Griesa in favor of the vulture funds holding defaulted Argentine debt, a decision that would have forced Argentina into actual default, not just into the #Griefault, if they had been willing to go along with it passively and have the vulture funds pummel the Argentine economy because they found a senile judge, at least intellectually corrupt, to go along with them.

Argentina has a won a majority of countries in the US General Assembly to demand a reform of the sovereign debt system to prevent people like the vulture funds and Nixon zombie judges from doing crazy and massively destructive things like they tried to do this year with Argentina.

The IMF's Monetary and Financial Committee recently referred to the problem raised by the vulture funds' attack on Argentina - in bland bureaucratese, of course: "We welcome the work on modified pari passu clauses and strengthened collective action clauses, and call on the IMF, its member countries, and the private sector to actively promote their use in new international sovereign bond issuances." (Communiqué of the Thirtieth Meeting of the International Monetary and Financial Committee (IMFC) 10/112014; El FMI y “las fallas” de Griesa Página/12 12.10.2014)

A novel treatment of the pari passu clauses in the defaulted Argentine debt agreements was one of the features of the Nixon zombie judge's radical ruling.

IMF Chairwoman Christine Legarde addressed an issue related to the Argentine debt fight with the vulture funds at the IMF/World Bank meeting (The IMF at 70: Making the Right Choices—Yesterday, Today, and Tomorrow 10/102014): "A world of large capital flows means that we need a large global safety net. Regional arrangements—including the new BRICs contingency reserve arrangement—certainly have an important role to play."

The IMF also formally recommends a reform of the sovereign debt restructuring process, as the Buenos Aires Herald reports in IMF calls for reforms to avoid holdout cases 10/07/2014:

The International Monetary Fund urged a rethink of how sovereign bonds should be structured to avoid future debt restructurings turning into a repeat of Argentina’s disruptive court battle with a few disgruntled creditors.

A detailed IMF paper laid out a series of recommendations that centred on enhancing so-called collective action clauses (CACs) embedded in most sovereign bond contracts, on modifying clauses on the pari passu equal treatment of creditors, and on the IMF’s role in promoting the use of such clauses.

The reports comes after United States District Judge Thomas Griesa’s decision to hold Argentina in contempt of court because of the country’s attempt to pay bondholders in Buenos Aires and change trustee. [my emphasis]

Enhanced CACs that allowed restructuring agreements reached by some specified percentage of the bondholders to be made binding on all bondholders would take away the kind of rent-seeking speculation opportunities of which the vulture funds availed themselves thanks to the availability of a compliant Nixon zombie judge and the willingness of the Roberts Court to let his radical ruling stand. The IMF proposal suggests 75% of the bondholders agreeing as the threshold for such CACs.

As the BAH article notes, "The absence of such a [collective action] clause in Argentina’s original bond contracts is what has allowed hedge funds NML and Elliott to pursue the country for full repayment on debt it restructured in 2005 and 2010. Those restructurings were accepted by 93 percent of bondholders."

IMF Supports Reforms for More Orderly Sovereign Debt Restructurings IMF Survey Magazine 10/06/2014:

The IMF is engaged in a number of reforms designed to reduce the costs of sovereign debt restructurings—for the benefit of debtors, creditors, and the system more generally. These reforms include possible changes to the IMF’s lending framework that are designed to give the IMF a broader range of policy responses in the context of sovereign debt distress. Separately, there is a recognition that, in circumstances where a sovereign and its creditors have reached the conclusion that a debt restructuring is necessary, the existing legal framework may not be sufficiently robust to prevent “holdout” creditors from undermining the restructuring process. Recent developments, including the Argentine litigation in the United States, have highlighted these vulnerabilities. The IMF recently endorsed reforms to sovereign bond contracts that are designed to address these issues. [my emphasis]

The IMF's report itself is Strengthening the Contractual Framework to Address Collective Action Problems in Sovereign Debt Restructuring Oct 2014. Pages 8-9 provide a chronology of the Argentina/vulture funds legal conflict and the decisions of the Nixon zombie judge.

Press Release on the report: IMF Executive Board Discusses Strengthening the Contractual Framework in Sovereign Debt Restructuring Press Release No.14/459 10/06/2014:

Directors acknowledged that the recent New York court decisions with respect to Argentina may exacerbate collective action problems, although most felt that the extent of their impact on the restructuring process is still unclear. Directors welcomed the recent modification of pari passu clauses in certain sovereign bond issuances to explicitly exclude the obligation to effect ratable payments. Accordingly, they supported the widespread use of these types of modified pari passu clauses in new international sovereign bonds so as to enhance legal certainty and consistency across jurisdictions. [my emphasis]

The "ratable payments" technicality was part of the Nixon zombie judge's ruling.

Axel Kicillof in his interview said that nothing would come of further mediation under Daniel Pollack with the vulture funds. Argentina seems to no longer regard him as any kind of honest broker.

Página/12 asked Kicillof if Argentina actually needed to go back to international bond markets. Kicillof replied, "Una cosa es recurrir y otra es no tener la posibilidad" ("It's one thing to go back and another to not have the possibility.") In other words, Argentina is able to maintain its payments with the 92% of restructured bondholders and does not need to borrow more money now. But the current administration wants to preserve Argentina's credit standing by making good on the 2005 and 2010 agreements with the restructured bondholders.

France backs Argentina against the vulture funds in asking the US Supreme Court to take the case

Somehow French Socialist President François Hollande managed to take time out from carrying on wars in Africa and kowtowing to German Chancellor Angela Merkel's austerity policies in the eurozone to side with Argentina against the lawsuit they are bringing in US courts against Argentina to try to collect money on loans they bought up when Argentina defaulted on some of their debt in the crisis of 2001-2.

Argentina has asked the shamelessly business-friendly Roberts Supreme Court to review the decision of the federal appeals that supported the vulture funds' claims.

Cristian Carrillo reports in Allez la France contra los fondos buitre Página/12 27.07.2013 that France has filed an amicus curiae brief in support of Argentina's position. In this case, the Obama Administration, IMF and the World Bank have also opposed the vulture funds on this. So there's hardly a united front of Big Capital behind the vulture funds on this. It also means there's nothing radical about Hollande siding with Argentina before the Roberts Court. It's just that his record on economic policy has been so bad during his Presidential terms so far that it's good to see him taking a decent position on an important issue like this.

And let's not give Christine Legarde's IMF too much credit; the IMF backed off from filing its own amicus curiae on Argentina's behalf to the Roberts Court: Anna Yukhananov, IMF backs off plan to file with top U.S. court in Argentina case Reuters 07/23/2013. Nor is the Obama Administration filing one; it's not usual for the US government to file an amicus curiae until the Supreme Court agrees to hear a case.

The case has major implications, not least for eurozone members like Cyprus, Greece, Ireland, Italy, Portugal and Spain that may well wind up bailing out of the eurozone and pursuing a recovery policy similar to that of Argentina after 2001-2. The Roberts Court won't make a decision on taking the appeal until its new term begins in the fall.

Eric LeCompte describes it in Argentina Takes on Vulture Funds in "Debt Trial of the Century" Truthout 04/26/2013:

The saga began in 2001, when Argentina was thrown into economic crisis and defaulted on its loans. Hedge funds swooped in and bought Argentine debt for almost nothing and circled until the country was in recovery to collect the debt in full. ...

The U.S. 2nd Circuit Court is the case's last stop before the U.S. Supreme Court, and if the vulture funds win, it will mean these funds will be allowed to more aggressively target poor countries in financial recovery. Argentina would possibly default. But if Argentina wins, it will be much harder for these types of hedge funds to exploit poor countries in the future, destabilize emerging economies, and target assets that should be improving the lives of the world's most vulnerable people.

Because the U.S. government acknowledges that this behavior hurts legitimate investors and poor people, the Obama Administration filed a friend-of-the-court brief that argued that a ruling against Argentina could make it much harder for poor countries or countries in financial recovery to access credit and restructure debts. The International Monetary Fund and the World Bank are similarly critical of vulture funds.

Unfortunately, the 2nd Circuit Court ruled for the vulture funds and against Argentina. Felix Salmon wrote at the time in Elliott vs Argentina: The Second Circuit’s dangerous game Reuters 03/04/2013 wrote about what a bandit-friendly ruling the 2nd Circuit made:

The Second Circuit ... clearly sees its job as being to enforce the original bond contract, which has been in default for 11 years. When Argentina proposes something roughly 4,000 days late and a billion dollars short, that’s all the provocation the Second Circuit will need to bring down the hammer and uphold the district court's orders.

Those orders are tough indeed. Commenter “paripassuwatch”, on my original post, notes that the court’s injunctive remedy is "the most powerful enforcement mechanism in the realm of sovereign debt since the era of 'gunboat diplomacy'. Blocking access both to the world payment system and world capital markets is as close one can get to blocking access to trade and customs duties".

These days, as Don Henley famously said, a man with a briefcase can steal more money than any man with a gun — and the Second Circuit is going to hand over to Elliott Associates one of the most powerful briefcase-based weapons the world has ever seen. That doesn’t mean Elliott’s going to get paid, of course. But it does mean that that the hedge fund can essentially turn Argentina into a global economic outcast unless and until that happens.

An "imperialist" policy in the old-fashioned sense, in other words. Salmon further explains how the consequences could apply:

The consequences for Argentina could well be very real and very painful. All governments need to fund themselves, and Argentina is no exception: what’s more, all governments borrow money from foreign investors, by issuing either foreign or domestic debt to those investors. Again, Argentina is no exception — foreign investors have long been a large part of the investor base for Argentine domestic debt. So in theory, losing access to US capital markets might be no big deal: Argentina could simply move all of its funding operations to Buenos Aires.

In practice, however, as DanielKoehler, another commenter, says, things are more complicated than that. Foreign investors tend to want dollar-denominated debt, and whenever you’re dealing in dollars, various intermediaries are going to be transferring those dollars into a US bank account. Similarly, Bank of New York, as the trustee for the bondholders who are receiving interest payments right now, would have to be involved somehow in any attempt to exchange those bonds for new domestic bonds. In both cases, US institutions could find themselves at risk of being found in contempt of court in New York, and might well refuse to cooperate with Argentina.

Argentina responded to the 2nd Circuit's decision by offering the vulture funds the same deal all the rest of the bondholders of that time got. Now the issue is before the Robert Court.

Anna Yukhananov article discusses the political background of the IMF's declining to file a brief on Argentina's behalf:

The Fund is no great friend of Latin America's third-biggest economy, and the two have clashed in recent years over the accuracy of Argentina's economic data. The IMF's board in February formally reprimanded Argentina for its lack of progress in improving inflation and GDP data. The country could face board sanctions in November , barring it from voting on IMF policies or accessing financing.

Argentina has cut all financial ties with the IMF and relations between them have steadily deteriorated since Argentina's 2001-2002 debt crisis, which the centre-left government and many ordinary Argentines blame on IMF policies.

Lots of bad blood between Argentina and the IMF right now. Nevertheless, the IMF has made it clear that it backs the Argentine position in this case.

Tags: angela merkel, argentina, austerity economics, euro, fondos buitre, imf, françois hollande, greece

Saving the eurozone, a desperate undertaking

Sony Kapoor and his fellow associates at the Re-Define think tank have been offering constructive analyses of the eurozone's problems from a pro-Europe but non-"austerian" viewpoint. Kapoor in A Eurozone-wide IMF programme could save both 07/12/2013 encourages the eurozone leaders - of whom the chief is German Chancelor Angela "Frau Fritz" Merkel - to learn some constructive lessons from the IMF's recent reflections on the, uh, inadequacy of the austerity policies currently strangling the economies of Cyprus, Greece, Ireland, Italy, Portugal and Spain.

In this Yannis Ioannou cartoon of 07/07/2013, Angela Merkel and her Finance Minister Wolfgang Schäuble rush to provide more assistance to their Success Stories Portugal and Greece, their graves already dug, just waiting for the dirt to be piled on top of them

As Kapoor observes, "Recent commentary that 'the Eurocrisis is back' is not accurate; the crisis had never gone away."

And it's bad:

The Eurozone is now stuck in a death spiral, as the failure to clean our banking system combines with unduly harsh austerity to choke the real economy. The record-high and still rising level of unemployment, collapse of investments and dismal growth prospects have shrunk political space and endangered the social fabric in crisis economies. A continuation of flawed current policies expounded by the European Commission, the ECB and perhaps most of all, Germany, will almost surely take us over the brink. The question is no longer whether the next acute crisis will come, but more what form will it take. Financial problems can be addressed, for example, by flooding the system with liquidity, but political and social breakdown would be impossible to reverse.

Kapoor reminds us, "Before the crisis, the IMF had come to be seen as a pariah by the developing world, but it appears to have learnt lessons from past follies." But since 2009, the IMF's inclinations for dealing with the debt crises have tended to be more realistic, less draconian and therefore less destructive than those preferred by the Troika (IMF, ECB, EU Commission), which is dancing to the tune dictated by Merkel. That's not so much a recommendation of the wisdom of the IMF as it is a measure of the extreme folly of Angie-nomics and her austerity demands stemming from her stone-conservative economic outlook of "ordoliberalism."

Kapoor envisions the IMF as taking a lead role in pushing the ECB and the EU (more precisely: Angela Merkel and Germany) to taking a constructive rather than destructive role:

The failure to agree Europe-wide mechanisms for capitalising banks thus far, or providing funding guarantees to the banking system made sense for certain Member States, but was disastrous collectively. The harmful delay in the restructuring of Greek debt and EU leaders' insistence on self-defeating harsh austerity measures also fall in the same category. Having the IMF in-charge would mean fewer collective action problems. A system-wide view of the crisis, which only the IMF can bring from outside, would be invaluable.

As discussed above, an IMF programme would also bring a reversal of fiscal tightening, a more coherent approach to bank restructuring and a sharper focus on growth-enhancing structural reforms in product and service markets. Importantly, this would happen not just in crisis economies, but also in countries such as Germany, the Netherlands and France, with positive spill-overs for the rest of the Eurozone.

The European Commission, the European Investment Bank and the ECB would be natural counterparts for the IMF providing fiscal, investment and monetary support respectively to facilitate necessary adjustments.

Given the hardnosed determination that Merkel has shown so far to force the victim countries to stick with pro-cyclical austerity, and given the rank nationalism that she and also her SPD competitors (and aspiring Grand Coalition partners) have promoted throughout this crisis, this proposal has a definite air of desperation. But those who genuinely want to see a democratic EU survive Merkel and her Ordoliberalism, they have to try to push movement in that direction.

But given the current corrupted vocabulary, i.e, neoliberal doubletalk, I'm not sure what Kapoor means by " a sharper focus on growth-enhancing structural reforms in product and service markets." Merkel and her minions have turned the word "reform" into a synonym for deregulation, financialization, weakening of unions, reduction of incomes for the majority, privatization and drastic cutbacks in public services. Since the Re-Define crew seem much more oriented toward actual growth policies, Kapoor may well mean Keynesian reforms, New Deal-type reforms, democratic reforms. But we need to read everyone's lips closely when they talk about "reforms" in the eurozone context, especially when the word "market" appears in its vicinity.

How far Merkel's government is from moving urgently forward on necessary reforms that would actually have a chance to save the eurozone is illustrated in this piece by Derek Scally from the Irish Times, Proposals for single banking resolution rest on 'shaky foundations' 07/12/2013. Loyal as they are to Germany's One Percent and Merkel's dogma of Ordoliberalism, she and her Finance Minister Wolfgang Schäuble are opposing the eurozone banking union to which they have agreed in general principle, mostly immediately because the are striking a nationalistic posture for the September elections:

German officials complain that, by bedding the proposals down in European common market law, Brussels is trying to establish a competence for which it has no legal entitlement.

Sooner or later this "competence hijack", as they put it, will be challenged in court - with unpredictable consequences - by the losers of any bank wind-up.

Berlin wants bank wind-ups to be overseen by a network of national authorities until member states agree a limited treaty change to give Brussels an explicit competence in this area. ...

He supported the idea of a mutualised EU bank wind-up fund but warned against expecting European taxpayers to cover the cost of struggling banks while the common fund was filled with the proceeds of bank levies.”

“We don’t want that Europe decides and the member states pay,” he said, urging responsibility and liability to remain in one hand. “That is our obligation to national parliaments.” ...

Yesterday Stephan Götzl, president of Germany’s regional bank association, attacked the single resolution plan and common fund as an "enabling act" - a term with historical associations to the Nazi takeover of 1933. [my emphasis]

Wasn't it not so long ago than respectable Germans, including bank lobbyists, pretended to be "good Europeans"? Now this bankers' lobbyist calls the eurozone banking union a Nazi-like idea? The "good European" talk seems to be pretty dispensable for the German One Percent.

Kapoor's diagnosis of the eurozone's problems is in line with that in this "Charlemagne" article he cites, Lessons from Lagarde The Economist (dated 07/13/2013)

The fund forecasts a deeper-than-expected recession in the euro zone this year, and slow growth in 2014. Disruptive Greece is again falling behind in its reforms, particularly in its promise to cull thousands of civil servants, and will doubtless need another debt write-off. Better-behaved Portugal saw bond yields spike after the abrupt resignation of the finance minister, Vítor Gaspar, and may need a second bail-out. Slow-learning Italy was marked down by a credit-rating agency this week, helping to push the euro lower against the dollar. Even the overachieving German prefect saw a sharp drop in exports.

When so many students are failing, it is fair to ask whether the fault lies with the school itself. Is it time to put the euro zone as a whole under a remedial programme? The idea has circulated in various forms, though it runs into legal and practical problems. The euro zone is not a member of the IMF, so cannot borrow money or be placed in a programme. In any case, European institutions are not directly responsible for most aspects of economic policy-making, including taxes and spending.

Even to suggest the idea as an intellectual exercise highlights the failings of the Europeans. The euro zone does not have a balance-of-payments crisis (it enjoys a current-account surplus). Nor does it have a debt-repayment problem. Overall its deficit and public debt are lower than America’s. The euro zone’s biggest problems are all internal. [my emphasis]

And the biggest single one of those problems is called, "Angela Merkel."

Tags: angela merkel, austerity economics, eu, euro, european union, greece, neoliberalism, imf, portugal

IMF self-criticisms: the rest of the Troika strikes back

It's not German Chancellor Angela Merkel herself but her faithful servants at the EU Commission and the ECB, the other two Troika members along with the IMF, who are striking back at the IMF heretical suggestions about the austerity program in Greece.

Ian Traynor and Helena Smith reports in Brussels fights back in Greek crisis blame game Guardian 06/06/2013:

Simon O'Connor, spokesman for Olli Rehn, the commissioner handling the €73bn 2010 bailout, said Brussels "fundamentally disagreed" with the IMF on two of the central points raised by the Washington institution – that Greece's debt should have been restructured at the very outset of the crisis and that the commission failed to do enough about structural reforms in Greece.

Early debt restructuring, said O'Connor, could have triggered "systemic contagion" across the eurozone. On structural reforms, he added, "this is plainly wrong and unfounded."

The neoliberal doctrine of austerity is sacred to Angela Merkel and most of the national elites in the EU.

The other Troika partner, ECB President Mario Draghi, also takes Angie's side:

But the IMF's findings were swept aside by the ECB's president Mario Draghi on Thursday afternoon. Draghi told reporters he had not read the report, but was confident that any criticism were based on hindsight.

"Often these mea culpas are a mistake of historical projection. You judge things that happen yesterday with today's eyes," said Draghi.

But as Carsten Volkery explains in Streit über Griechenland-Hilfe: Das falsche Spiel des IWF Spiegel Online 06.06.2013, things are so obviously going badly in what all sides recognize is a high-stakes game, it's not surprising that the culprits are seeking to shift blame to each other:

Der offene Streit zwischen den beiden Troika-Partnern zeigt, wie groß auch intern die Unsicherheit der Euro-Retter ist. Die Rezession in Griechenland geht ins sechste Jahr, die Arbeitslosigkeit steigt, und der Schuldenberg wird dieses Jahr voraussichtlich auf 175 Prozent der Wirtschaftsleistung anwachsen. Kein Wunder, dass Zweifel an der Strategie aufkommen.

[The open conflict between the two Troika partners {the EU Commission and the IMF} shows great the uncertainly of the euro saviors are internally. The recession in Greece is going into its sixth year, unemployment is growing and the mountain of debt is projected to grown to 175% of the economy's capacity {presumably GDP} this year. No wonder that doubt about the strategy is emerging.]

But Volkery also makes two valid points: the IMF actually did agree with the measures, despite their now-admitted doubts at the time, and the IMF is still saying that no other course was politically plausible. The IMF is still trying to have it both ways and, most importantly, it has consistently gone along with the austerity drive. Even in their new report on Greece, IMF Country Report No. 13/154 (June 2013), they say the destructive neoliberal measures need to be pushed even further. Including, deregulation and privatization:

The key factors include: (i) state ownership and restrictions on use of important assets, which remain underutilized (e.g., because of land zoning restrictions) or subject to monopolies (network utilities); (ii) excessive regulations, with permits, licensing and export-import requirements well inferior to EU best practice; and (iii) barriers to entry into closed professions and new markets, including from excessive bureaucracy, corruption, and opaque tax and labor regulations. These factors have limited competition (including from FDI), kept prices and margins well above the EU average, and preserved an economic model based on small and inefficient enterprises. (p. 14)

And weakening unions and pushing wages down further: "The labor market has traditionally suffered from a closed and inflexible system of collective bargaining, very high firing costs (severance payments and redundancy notification periods), a high national minimum wage relative to competitors, and high non-wage labor costs."

And slashing public services that don't directly favor the wealthiest:

Public administration reform, which has not yet started in earnest [!!!] and requires closing inefficient entities and programs and reducing staff in a targeted manner through exits [the IMF apparently considers it impolite to say "throw more people out of jobs," though that's the plain meaning of this], could generate ½ percent of GDP in savings. Savings of 1–1½ percent of GDP might be possible from rationalizing [cutting] education and social spending, which should also be better targeted. But room for other cuts appears limited. After shrinking by 3 1/2 percentage points since 2009, the primary expenditure ratio is now below the EU median. Health spending, public sector wages, and intermediate consumption have all been reduced sharply. (p. 20) [my emphasis]

How those last two sentences relate to the claims that public administration reform "has not yet started in earnest" is beyond me. The IMF's capacity for self-reflection on the austerity measures clearly has narrow limits!

This is also lovely, from a neoliberal point of view (bolding in original):

However, Greece also faces social safety net spending needs and a need to in fact reduce its high tax rates, but these will require identifying additional high-quality measures. Some elements of the social safety net are inadequate, particularly in light of the large and unequal distribution of adjustment costs. For instance, the net replacement rate of unemployment benefits is just below the 20th EU percentile (but is in part compensated by higher severance), and social benefits target only half of the poorest 30 percent of the population. The program commits Greece to identify and fill social safety net needs. Meanwhile, tax rate reductions are needed to boost competitiveness. The program targets a reduction in the labor tax wedge (to deliver a fiscal devaluation, in light of earlier VAT increases), while Greece’s high corporate tax rate relative to its regional competitors is also an issue. These safety net and tax reductions will consume a good part of the gains from spending and tax base broadening measures. (p. 20)

One shudders to think what an unrepentant IMF would be recommending.

So this is the range of debate between the Very Serious People of Europe on the measures wrecking the European economy and indefinitely prolonging the depression: between those who support austerity but vaguely suggest that maybe they kinda-sorta overestimated the benefits three years ago (IMF), and those who support austerity and don't want to hear any regrets from anybody (Merkel, EU Commission, ECB).

Paul Krugman calls the IMF's Greek Regrets (06/05/2013) "fairly remarkable." But he's not too impressed with their retrospective analysis, which is basically the standard neoliberal justification that Maggie Thatcher famously articulated, known as TINA (There is no alternative). Krugman writes:

What could/should have been done differently? The report more or less acknowledges that the pain would have been less with some major debt forgiveness upfront, but dismisses the notion of a more gradual adjustment on the grounds that the financing wouldn’t have been available. But look: if we’re willing to imagine a world in which the troika was willing to admit in 2010 that major debt forgiveness was necessary, why not also imagine that in this world the ECB was willing from the start to backstop sovereign debt the way it finally began to do years later? I think it's possible to envisage a Greek program that began with a big debt writedown, traded off nasty but not crippling austerity for substantial bridge loans from the ECB, and in which Greece returned to the private market in 2012 or so.

OK, it wasn’t going to happen politically, and maybe even if it did the price would have been socially disastrous. But in that case you have to wonder whether it was worth trying to keep Greece in the euro at all. "Grexit" would have been ugly, and will still be ugly if it eventually happens. But compared with what has actually taken place?

This is a 1914 level of leadership failure in Europe, especially in Germany, France and Britain.

Tags: angela merkel, austerity economics, eu, euro, european union, imf, greece

Euronews video report on the IMF qualifications on its Greek policy

Plenty of blame over Greek austerity 'mistakes' - economy Euronews 06/06/2013:

Tags: austerity economics, eu, euro, european union, imf, greece

The IMF and the economic strangulation of Greece

The IMF is once again admitting faults in the economy-killing austerity program that it joined the EU and the ECB (the three constituting the "Troika") in imposing on Greece at the demand, above all of German Chancellor Angela Merkel.

Yanis Varoufakis in The IMF's Anger – and what it means for the Eurozone's crashing Periphery 06/06/2013 notes that the IMF under the leadership of Cristine Legarde has, in the recent past, played a duplicitous game over the bailouts to which the crushing austerity demands were linked:

Last February, I was invited to give a keynote talk at a conference of law specialists working on the legal requirements for Europe' against Germany, Frankfurt and Brussels. As one of them put it to me in no uncertain terms, "the Europeans forced us into a program for Greece that sullied the IMF's image (sic)". More importantly, the IMF was livid that Germany was proclaiming a banking union in order to ensure that it never actually happens. That it honours the idea of a Banking Union in the breach rather than in the observance.

Of course, there is little doubt that the IMF has only itself to blame for becoming an unquestioning member of a troika bent on 'extending and pretending', with catastrophic results for millions of people in Europe who will now join South East Asians and Latin Americans spitting on the ground every time they hear the acronym IMF. After all it was only a few short months ago that Mrs Lagarde went along, against her better judgment, with yet another monstrous reincarnation of the Greek bailout – as narrated in this post. Come to think of it, Mrs Lagarde was adopting a pattern first displayed by her predecessor: Disagree with Europe’s analysis and policies but, at the crucial moment, back down and legitimise these policies through complicity. [my emphasis]

The IMF's latest report on Greece in in IMF Country Report No. 13/154 (June 2013). Anna Yukhananov reports for Reuters on the IMF's latest admissions in IMF says it lowered own standards for Greek program 06/05/2013:

The IMF said its support for Greece in 2010 was necessary to prevent the nation's problems from spilling over into the rest of the euro zone and the global economy.

"There was, however, a tension between the need to support Greece and the concern that debt was not sustainable with high probability," according to the IMF's evaluation.

"In response, the exceptional access criterion was amended to lower the bar for debt sustainability in systemic cases."

After the Greek program was approved, the IMF and the other bailout lenders - the European Commission and the European Central Bank - required Greece to immediately cut some of its debt and implement structural reforms.

There were "notable failures" in the results, the IMF said. Greece remained in the euro zone and cut some of its debt, but failed to restore market confidence. The economy plunged into one of the worst recessions to ever hit a country in peacetime, with output falling 22 percent from 2008 to 2012.

Greece's economy is likely to shrink for the sixth consecutive year in 2013.

The evaluation said the IMF's assumptions for the Greek economy can "be criticized for being too optimistic." [my emphasis]

For Merkel, though, not recognizing and writing off the debt that at the time was clearly unsustainable for Greece was a feature of the 2010 package, not a bug. German and French private banks would have had to take heavy losses. And giving Greece enough to keep going for a few months but not remotely doing what was needed to get it out of trouble allowed Merkel to insist on the destructive neoliberal "reforms" that focus on lowering wages, cutting public services that don't directly benefit the wealthiest, and privatization of state property. The latter giving private interests in the case of Greece the chance to buy up valuable property and state-owned functions at bargain-basement prices.

The four-year drop of 22% in Greek output is a staggering figure. And a measure of the price the Greek people are paying for the benefit of German banks and Merkel's program of maximizing German exports through trashing the countries of southern Europe, with maybe some of the richest countries like France and Luxembourg soon to be on the chopping block.

And the result of the Greek bailout-with-brutal-austerity package was what Keynesian economists and business journalists observed at the time was the likely result. As the economy shrank, the key measure being used by the Troika of debt as a percentage of GDP got bigger as the economy shrank faster than the debt. As the IMF report puts it:

Under the program’s baseline in May 2010, public debt-to-GDP was expected to increase dramatically—peaking at about 155–160 percent (including an expected data revision)—as a result of the contraction in nominal GDP. In the event, the much deeper-than-expected recession caused an even sharper increase in the debt ratio, and debt sustainability concerns were increasingly weighing on sentiment. (p. 6)

It's worth remembering that the inadequate response to the Greek crisis then invited speculative attacks on other eurozone countries' bonds, including those of Spain and Italy. A better immediate response wouldn't have solved the underlying problems of the inadequate structure of the common currency zone. But the response that actually happened would up spreading and exacerbating the crisis much faster than would have likely occurred in the event of a more realistic response.

Tags: angela merkel, austerity economics, eu, euro, european union, imf, greece

The IMF's Christine Lagarde declares that Big Capital doesn't care about poverty in Greece

Christine Lagarde in her tenure as Managing Director of the International Monetary Fund (IMF) has been cultivating an image as somewhat more flexible and realistic than the starry-eyed devotees to neoliberalism, the theology of the Great God Free Market that passes itself off as an economic ideology.

The Economist's cartoonist KAL gave us a glimpse of how this works out in practice in his 04/28/2012:

Lagarde is also showing how thin a veneer of humanity lies behind what she sees as the role of the IMF as the faithful servant of Big Capital and giant international creditors, as we see in : Larry Elliott and Decca Aitkenhead, It's payback time: don't expect sympathy – Lagarde to Greeks Guardian 05/25/2012. This exchange speaks volumes:

In an uncompromising interview with the Guardian, Lagarde insists it is payback time for Greece and makes it clear that the IMF has no intention of softening the terms of the country's austerity package.

Using some of the bluntest language of the two-and-a-half-year debt crisis, she says Greek parents have to take responsibility if their children are being affected by spending cuts. "Parents have to pay their tax," she says. ...

Asked whether she is able to block out of her mind the mothers unable to get access to midwives or patients unable to obtain life-saving drugs, Lagarde replies: "I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens."

Lagarde, predicting that the debt crisis has yet to run its course, adds: "Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax." She says she thinks "equally" about Greeks deprived of public services and Greek citizens not paying their tax.

"I think they should also help themselves collectively." Asked how, she replies: "By all paying their tax."

Asked if she is essentially saying to the Greeks and others in Europe that they have had a nice time and it is now payback time, she responds: "That's right."

She defended her position further by stressing that just how she and the IMF see the world:

In her interview Lagarde says Greece is not getting softer treatment than a poor country in the developing world, and that the IMF does not find it harder to impose strong conditions on a rich nation.

"No, it's not harder. No. Because it's the mission of the fund, and it's my job to say the truth, whoever it is across the table. And I tell you something: it's sometimes harder to tell the government of low-income countries, where people live on $3,000, $4,000 or $5,000 per capita per year, to actually strengthen the budget and reduce the deficit. Because I know what it means in terms of welfare programmes and support for the poor. It has much bigger ramifications."

A clearer idea is also emerging of what Angela Merkel sees as growth measures to stimulate the economy:

Signs emerged of a widening gulf between Germany and France over whether common eurobonds should be issued to help those countries, such as Greece and Spain, with high interest rates on their debt.

[Faithful Angiebot] Jens Weidmann, president of the Bundesbank, poured cold water on the idea – which is strongly backed by the French president, François Hollande – and also said financial aid to Greece should be cut off if it failed to keep to the bailout deal.

Jürgen Fitschen, joint head of Germany's biggest bank, Deutsche, described Greece as "a failed state … a corrupt state". Separately, however, there were reports suggesting that the chancellor, Angela Merkel, was dusting down the economic modernisation plan used to revive East Germany after the fall of communism in the belief that similar measures could be applied to Greece and other struggling eurozone countries. Today's Der Spiegel magazine says Merkel will present a six-point plan based on the East German blueprint as a growth strategy. It includes measures such as privatisation, looser employment law and lower tax rates.

In other words, Angie's supposedly new prescription for growth in Greece and elsewhere is: cut taxes for the wealthy, bust more unions and weaken job security, sell of public assets and give private companies the ability to export more of the country's jobs.

Tags: angela merkel, austerity economics, christine lagarde, eu, euro, european union, imf, neoliberalism

New Greek austerity package up for a vote Wednesday

With polls showing up to 80% of the Greek public opposed to the draconian new austerity measures the Troika (EU Commission, European Central Bank, IMF) is trying to force onto the Greek Parliament, a 48-hour general strike is underway, along with big and often dramatic street protests.

Aljazeera English provides this short report, Greek protests turn violent 06/28/2011:



The self-destructive austerity measures demanded by the Troika are up for a vote in the Greek Parliament on Wednesday. The ruling social-democratic Pasok Party has a 155-seat majority in the 300-seat Parliament. From the reports I'm seeing and hearing on Thursday, the vote is going to be very close, with at least two Pasok members saying they will definitely vote against it. Pasok is the left-center party. But what is left of "left" when the social-democratic party insisting on ruinous austerity measures that basically everyone knows will not solve Greece's debt problem and will actually make it worse, all to protect the owners of French and German banks.

Doomsday predictions are flying around, encouraged by the Troika, facilitated by weak reporting in much of the European media and - do I even need to add? - in the American press. Here's a painfully uninformative example from ITN via the PBS Newshour 06/28/2011:



Meanwhile, the IMF now has a new chief, Christine Lagarde. Whether that is good news for Greece or anyone else remains to be seen. But presumably we won't have long to wait. Krugman expresses a tad of optimism in The Mystery of Lagarde 06/28/2011:

It’s not as if she's especially enigmatic: in addition to being smart, by all accounts she's serious, responsible, and judicious. But that, of course, is what worries me.

For we're living in an era in which, for the time being, conventional prudence is folly, conventional virtue is vice. The things Very Serious People want to do — slash deficits right away, "normalize" interest rates, worry about inflation — are exactly the kind of things that could turn the slump of 2008-? into decades of stagnation.

Under Strauss-Kahn, the IMF was staking out a position as the least dogmatic, most open-minded of the major international organizations. That’s not saying too much, but it was much better than the madmen in authority at the OECD or the BIS.

So the question is, will the IMF become more sensible under Lagarde? For the sake of the world economy, let's hope not.

Supposedly, if the austerity measure doesn't pass on Wednesday or maybe Thursday, the Greek government will run out of money in two weeks. At this point, the sooner Greece rejects the Troika's demands and/or defaults, the less the overall damage would likely be, as near as I can tell. At least, the sooner all parties involved face the reality that Greece is going to default on some of its sovereign debt in the best of cases, the better it will be.

Tags: christine lagarde, eu, european union, greece, imf, paul krugman

Dominique Strauss-Kahn's arrest and the IMF's political direction

Robert Kuttner gives a quick run-down on arrrested International Monetary Fund (IMF) chief Dominique dubious personal and professional history as it relates to the pending charges against him in Strauss-Kahn and the European Left Huffington Post 05/15/2011:

Strauss-Kahn, who until yesterday headed the International Monetary Fund, was the Socialist front-runner to challenge French President Nicolas Sarkozy next year. Polls showed that Strauss-Kahn well ahead of both Sarkozy and far right populist Marine Le Pen.

But even before this latest scandal broke, Strauss-Kahn didn't seem like much of a socialist. Last week, the press caught DSK, as the local press calls him, and his wife tooling around in a borrowed $150,000 Porsche, which reinforced his image as wealthy playboy. In 2008, Strauss-Kahn barely survived a widely publicized affair with one of his IMF employees, and in the wake of the New York incident, another woman has stepped forward claiming a rape in 2002.

Cynics here have argued that the wily Sarkozy promoted his likely rival for the IMF post to increase the chances that the imperious Strauss-Kahn would commit some highly visible and politically fatal act. For demolishing the Socialists' claim to speak for the common Frenchman and woman, it's hard to beat an accusation of the entitled Socialist standard bearer orally raping a chambermaid in a $3,000 luxury hotel room and then trying to skip town.

Politics is politics, so it's certainly not unthinkable that Sarkozy may have had such a possibility in mind.

While Strauss-Kahn may not have been "much of a socialist," as Kuttner says - the IMF during his term in office had moved a bit away from the neoliberal Washington Consensus that had so badly discredited the IMF in much of the world. Joe Stiglitz discusses that shift in The IMF’s Switch in Time Project Syndicate 05/05/2011 (before Strauss-Kahn's arrest). Stiglitz describes how "Iceland showed that responding to the crisis by imposing capital controls could help small countries manage its impact." And that subsequent capital flows to growing developing nations has made the need for such capital controls even more widely appreciated. The IMF has now "blessed such interventions," i.e., capital controls, though Stiglitz notes that the IMF stayed witht he neoliberal notion that they should be only a "last resort." And he argues:

On the contrary, we should have learned from the crisis that financial markets need regulation, and that cross-border capital flows are particularly dangerous. Such regulations should be a key part of any system to ensure financial stability; resorting to them only as a last resort is a recipe for continued instability.

Stiglitz considers it an even more signficant shift in IMF policy has been "the link that the IMF has finally drawn between inequality and instability." This is an issue of particular concern in the United States, though we are a long way from being subjected to the dubious tutelage of the IMF that threaten Greece and other EU countries under attack by the capital markets. Stiglitz notes, "As it is, with almost one-quarter of all income and 40% of US wealth going to the top 1% of income earners, America is now less a 'land of opportunity' than even 'old' Europe." And he concludes

For progressives, these abysmal facts are part of the standard litany of frustration and justified outrage. What is new is that the IMF has joined the chorus. As Strauss-Kahn concluded in his speech to the Brookings Institution shortly before the Fund's recent meeting: "Ultimately, employment and equity are building blocks of economic stability and prosperity, of political stability and peace. This goes to the heart of the IMF’s mandate. It must be placed at the heart of the policy agenda."

Strauss-Kahn is proving himself a sagacious leader of the IMF. We can only hope that governments and financial markets heed his words.

Obviously, Stiglitz was commenting on Strauss-Kahn's public role as IMF chief, not on his alleged sexual assaults. Kuttner concurs with Stiglitz' judgment on the recent direction of IMF policy:

For all his personal flaws, Strauss-Kahn, in his current job as head of the International Monetary Fund, has been less of an austerity-monger than most of his predecessors. That's a pretty low bar, but under Strauss-Kahn and his chief economist, Olivier Blanchard, the IMF has uncharacteristically weighed in on the side of not punishing nations with large deficits, but helping them to grow their way out of recession.

With Strauss-Kahn sidelined and probably finished, the IMF has appointed an American, John Lipsky, a career official, as acting managing director. Strauss-Kahn, as a French Socialist, had been leaning against the IMF austerity culture, and Lipsky is considered more orthodox.

Steve Clemons also discusses recent IMF policy and Staruss-Kahn's public leadership style in The Meaning of Strauss-Kahn Washington Note 05/16/2011.

Tags: imf, international monetary fund, joseph stiglitz, neoliberalism, robert kuttner, strauss-kahn