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

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

https://youtu.be/PJB-iP9EmV4

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

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

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

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

Italy and populist politics

Italy's election of March 4 left three parties that in one form or another are seen as populist parties. In Europe, notably Austria and Germany, "populist" is often used as more-or-less-synonymous with rightwing politics and demagoguery. It's too narrow a definition, which would exclude some of the most significant populist movements in history, including the Populist Party itself once led by William Jennings Bryan. That spin on what "populist" means is worth keeping in mind when reading commentaries on Italian politics of the moment.

The leading vote getter in March was the left populist Five Star Movement. Although they have in the past talked about anti-austerity economic policies in line with his own, Yanis Varoufakis is very cautious about finding hopeful results in their first place win. (LA STAMPA interview on the Italian election result (the original answers in English) yanisvaroufakis.eu 03/09/2018). Varoufakis describes himself and the DIEM25 group of which he is a leader as progressive Europeanist, i.e., pro-EU but anti-austerity.

"The Italian election yielded a sad impasse," he writes. "The only real beneficiaries are those who invested in xenophobia and fear." And he emphasizes the role of bad economic policies in the result: "Like every other European country in which the establishment pressed on with failed, austerity-based policies, pretending that they were the solution to our continent’s systemic crisis, the ballot box reinforced the forces of European disintegration."

He doesn't present Five Star in a very appealing light:

What’s your view of the Five Star? Do you categorise them as a populist movement or as a new left?

No party that invests in fear of the migrant, of the ‘other’, the refugee can pose as left-wing. The term ‘populist’, in my mind, has been widely abused of recent. In terms of domestic economic policies, Five Star is clearly trying to re-position itself as a centrist party that can be trusted by the establishment. It tries to maintain its perceived radicalism by targeting the old political class and it corrupt ways while refraining from challenging the ‘system’ itself. Of course, when a system is failing as obviously as Europe’s and Italy’s, the attempt to embrace the system while criticising its functionaries seems to me ill-fated.

What do you think of M5S’s proposal for a basic income? Is it radical? Is it progressive?

M5S are proposing a Guaranteed Minimum Income. This must not be confused with the Universal Basic Income, which would be paid to every citizen with no conditions attached. M5S’s proposal is for a minimum means-tested payment that is conditional also on registering at a job centre, demonstrating that you are looking for work, and not turning down job offers – even if they are low grade and demeaning. In essence, M5S is proposing a welfare net that is standard in most central and northern European countries. Many Italians need this payment and see it as a glimpse of hope – so we should not be quick to criticize it. Whether it will, in the end, be good for poorer Italians or not will depend on the implementation, and in particular what other benefits (e.g. disability or child benefits) are cut.

Angela Giuffrida in The Guardian describes also describes how the current Five Star position on immigration is on the same wavelength with reactionaries (From rebels to Italy's biggest single party: can the Five Star Movement govern? 03/05/2018):

The big question is with whom would the party ally in order to reach the 40% share of the vote required to govern Italy. Experts speculate that it could exploit the dismal performance of the Democratic party and attempt to split that party, or try to team up with the small leftwing group Free and Equal. Another scenario is a tie-up with the League, formerly known as the Northern League, a far-right party with whom it is more closely allied on issues such as immigration and Russia.

Di Maio has said he would stop sending the rescue boats that save migrants in the Mediterranean, which he has called a “sea taxi service”, while Matteo Salvini, the League’s leader, has pledged to deport thousands of illegal immigrants.

Maurizio Cotta looks at some of the "macro" factors at work in the Italian election (Italy: First European Country In The Hand Of Populists? Social Europe 03/09/2018):

According to the Bertelsmann Stiftung’s 2017 Sustainable Governance Indicators (SGI) on Italy the economic recovery started to take off under the Democratic Party-based governments of Matteo Renzi and Paolo Gentiloni, but people’s perceptions didn’t change much and are still dominated by the effects of the deep recession of the past years – fear of unemployment, experiences of business failures, and the tightening of living conditions. Naturally, the main governing parties suffer under such conditions, whereas opposition parties that are perceived as being far distant from the government enjoy voters’ goodwill. Thus, first and foremost the Five Star Movement and the League grew rather than Forza Italia which had headed the government three times between 1994 and 2008.

A second reason for the success of these two parties is the growing resentment in large strata of the population against the policies of the EU. Many people feel damaged by economic austerity on the one hand and resent the scant solidarity shown to Italy’s problems with immigration on the other. The Five Star Movement and the League have both shown very critical attitudes towards the EU – to the point of even suggesting a referendum on the Euro.

John Weeks thinks the centrist parties are ignoring Biblical signs of skeptical and critical attitudes toward the real existing EU (EU Takes Beating In Italian Elections: When Will They Ever Learn*? Social Europe 03/07/2018):

The centrist parties in the European Parliament treated the growth of the far right as a fringe phenomenon requiring no amendment to their “ever closer union” agenda. The British vote to leave brought no more than a momentary shock. Shrugging off Brexit as a uniquely British phenomenon and no threat to the continent, the centre-right (European Peoples’ Party) and centre-left (Progressive Alliance of Socialists and Democrats) pursued their top-down strategy of deepening through compromise.

Mario Pianta in Loathing And Poverty: Italy After The 2018 Elections Social Europe 03/06/2018 stresses economic issues in looking at the Italian election:

Ten years of severe economic and social crisis are the background to all these developments. Italy’s per capita income is now back to the levels of twenty years ago; behind this average there is a collapse – of about 30% – of the income of the 25% poorest Italians, living in the South or in the declining peripheries of the Center-North. Twenty years of stagnation and decline mean a generation with ever-lower expectations in terms of income, work and life. Impoverishment has become a reality for a very large swathe of Italians. The Five Star vote reflects the poverty of the South – their call for a general minimum income has been attractive in this regard. The vote for the League expresses the fear of impoverishment in the North. Only in the centres of major cities – where the richest and the highly educated live, and the economy is better – has the vote taken different directions, going to Forza Italia and the Democratic Party.

The particulars are different from country to country, of course. But people trying to understand this moment in politics in EU countries have to wrestle with the complex overlaps between economic situations and xeophobic sentiment:

Poverty is coupled with fear. The fear of worsening economic conditions and social status; the fear of having immigrants next door, other poor people competing for fewer low-skilled jobs and scarcer public services. In the elections the most prevalent fear was that of immigrants – the landings in Lampedusa, the inability to integrate them, the killing and shootings in Macerata. Salvini turned anti-immigration attitudes into his most effective political tool; Five Star expressed the same hostility – calling NGOs saving immigrants in the Mediterranean ‘water taxis’ for illegal aliens and refusing to vote for a bill granting citizenship to second generation Italians with migrant origins. [my emphasis]

So the left-leaning populist in Five Star did embrace the anti-immigrant rhetoric that rightly disgusts Yanis Varoufakis.

All over Europe, the phenomenon of the center-right Social Democratic parties collapsing after years of embracing Angela Merkel-style neoliberal economics is a major factor in the political picture.

When the "adults in the room" are destructive

"Keep in mind that the ruling class can be self-destructively mad; not just pretending!" (Daniel Ellsberg to Yanis Varoufakis, 2015)

Economist and one-time Greek Finance Minister Yanis Varoufakis has written an account of his experience in 2015 trying desperately but ultimately unsuccessfully to get a debt deal for Greece that wouldn't condemn the country to indefinite economic depression, Adults in the Room: My Battle with the European and American Deep Establishment. It was published in the US Tuesday.

The Ellsberg quote comes in Varoufakis' description of the later stages of negotiations with the EU leaders, of whom Germany's Angela Merkel was easily the most significant.

[Prime Minister] Alexis [Tsipras] looked at me serenely and asked, 'What are the chances that they [the EU institutions and the IMF] will come back to us with something decent, Yani?'

At that critical juncture in our country's history I was obliged to answer with the greatest possible precision. I told him that the probability they would do so was mo per cent if they acted rationally. But, I warned, as Dan Ellsberg, the great American economist and Pentagon strategist turned pacifist whistle-blower, had emailed me a few weeks before, 'Keep in mind that the ruling class can be self-destructively mad; not just pretending!'

'Powerful European leaders have a track record of being bad at serving their interests, of falling prey to irrational urges,' I said. And given that irrationality breeds unpredictability, I estimated that a more sensible probability - that Chancellor Merkel would opt for the mutually assured damage of Grexit rather than a mutually advantageous deal - was around fifty-fifty.' [my emphasis in bold]

Adults in the Room is not only a good read, giving a chronological account of his short but highly eventful tenure as Greek Finance Minister under the Syriza government elected in 2015. Their mandate was to get Greece out from under the ruinous austerity program imposed on them by the "troika" of the IMF, the ECB and the European Commission. In the end, they failed, with Alexis Tsipras' government eventually backing down from risking leaving the euro currency.

Greece is still struggling with the same problems 2 1/2 years later, the austerity program keeping the country in what is in effect a permanent depression. The human cost has been staggering. The pro-EU, anti-austerity group of which Varoufakis is now a part, DiEM25, has recently proposed a New Deal for Greece, which advocates the kind of solutions that he wanted to put into place in 2015. It's opening sentences (bolding in original):

The seven-year economic crisis has kept Greece locked in a state of quadruple insolvency: with a bankrupt state, bankrupt banks, bankrupt businesses, and bankrupt households. Everyone owes to everyone and no one can pay.

Under these circumstances, there can be only one overarching goal: to restructure all public and private debt; a move which requires the restoration of democratic sovereignty.

Those themes run throughout Adults in the Room. Varoufakis does a great job of explaining the interactions between economic policy and the power dynamics within the EU. He cautions against shoeboxing the power rivalries within the EU in opposition between nations. He prefers to see the central conflict in basic left-populist terms as between the oligarchies of the EU nations and the people of the whole EU. At the same time, his account leaves little doubt that the chief enforcer for those EU elites is named Angela Merkel.

Greece did wind up with too much public debt to service, which became a legitimate debt crisis after the 2008 Great Recession began. A major portion of those bonds were held by French and German banks, already hit hard in other ways by the financial crisis, so German officials were particularly opposed to having the debt written down, which would be the normal procedure in such a case. Because the German government would then be faced with recapitalizing the banks, and Merkel didn't want to be seen doing that. The "solution" was a remarkable approach to excessive debt. The troika arranged additional loans to Greece so that they could service the old debt and avoid any French or German bank insolvencies. And forcing Greece to accept radical austerity measures as part of the deal.

Economists and financial journalists - among them Paul Krugman, Joe Stiglitz, Barry Eichengreen, Wolfgang Münchau, Martin Wolf, Varoufakis himself and his successor as Finance Minister Euclid Tsakalotos - predicted in real time that this was a disastrous program that would not solve the debt problem and would hammer the already distressed Greek economy. And events validated their predictions in a gruesomely spectacular way. As the austerity measures made the Greek GDP shrink, the expanded debt forced on them by the troika made the debt a bigger and bigger ratio to the GDP, which meant their debt position deteriorated further, requiring more "bailouts."

I put bailout in quotation marks, because the additional loans forced on Greece were not bailouts. They were additional debt. But politically, Merkel and her Grand Coalition government (CDU/CSU and SPD) decided to present the program as a generous bailout by Germany to Greece. And encouraged nationalist resentment against it. So it became distressingly common for Germans and Austrians to gripe about "lazy" and "corrupt" and "irresponsible" Greeks. This nationalist attitude toward Greece soared during the 2015 negotiations over yet another debt solution that had become urgent.

Varoufakis calls Merkel's strategy "extend-and-pretend," his version of the American "kicking the can down the road." One of the most notable aspects of Varoufakis' account is that the conservative German Finance Minister Wolfgang Schäuble repeatedly admitted to his Greek counterpart that he knew the program on which the EU was insisting would not actually solve the problem it claimed to be solving.

And this is where the Ellsberg quote comes in. Varoufakis also specializes in game theory. And his understanding of the basic negotiating options for Greece meant that if the EU had offered debt relief and a decent recovery program for Greece, then Syriza could accept it and the deal would be done. But if Germany and their allies in the EU insisted on continuing the unrealistic extend-and-pretend austerity program - which is what actually happened - then Greece would have to be prepared to be pushed out of the eurozone in order to be able to force Germany to agree to a solution that kept them within the eurozone without ruinous austerity.

This remains the basic dilemma for the EU and the eurozone. The German political scientist Claus Offe describes it in Europe Entrapped (2016) in terms that are broadly consistent with Varoufakis' description and which obviously draws heavily on the lessons of Greece's doomed 2015 attempt to break out of the debt-and-austerity trap. The German version is titled Europa in der Falle, which the English title also renders well. For the eurozone, no one knows exactly the consequence of a member nation leaving. But it would be a big risk. Because of the very likely possibilities is that the currency zone would quickly disintegrate with one nation after another leaving. The currency breakups after the fall of the Soviet Union and of Yugoslavia don't give anyone looking at this problem warm and fuzzy feelings.

Leaving the eurozone is also presumed to mean that the leaving nation would also have to leave the EU itself, which would create further economic problems. Brexit is providing a real world test of that process, but without the even more consequential implications of having to leave the euro currency zone, since Britain was never a member of it.

Varoufakis and Tsipras assumed on taking office that Germany was likely to insist on their hard line until the very end, which is what occurred. If Greece refused to agree to an unfavorable deal, Germany would then be forced to push Greece out of the eurozone. Schäuble, on Varoufakis' evidence, wanted that to be the outcome. He was willing to take the risk. That's the context in which the Ellsberg quote comes into play. The Greek negotiating strategy was predicated on the idea that Merkel's government would only agree to a realistic program that provided debt restructuring if they thought that Greece was serious about leaving the eurozone rather than accept a continuing of the troika program.

In the end, it was Tsipras who backed down from the risk of Greece leaving the euro. And in a humiliating way. Greece got a terrible deal and the same dilemma persists, unsolved, with 2 1/2 more years of serious economoic damage to the country. And it gives us a good idea of what to look for in future such confrontations. And in the ongoing Brexit negotiations.

One key point that Varoufakis stressed during the process was that Merkel's determination to coerce Greece into capitulation was primarily aimed at deterring other EU countries from going the same route, France in particular. She seems to seriously believe in her austerity policies, because she is especially determined to force them on the eurozone countries.

And Adults in the Room gives a vivid picture of what the much-discussed "democratic deficit" in the EU and especially the eurozone looks like. It's not a pretty picture. In an article (Why we must save the EU Guardian 04/05/2016), Varoufakis relates an emblematic moment in the "democratic deficit":

After I had recited our government’s plea for a substantial renegotiation of the so-called “Greek economic programme”, which had the troika’s fingerprints all over it, Dr Schäuble astounded me with a reply that should send shivers up the spine of every democrat: “Elections cannot be allowed to change an economic programme of a member state!” he said categorically.

During a break from that 10-hour Eurogroup meeting, in which I had struggled to reclaim some economic sovereignty on behalf of my battered parliament and our suffering people, another finance minister attempted to soothe me by saying: “Yanis, you must understand that no country can be sovereign today. Especially not a small and bankrupt one like yours.”

This line of argument is probably the most pernicious fallacy to have afflicted public debate in our modern liberal democracies. Indeed, I would go as far as to suggest that it may be the greatest threat to liberal democracy itself. Its true meaning is that sovereignty is passé unless you are the United States, China or, maybe, Putin’s Russia. In which case you might as well append your country to a transnational alliance of states where your parliament is reduced to a rubber stamp, and all authority is vested in the larger states. [my emphasis]

Brief summary of the problem with the EU's Greek policy

Martin Wolf's mini-review of Yanis Varoufakis' new book, Adults in the Room, due to be published in the US in the fall:

This is a superbly written account of the struggle to alleviate the austerity imposed upon the Greek people by the eurozone. Greece, argues Varoufakis, has been put in a debtors’ prison and robbed of autonomy and dignity for the indefinite future. Critics would argue that he failed as finance minister in 2015 because he was insufficiently politic. More plausibly, he could never have succeeded, such were the vested interests arrayed against him. This outcome was — and is — a tragedy, because he was — and is — right. The bulk of Greek debt should indeed be cancelled outright. Read and weep. [my emphasis]

The Greek economy continues to be a grim example of the miserable, destructive failure of neoliberal economics. It has other description. I tend to call it Herbert Hoover/Heinrich Brüning economics because it involves applying drastic pro-cyclical economic policies during a depression. And the Hoover/Brüning label is also a reminder of the potentially large political consequences of such misguided policies.

Neoliberalism as economic policy does have its own particular history as a response to the welfare state. In some key ways, it's more acutely ("free-market") liberal than the Hoover/Brüning edition. A more common synonym for neoliberalism is the Washington Consensus. In the worst, imperialistic, anti-popular sense of "Washington."

I don't have a good feeling about this: French election edition

French polls still seem to show a strong lead for the "centrist" Presidential candidate Emmanuel Macron. The Guardian reports Emmanuel Macron vows to be 'president for all of France' after first round win 04/24/2017:

Macron’s critics for a long time called him a “champagne bubble” that would burst. A former investment banker in a country where voters distrusted banks, he had been appointed as economy minister by François Hollande. He quickly became the most popular minister. He also served as a presidential adviser in the gilded anti-chambers of the Elysée palace – effectively the architect of Hollande’s pro-market, business-friendly reforms that so alienated voters on the left.

Macron’s presidential bid was a mass of contradictions, critics complained. He was a member of the elite top tier of the civil service, on friendly terms with business leaders and powerbrokers, yet vowed to fight the “system”.

But Macron is committed to the predominant EU neoliberal economic doctrine, aka, Herbert Hoover economics, Heinrich Brüning economics, Merkel-nomics, the Washington Consensus, the IMF/World Bank dogma.

So this is not a good things for workers and for the large majority of the people in France.

Yanis Varoufakis has endorsed Macron over Marine Le Pen, Why we support Macron in the second round Le Monde 05/02/2017. He makes his concerns clear. But he also shares a story of what he takes to be a serious attempt by Macron to help Greece resist the draconian economic measures forced onto them in 2015:

During my tenure as Greece’s finance minister in early 2015 Emmanuel revealed to me a side of him that few progressives have seen. While the troika of Greece’s lenders and the Berlin government were strangling our freshly elected left-wing government’s attempts to liberate Greece from its debt-bondage, Macron was the only minister of state in Europe that went out of his way to lend a helping hand. And he did so at a personal political cost. ...

By crushing the Greek Spring the troika did not only deal a blow to Greece but also to Europe’s integrity and soul. Emmanuel Macron was the only member of the establishment that tried to stop it. I feel it is my obligation to ensure that French progressives, as they are about to enter (or not to enter) the polling station in the second round of France’s Presidential election, make their choice fully aware for this.

For my part, my promise to Emmanuel is this: I shall mobilise fully to help you beat Le Pen with the same strength that I shall be joining the next Nuit Debout to oppose your government when, and if, you, as President, attempt to continue with your dead-end, already-failed neoliberalism.

Luis Martín describes the challenge for the left in the likely case that Macron becomes President in Open Democracy 05/01/2017:

When Emmanuel Macron made it to the second round of the French presidential election last month, banning Marine Le Pen from occupying the Élysée Palace for the present time, the EU breathed a sigh of relief with our European representatives and various heads of state echoing their euphoria. The threat to the Union had, once more, been averted. But sadly this is as myopic as Brussels can be.

Macron may very well prevent the Front National’s rise to power next Sunday, but by what margin and for how long? The epic demise of Macron’s former Socialist Party has left its electorate fractured among him, Benoît Hamon and Jean-Luc Mélenchon, so the young former Minister of Economy and maverick investment banker is doomed to endure an extremely weak presidency after the legislative race in June. This is particularly dangerous if there is no clear alternative in sight.

Spanish politics and the EU

Yanis Varoufakis evaluates Spain's recent, rather inconclusive national election in Only Europe's Radicals Can Save the EU Newsweek 07/08/2016. Varoufakis thinks that it could turn out to be "a pyrrhic victory for Spain’s establishment":

British Tories, like Michael Gove and Boris Johnson, knew they could draw mass support from a slogan like “We want our country back!” The Spanish establishment cannot do this. And they cannot do it because, over the last four decades, they managed to retain control by offering voters an unlikely deal: “You keep us in government and we shall do what is necessary to rid you of us, by transferring power to Brussels and to Frankfurt.” Calling for a restoration of sovereignty now would strike Spanish voters as backtracking on the promise to rid them of their local rulers. But, then again, this promise is under increasing strain at a time when the process of Europeanization is in serious trouble.

Spain’s establishment is in a bind. To stay in power it must continue with the narrative of Europeanization and of continual transfers of authority away from itself toward the EU’s technocracy. At the same time, however, it is clear to a majority of the Spanish citizenry that the EU’s technocracy has lost the plot, has inflicted upon the European periphery unnecessary recession, has lost the support of a large majority of Europeans, and is now losing control of important EU realms, like the U.K.

The surprising underperformance of the left party Unidos Podemos, Varoufakis explains this way: "The reason why Brexit helped PSOE pip Podemos at the post was very, very simple: the theme of Europe’s disintegration entered the election campaign with a bang, with three days to go until Spain voted."

Unidos Podemos (Ana Pardo de Vera, Iglesias pide a Podemos mirar al "futuro" y construir un "bloque histórico con movimientos populares" Público 09.07.2016). Negotiations are still under way to form a new government.

Negotiating over negotiating Brexit

Anything can happen with Brexit. But it sounds unlikely to me that it's going to be a smooth process.

European Parliament President Martin Schulz is from the German SPD. But he's a shameless Angiebot, not that this makes him any different than most other SPD leaders, a related but different story. He demanded that Britain make their Article 50 application by this Tuesday! Probably not going to happen. In theory, the SPD (Angie's junior coalition partner) is pressing for a rapid British exit while Angie and her CDU/CSU are being more cautious.

But there's no way Schulz made that kind of statement without Merkel's approval. If Merkel is going to preserve her current EU, she has to punish the defiant, like she punished Greece. I'm convinced that Merkel sees the EU as a neoliberal version of the Warsaw Pact; that's a big reason I call her East Germany's Last Revenge on the West. Since Britain is not a part of the euro, she has more flexibility to make concessions to Britain and did make some prior to the Brexit vote. But punishment and intimidation is how she rolls in these things, with the full support of the SPD.

I'm very sure Angie doesn't give a flying flip that a majority of British voters elected to leave. At his first meeting with Yanis Varoufakis as Finance Minister of Greece when the Syriza government took power in 2015 with a clear electoral mandate to end the Herbert Hoover austerity programs, Angie's Finance Minister and fellow CDU leader Wolfgang Schäuble told Varoufakis, “Elections cannot be allowed to change an economic programme of a member state!” (Why we must save the EU Guardian 04/05/2016)

Angie's close ally and Defense Minister Ursula von der Leyen is saying, "No one will have to chance to play for time. The economy will demand quick clarity. Investors will hold back until they know what's going on now: in or out." ("Es wird niemand die Chance haben, auf Zeit zu spielen. Die Wirtschaft wird schnelle Klarheit einfordern. Investoren werden sich zurückhalten, bis sie wissen, was jetzt gilt: drinnen oder draußen."; Schulz fordert Austrittsantrag der Briten bis Dienstag Spiegel Online 25.06.2016)

The negotiating over negotiating is already well underway (Jon Henley et al, European leaders rule out informal Brexit talks before article 50 is triggered Guardian 06/27/2016):

On the eve of a crunch summit in Brussels, the German chancellor, Angela Merkel, said she, president François Hollande of France and Italy’s prime minister, Matteo Renzi, had agreed at their meeting in Berlin that “there will be no formal or informal talks about Britain’s exit” until the UK has triggered article 50, the untested procedure that governs a member state leaving.

Hollande urged Britain to “not waste time” in launching the leaving process. “Being responsible means not wasting time in engaging with the question of Britain’s departure and setting this new impulse we want to lend the new European Union,” he said, adding that “nothing is worse than uncertainty – and Britain has already had painful experience of this”.

France and Italy, not surprisingly, are on board with Merkel's approach. The German SPD, which still passes for a center-left party and serves as Merkel's junior coalition partner, is playing its part by publicly insisting on a hard line with Britain:

The president of the European parliament, Martin Schulz, warned this weekend that a period of limbo would “lead to even more insecurity” and said the Brussels summit was the right time to begin formal exit proceedings.

There was pressure, too, from within Merkel’s own government: the head of her Social Democrat coalition partners, Sigmar Gabriel, called for “decisive action instead of indecision”.

Brexit and the European left

Jamie Galbraith gives his verdict on Brexit in The Day After DiEM25 06/25/2016:

Leave won by turning the British referendum into an ugly expression of English nativism, feeding on the frustrations of a deeply unequal nation, ironically divided by the very forces of reaction and austerity that will now come fully to power. The political effect has sent a harsh message to Europeans living in Britain, and to the many who would have liked to come. The economic effect will leave Britain in the hands of simpletons who believe that deregulation is the universal source of growth.

That such a campaign could prevail – leading soon to a hard right government in Britain – testifies to the high-handed incompetence of the political, financial, British and European elites. Remain ran a campaign of fear, condescension and bean-counting, as though Britons cared only about the growth rate and the pound. And the Remain leaders seemed to believe that such figures as Barack Obama, George Soros, Christine Lagarde, a list of ten Nobel-prize-winning economists or the research department of the IMF carried weight with the British working class.

He identifies the 2015 treatment of Greece as a key turning point for the Brexit trend: "The groundwork for the Brexit debacle was laid last July when Europe crushed the last progressive pro-European government the EU is likely to see – the SYRIZA government elected in Greece in January 2015."

Galbraith thinks it's likely that the political contagion will spread:

And the crisis now erupts everywhere in Europe: in Holland and France, but also in Spain and Italy, as well as in Germany, Finland and the East. If the hard right can rise in Britain, it can rise anywhere. If Britain can exit, so can anyone; neither the EU nor the Euro is irrevocable. And most likely, since the apocalyptic predictions of economic collapse and “Lehman on steroids” that preceded the Brexit referendum will not come true, such warnings will be even less credible when heard the next time.

Former Greek Finance Minister Yanis Varoufakis does his own postmortem in The Right Left for Europe Project Syndicate 06/24/2016. Varoufakis believes that European politicians should be able to walk and talk at the same time. As Greek Finance Minister, he supported Greece staying in the EU and the eurozone. But he also knew that to be able to negotiate a minimally acceptable deal with Germany, Greece's government had to be prepared to leave the eurozone if they didn't get it. Prime Minister Alexis Tsipras wasn't prepared to do that.

That's part of the background of his commment here, "it is one thing to oppose entering the EU; it is quite another to favor exiting it once inside. Exiting is unlikely to get you to where you would have been, economically and politically, had you not entered. So opposing both entry and exit is a coherent position."

Speaking of his own pro-EU group DiEM25 (Democracy in Europe Movement). he writes:

... we will not be forced by the prospect of the EU’s disintegration to acquiesce to an EU of the establishment’s choosing. In fact, we believe it is important to prepare for the collapse of EU under the weight of its leaders’ hubris. But that is not the same as making the EU’s disintegration our objective and inviting European progressives to join neo-fascists in campaigning for it.

Varoufakis refers to left opponents of EU membership for their individual countries as "Lexiteers." He addresses the arguments of three Lexiteers, whose opinions he obviously takes seriously: Richard Tuck, Thomas Fazi and Heiner Flassbeck. In respnse to Flassbeck, he writes:

Perhaps Flassbeck’s harshest criticism of DiEM25’s radical pan-Europeanism is the charge that we are peddling left-wing TINA: “there is no alternative” to operating at the level of the EU. While DiEM25 advocates a democratic union, we certainly reject both the inevitability and the desirability of “ever closer union.” Today, the European establishment is working toward a political union that, we regard as an austerian iron cage. We have declared war on this conception of Europe.

Do central banks need to be "independent"?

Simon Wren-Lewis has a wonkish post, The strong case against independent central banks Mainly Macro 03/05/2016 raising points I'm glad to see being discussed. He gives some background on the development of thinking about central banks and economic management. Here he describes the post-Bretton Woods state of affairs, which Yanis Varoufakis would call the birth of the Global Minotaur. But "delegation" here, he means "giving central banks the power to decide when to change interest rates (independent central banks, or ICBs)":

A story some people tell is that this all fell apart in the 1970s with stagflation. In the sense I have defined it, that is wrong. The Keynesian framework had to be modified to deal with those events for sure, but it was modified successfully. Attempts by New Classical economists to supplant Keynesian thinking in policy circles failed, as I note here.

The more important change was the end of Bretton Woods and the move to floating exchange rates. That was critical in allowing the focus of demand management to shift away from fiscal policy to monetary policy. The moment that happened, it allowed the case for delegation to be made. Academics talked about time inconsistency and inflation bias, but the more persuasive arguments were also simpler. Anyone who had worked in finance ministries knew that politicians were often tempted and sometime succumbed to using monetary policy for political rather than economic ends, and the crude evidence that delegation reduced inflation seemed strong.

And he notes that the conservative-leaning consensus before the 2008 crisis revealed its huge problems to a wider public:

However the consensus assignment had an Achilles Heel. It was not the global financial crisis (which was a failure of financial regulation) but the Zero Lower Bound (ZLB) for nominal interest rates. Although many macroeconomists were concerned about this, their concern was muted because fiscal action always remained as a backup. To most of them, the idea that governments would not use that backup was inconceivable: after all, Keynesian economics was familiar to anyone who had done Econ 101.

That turned out to be naive. What governments and the media remembered was that they had delegated the job of looking after the economy to the central bank, and that instead the focus of governments should be on the deficit. Macroeconomists should have seen the warning signs in 2000 with the creation of the Euro. There monetary policy was taken away from individual union governments, but still the Stability and Growth Pact was all about reducing deficits with no hint at any countercyclical role. When economists told politicians in 2009 that they needed to undertake fiscal stimulus to counteract the recession, to many it just felt wrong. To others growing deficits presented an opportunity to win elections and cut public spending.

Macroeconomists were also naive about central banks. They might have assumed that once interest rates hit the ZLB, these institutions would immediately and very publicly turn to governments and say we have done all we can and now it is your turn. But for various reasons they did not. Central banks had helped create the consensus assignment, and had become too attached to it to admit it had an Achilles Heel. In addition some economists had become so entranced by the power of Achilles that they tried to deny his vulnerability.

And that vulnerability is essentially the conservative obsessions that are part of Hoover Hoover/Heinrich Brüning economics that wound up having a pro-cyclical bias in a depression economy.

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]

Portugal's new fight for democracy

As the left majority in the Portuguese Parliament continue to press its demand to form a government, I find myself thinking back to the acute phase of the Greek crisis earlier this year.

If the left majority takes power and seriously pushes back against the austerity measures, Angela Merkel's government is likely to retaliate. The ECB can bring enormous pressure on Portugal by withdrawing support from Portuguese banks in a similar way to what it did to coerce the Greek government into surrendering on austerity. Merkel also clearly wanted to punish the Greek voters for daring to vote against her Hebert Hoover/Heinrich Brüning austerity policy.

Since the attacks from Germany and the ECB forced a new election but returned Alexis Tsipras and his anti-austerity coalition back to power anyway, they may take a different approach with Portugal. But their pressure against Greece did force Tsipras to accept a continuation of the ruinous austerity program. So they have a tried-and-tested regime change model at hand.

The bottom line that we see from the Greek experience is that if Portugal is faced with a full-on coercive program in retaliation for election results that displeased Merkel, if they want to successfully push back, they have to be willing to risk being pushed out of the eurozone and go back to their own currency.

The Portuguese President Aníbal Cavaco Silva would obviously prefer to have the current conservative Prime Minister Pedro Passos Coelho continue in office. Despite the name of Passos' party, Social Democratic Party (PSD), the official social-democratic party and affiliate of the Socialist International is the Socialist Party (PS), which heads the majority left coalition that should be taking power now. Passos is trying to get the President to stall on allowing the left majority to create a government, claiming that it wouldn't be "stable." (Maria Lopes, Esquerda garante orçamento, direita quer que Presidente seja mais exigente com PS Público 20.11.2015)

Deputy Prime Minister Paulo Portas is the and head of the Christian Democratic CDS–People's Party (CDS-PP), the junior partner in the current and hopefully outgoing government. As Lopes reports:

[Portas] avisou, em tom de ameaça, que o Governo de esquerda “poderá ser matematicamente viável, poderá ser formalmente constitucional; será sempre politicamente ilegítimo e o CDS extrairá daí as consequências necessárias e suficientes”.

[{Portas} warned in a menacing tone that the government of the left "might be mathematically viable, might be formally constitutional; it will always be politically illegitimate and the CDS will then draw the necessary and sufficient consequences.]

Economist and former Greek Finance Minister Yanis Varoufakis is reserved about the approach of the Portuguese left coalition, as he explained to The World Weekly (Yanis Varoufakis’ ‘erratic’ Marxism 11/19/2015; also at Varoufakis' blog)

As the global financial crisis began in 2008, the eurozone was thrown into a sovereign debt crisis which engulfed not just Greece, but also Portugal, Ireland, Spain and Cyprus. The political impact of the crisis was swift. In many of these cases, the national governments moved to the right while once marginal forces became increasingly prominent. Much like in Greece, Portugal’s crisis to the emergence of a new progressive coalition led by the Socialist Party.

“The two countries, Greece and Portugal, are caught up in the same eurozone-wide crisis and both have been subjected to dead-end policies that have been portrayed as success stories (with the Portuguese one bathed in more adulatory light),” Dr. Varoufakis tells The World Weekly. “But there is a difference: last January, in Greece, our government was elected with a clear mandate to oppose these dead-end policies.”

“In Portugal this is not the case,” Dr. Varoufakis explains, “as the Socialist Party seems determined, even before forming government, to avoid challenging the basic logic of a failed policy agenda”. So the former Greek finance minister is not optimistic that the new coalition, which includes Greens and Communists, presents a sufficient challenge to austerity. It is important to note that the Socialist Party was the architect of the austerity measures as the crisis hit.

When asked if the Portuguese case represents any sign of social democracy resurging, Dr. Varoufakis does not mince his words. “Social democracy remains in tatters of its own making,” he says. “It has yet to articulate a valid criticism of its contribution to the eurozone’s terrible architecture as well as to the illogical manner in which Europe responded to the inevitable failures of that architecture.”

See also:

Stefan Schultz, Politische Krise in Portugal: Die Unsicherheit kehrt zurück Spiegel Online 11.11.2015. Schultz talks about the possible but constitutionally dubious option of the President calling for new elections immediately, or allowing the democratically elected left majority to form a government. He called it a "choice between the plague and cholera." But he also describes the "misery" that Merkel's austerity economics has brought to Portugal. And he notes that many Portuguese citizens find it "undemocratic" that the President would try to block the left majority from taking power. That's probably because it is undemocratic.

La actriz y el operario que están detrás del pacto de izquierda en Portugal Público 10.11.2015

Sérgio Aníbal, As chaves do debate difícil entre um governo PS e Bruxelas Público (Portugal) 11/11/2015

Syma Tariq, Portugal senses a chance for change after pro-austerity government is ousted The Guardian 11/11/2015

Catarina Martins in Women who conquered macho world of Portuguese politics prepare for power The Guardian 11/14/2015 notes:

Bloco de Esquerda, Portugal’s equivalent to Greece’s anti-austerity Syriza party, is a crucial element in a leftwing alliance which is set to deliver a socialist government. Its sudden rise is also the story of a remarkable turnaround in fortunes which, in a notoriously macho political culture, has been masterminded by four women: the Bloc’s leader, Catarina Martins, deputies Mortágua and her sister Mariana, and Euro-deputy Marisa Matias.

Lauren McCauley, Portugal Rejoices as Anti-Austerity Left Coalition Forms to Oust Right Wing Common Dreams 11/10/2015

Sad state of the EU

Wolfgang Münchau warns, "The eurozone is once again in a position where economic recovery is weakening before it really started, where the global risks are rising, and where inflation remains way off target." (Draghi must be more unconventional Financial Times 10/25/2015)

Yanis Varoufakis says, "Europe’s crisis is poised to enter its most dangerous phase." (Schäuble’s Gathering Storm Project Syndicate 10/23/2015)

Münchau there is writing more narrowly about the course of the eurozone economy. But Varoufakis is writing about that, too, as well as the political dimensions of the crisis. But in his FT piece, he notes of the Italian situation, "Matteo Renzi, the Italian prime minister, is currently using every trick in the book to circumvent European budget rules. His previously planned spending cuts are lower; the tax cuts are bigger — and of the wrong kind; and against the advice of the European Commission, he is now cutting unpopular property tariffs instead of labour taxes."

Varoufakis also discusses Italy's bucking of Germany's domination of the eurozone economy:

Renzi has come close to demolishing, at least rhetorically, the fiscal rules that Germany has defended for so long. In a remarkable act of defiance, he threatened that if the European Commission rejected Italy’s national budget, he would re-submit it without change.

This was not the first time Renzi had alienated Germany’s leaders. And it was no accident that his statement followed a months-long effort by his own finance minister, Pier Carlo Padoan, to demonstrate Italy’s commitment to the eurozone’s German-backed “rules.” Renzi understands that adherence to German-inspired parsimony is leading Italy’s economy and public finances into deeper stagnation, accompanied by further deterioration of the debt-to-GDP ratio. A consummate politician, Renzi knows that this is a short path to electoral disaster.

He also discusses the increasingly public dissent by the Socialist government of France to German misrule in the eurozone.

Ambrose Evans-Pritchard reports France signals EU treaty change to avert Brexit, warns on euro survival Telegraph 09/24/2015:

Mr Macron had even tougher words for Germany, warning that the eurozone will disintegrate in a storm of populist revolt unless Berlin drops its vehement opposition to fiscal union and large transfers to the poorer regions.

The former Rothschild banker said the currency bloc is fundamentally unworkable without a joint budget to back it up and will leave debt-stricken countries on the periphery in permanent trouble.

“If we don’t move forward, we are deciding the dismantling of the eurozone. We have to choose: is it a fixed exchange system or a monetary union?” he said.

He called the struggle over the euro a new Thirty Years war in Europe between Calvinists and Catholics. "The Calvinists want to make others pay until the end of their life. They want reforms or no contributions toward any solidarity. On the other side are the Catholics, largely on the periphery,” he said.

"At every eurozone summit, at every Eurogroup, we have this same dilemma between member states. We have to exit this religious war," he said. [my emphasis]

Varoufakis seems to approve Macron's use of "Calvinists" to describe the supporters of Angela Merkel's ruinous austerity economics.

Neither France nor Italy is mounting the kind of challenge that Greece did earlier this year. But their situations are also not nearly as desperate as Greece's is. But Münchau in Spiegel Online recommends Renzi's example along with that of the Canadian Liberal Party's leader Justin Trudeau as potential models for the German Social Democratic Party (SPD) as to how they might revive their steadily declining political prospects: by offering meaningful alternatives to austerity policies. (So könnte die SPD zum Erfolg zurückkehren 23.10.2015)

Michael Krätke writes (Das Problem ist Deutschland Der Freitag 14.12.014), "Die Euro-Krise signalisiert seit mehr als fünf Jahren, dass die Währungsunion umgebaut werden muss, um zu überleben." ("The euro crisis signaled more than five years ago that the currency union had to be reconstructed to survive.")

He's right. But Angela Merkel continues to milk the eurozone arrangements for the narrow benefit they can provide for Germany. And the walls between EU members continue to go up.

Meanwhile, a majority left bloc in the Portuguese Parliament is now confronting President Aníbal Cavaco Silva over his attempt to keep a pro-austerity government in power after the recent elections there. When it comes to enforcing austerity, Merkel and her allies aren't terribly scrupulous about this whole democracy business.

The real existing EU: Germany and Greece under the Compassionate Pastor's Daughter

The fight of Alexis Tsipras' government earlier this year against the harsh austerity measures imposed by the German government of the Mitfühlende Pastorentochter Angela Merkel via the Troika of the EU, the ECB and the IMF has highlighted for the world Greece's need for debt structuring.

So it's not at all surprising to see that need articulated by Richard Portes, who "argues that Greece is fundamentally insolvent and that the EU and its attendant institutions should recognize that fact and work immediately toward some form of sovereign debt restructuring." (Fiscal Austerity & Greece New Economic Thinking 09/26/2015)

He has the following to say about those famous "structural reforms" we hear so much about from the advocates of neoliberalism:

Portes also suggests that Greece is a special case, a country that does not lend itself readily to easy reform. There is an ongoing banking crisis, unsustainable debt levels ..., and institutions by and large remain malfunctioning. So whilst Portes agrees with much of the prevailing sentiment that further fiscal austerity will be counterproductive, he also argues that Greece must relent as well: it must signal its commitment to deep structural reform, particularly in regard to the endemic corruption in public administration, tax evasion, and the complex oligarchic system that links political parties to the media and administration. For Portes, no further fiscal austerity makes sense, but he suggests that Greece could aid its cause by reforming product markets and services that are still oligopolistic, with numerous barriers to entry and, hence competition. A second priority is to modernize the legal framework of property rights, investor protection and corporate governance, as well as a massive reorganization and restructuring of the public administration. These, rather than further wage cuts, are the only way to raise the competitiveness of the Greek economy. [my emphasis]

This is one way that the Greek fight this year has helped turn neoliberal rhetoric against itself.

The standard neoliberal recipe for "structural reforms" includes those obvious-sounding elements he mentions: fight corruption, crack down on tax evasion, even reduce the power of "oligarchy." Oligarchy in the neoliberal vocabulary refers to the capitalist class in countries considered in disfavor by whoever is using the term. In favored countries, they are economic elites ("job creators" for US Republicans) who are eager to show their public spirit by engaging in business-government cooperation and public-private partnerships, aka, PPP for the Kool Kids. In disfavored countries, they are oligarchs practicing crony capitalism.

In the Europe of the Mitfühlende Pastorentochter, Greece is the model of a corrupt, oligarchical, inefficient southern European country full of lazy and irresponsible people, needing the tutelage of a superior country with honest business practices and a good work ethic, i.e., Germany.

The dishonest and lawless practices of a great German company like Volkswagen are certainly no sign of deficiency in the superior economic and moral standards of Germany and the EU operating under the direction of the Mitfühlende Pastorentochter! Oh, no, that was just a couple of bad apples, or something. Why, it would be frivolous to even suggest that this was a symptom of a corrupt, oligarchical political system practicing crony capitalism. (Timeline: Is Volkswagen’s ‘Bug’ an EU Feature? Emptywheel 09/25/2015)

Brendan Greeley writing for the well-known radical-left Bloomberg Businessweek (note for Republicans: that's supposed to be obvious irony) asks, Did Privilege Enable Volkswagen’s Diesel Deception? 09/24/2015:

In Italy, the privilege is called potere speciale; in France, action spécifique; in the U.K., it’s a “golden share.” Those are all different names for an ownership stake that gives a government — be it national or local — special powers above any other shareholder. That makes a crucial difference in running a business. Governments, for example, have good reason to prevent jobs from moving to more competitive labor markets. A golden share can help with that.

But for countries practicing the neoliberal dogma in ways other than the ones discussed here so far, this is not crony capitalism or corruption, you see. Not at all. It's responsible gubment support for the Job Creators through public-private partnership. Or something.

In Europe, most golden shares are held in utilities and telecoms, companies that were state monopolies before being privatized. For more than a decade, the European Union, as it expanded and liberalized its common open market, has been trying to undo the persistence of state control. But there is one golden share that has endured, a German law so breathtakingly exceptional it can only be called what it is in fact called—“das VW-Gesetz,” the Volkswagen Law. It is explicitly designed for a single company. Germany has managed to defend its golden share against the EU because VW had built a reputation as a force for good: responsible corporate citizen, pioneer in environmental progess [sic]. [my emphasis]

Fortunately for the EU, Germany staunchly defends the rules for everybody. Well, with the occasional exception:

[Germany's "Volkswagen Law"] eventually brought Germany into conflict with the EU. In 2000 the European Commission — the EU’s executive body—began enforcement actions against the golden shares that remained in the newly privatized utilities in several countries. It acted against Italy for its shares in Eni, the former state oil company; against France, for its holdings in Elf Aquitaine, another oil company; and against the U.K. and its British Airports Authority. Several countries responded by defining their golden shares more narrowly, exercised only to defend a compelling national interest.

“The case of Volkswagen is peculiar because we are not dealing with public services,” says Daniele Gallo of Luiss Guido Carli University in Rome. “We are dealing with a company that sells cars.” In 2007 the commission won a judgment in the European Court of Justice against the Volkswagen Law. Germany, which usually follows the court’s judgments, responded instead with improvisation and duct tape: It struck some of the law’s provisions, which Volkswagen immediately added to its own bylaws. Lower Saxony retained its de facto veto over major decisions. The EC challenged, but the Court of Justice upheld the rejiggered law in 2013.

But this is consistent with the actual priorities of the neoliberal agenda and the actual application of it under the leadership of the Mitfühlende Pastorentochter. Germany gets to angle narrow nationalistic advantages out the EU and especially eurozone structures and processes. And those reforms emphasized by Portes - enforcing tax laws, reducing corruption, limiting the power of the oligarchy - are not the highest priorities.

Portes also notes "that the German government in particular (which consistently insists on 'following the rules') has been a serial violator of the Stability and Growth Pact, and conveniently forgets its own history when it comes to issues of debt forgiveness." The hardline "ordoliberalism" to which the Mitfühlende Pastorentochter adheres does seems to take deficits seriously, though exceptions can be made for the convenience of model country Germany, of course.

The "structural reforms" on which the Troika under the direction of the Mitfühlende Pastorentochter has been very intent on enforcing, most cruelly in Greece's case, are those calling for privatization of public property, deregulation of private business, elimination of capital controls, weakening of labor unions, reductions of wages and salaries and protective legislation for workers (aka, "liberalization of labor markets"), reductions of social services, raising the retirement age and reducing old-age pensions.

Alexis Tsipras' government shows every sign of being serious about improving tax collection and fighting corruption. His former Finance Minister Yanis Varoufakis expects that in his new government, Tsipras is "going to make a big deal out of how uniquely positioned he is to take on the oligarchy and tax evaders because Syriza has no strings attached." (Quoted in David Patrikarakos, Varoufakis told you so Politico EU 09/23/15)

But the Troika has actually impeded them in those efforts in various ways. As Varoufakis puts it, the Troika "is in cahoots with the oligarchs. Since 2010 the oligarchs have been the greatest supporters of the Troika and the Troika has been sheltering them." And presumably will continue to do so. As long as the Mitfühlende Pastorentochter has her way. As Varoufakis says, the July MOU the Troika imposed on Greece has deprived the country of "all the instruments the state has to fight a war against them."

Varoufakis refers to some of the ways in which the Troika, in cooperation with the Greek oligarchy, is impeding one of the very reforms, combating tax evasion, that Portes considers most urgent and emphasizing others (The lenders are the real winners in Greece – Alexis Tsipras has been set up to fail The Guardian 09/21/2015):

Tsipras must now implement a fiscal consolidation and reform programme that was designed to fail. Illiquid small businesses, with no access to capital markets, have to now pre-pay next year’s tax on their projected 2016 profits. Households will need to fork out outrageous property taxes on non-performing apartments and shops, which they can’t even sell. VAT [value-added taxes] rate hikes will boost VAT evasion. Week in week out, the troika will be demanding more recessionary, antisocial policies: pension cuts, lower child benefits, more foreclosures. [my emphasis]

And it's always important to remember the cost to Europe's fundamental democratic system from the midconduct of the Troika and the Mitfühlende Pastorentochter. Varoufakis in The Guardian: "Of course, to get to this point Greek democracy has had to be deeply wounded (1.6 million Greeks who voted in the July referendum did not bother to turn up at the polling stations on Sunday) – no great loss to bureaucrats in Brussels, Frankfurt and Washington DC for whom democracy appears, in any case, to be a nuisance."

The is the real existing EU, currently under management of the Mitfühlende Pastorentochter.

The Greek "Troika" program continues

Alexis Tsipras just formed a new government in Greece after last Sunday's elections. (Helena Smith, New Alexis Tsipras-led Greek government takes power The Guardian 09/23/2015)

Despite a significant split-off from his own Syriza party, he was able to gain enough votes that he could form a new coalition with his previous small partner party Anel (Independent Greeks). Anel is typically described as a rightwing populist party. But their basic economic program, an end to austerity but keeping Greece in the eurozone, is compatible with Syriza's.

The new government has a narrower majority than his previous one. But at the moment, Tsipras is backing the latest brutal Troika program forced onto his last government, so he will get solid support for other non-coalition parties on votes in accord with the Troika's directions. Which means, above all, the directions from the Compassionate Pastor's Daughter Angela Merkel.

Former Finance Minister Yanis Varoufakis comments on the challenges for Tsipras in The lenders are the real winners in Greece – Alexis Tsipras has been set up to fail The Guardian 09/23/2015:

The third promise is key to Tsipras’s success. Having accepted a new extend-and-pretend loan that limits the government’s capacity to reduce austerity and look after the weak, the surviving raison d’être of a leftwing administration is to tackle noxious vested interests. However, the troika is the oligarchs’ best friend, and vice versa. During the first six months of 2015, when we were challenging the troika’s monopoly over policy-making powers in Greece, its greatest domestic supporters were the oligarch-owned media and their political agents. The same people and interests who have now embraced Tsipras. Can he turn against them? I think he wants to, but the troika has already disabled his main weapons (for example by forcing the disbandment of the economic crime fighting unit, SDOE).

In 2014 the conservative prime minister Antonis Samaras found himself in a similar conundrum, having to implement a failed troika programme. He resorted to feigning allegiance to the troika while stonewalling and petitioning it for laxity, lest Syriza win.

Will Tsipras have more success in faking commitment to another failed troika programme? The prospects are not bright, but we should not write him off. His fate depends on whether his new government remains connected to the victims of its troika agreement, implements genuine reforms to give bona fide business some confidence to invest, and uses the intensification of the crisis to demand real concessions from Brussels. It is a tall order. But then victory, however sweet, is not the point. The point is to make a difference.

Varoufakis has not aligned himself with the dissenting split from Syriza. But he declined to stand for his parliamentary seat in last Sunday's election because of his disagreement with Tsipras' acceptance of the Compassionate Pastor's Daughter's brutal austerity program.

EU refugeesand the accumulating EU crises

Angela Merkel earned herself some good press in the world by announcing that Germany would accept a large number of refugees in the current crisis. A crisis which has been in motion for years but has reached a newly acute phase. (See this example of Merkel's good press: Jonathan Freedland, Mama Merkel has consigned the ‘ugly German’ to history The Guardian 09/11/2015)

Even former Greek Finance Minister Yanis Varoufakis, one of Merkel's biggest bogeymen, had some good words for Germany on the refugee crisis (On German Moral Leadership Yanis Varoufakis 09/14/2015; Die moralische Nation FAZ 13.09.2015):

This summer we, Europeans, faced major challenges to our integrity and soul. The inflow of refugees tested our humanity and our rationality felt the strain of needing to make hard choices. Most European nations, and their governments, failed the test of history spectacularly. Closing borders down, stopping trains on their tracks, treating people in need as an existentialist threat, indulging in bickering at the level of the European Union as to who will bear a lesser part of the burden – all in all, Europe behaved abominably leading the Italian Prime Minister to utter in desperation: “If this is Europe, I do not want to be part of it.”

One country stood out, showing moral leadership on this issue: Germany. The sight of thousands of Germans welcoming wretched refugees who had been turned away in several other European countries was one to savour and one to extract considerable hope from. Hope that Europe’s soul has not been lost entirely. Chancellor Merkel’s relaxed leadership on the matter, even the magnanimous attitude of otherwise misanthropic German tabloids to the inflowing refugees, made amends for Europe’s failure to rise up to this humanitarian crisis.

But he hasn't forgotten Merkel's very different approach to the Greek debt crisis:

This is not the place to recount the vagaries of Greece’s never-ending crisis. And nor is there a need since its underlying cause has nothing to do with Greece: the real reason Greece has been imploding, while Berlin and the troika are insisting on a ‘reform’ program that pushes the country deeper into a black hole and keeps it hopelessly unreformed, is that the German government has not yet decided what it wants to do with the Eurozone.

Berlin knows well that, as it is, the Eurozone is non-viable. It needs major reforms. It needs mechanisms for recycling surpluses from the regions where they amass to the regions in deficit. Alas, Berlin has not formed an opinion, yet, on what these reforms should be, what form of European political union it wants, or how to convince Paris to go along with its priorities. So, while the Franco-German elephants tussle, little Greece is being squashed, awaiting the outcome of this interminable clash. In the process, millions of Greeks languish in desperation, hundreds of thousands of educated young men and women flee the country, and the oligarchy is having a field day exploiting the political impasse caused by last July’s surrender of our government. [my emphasis]

The continuing story, though, also sheds light on the deterioration and failures of the EU as an institution. In surprise move Sunday, Germany stopped train traffic for several hours between Austria and Germany. A large number of immigrants are coming into Austria via Hungary. They also instituted border checks at the German border, a very significant practical and symbolic action that at least temporarily suspends the normal functioning of what is known as the Schengen treaties or the Schengen system, which has been in place for years in which travelers have to show passports only in the first participating country they enter. For reasons not really clear to me, she also shut down all train traffic between Austria and Germany for a few hours starting Sunday. Hungary's authoritarian-leaning government, whose continuing democratic qualifications as a member in good standing of the EU should be doubtful, praised Germany for that.

The current refugee crisis is looking like another way-station on the road to the EU's stagnation and/or end. They couldn't deal with the financial crisis without impoverishing whole countries. They've largely ignored Hungary's authoritarian turn because securing democratic institutions is in practice a secondary priority for the German-dominated EU - which also engaged in more-or-less direct "regime change" in Greece and Italy over the euro crisis. The refugee crisis has actually been dragging on for years now, it just got more acute recently. And the EU couldn't find a way to handle that without resorting to nationalist measures.

Britain, as it often does, is thumbing its nose at its EU "partners" over the refugee crisis. France is advocating escalating the military action in the Middle East that's been driving the refugee crisis for years. And the Trump-like politicians all over are using the crisis to promote more xenophobia and nationalist hatred. It's great to see examples of decent people providing assistance to refugees. But the EU's collective failure in this latest crisis ain't a pretty picture.

Ska Keller, a German Green Member of the European Parliament and a key Green leader there, warns, "Wenn die EU-Mitgliedsstaaten keine gemeinsame Antwort auf die Flüchtlingskrise finden, treiben sie die EU selbst in die Krise." ("If the EU member states don't find a common answer to the refugee crisis, they are driving the EU itself into crisis.")

Luke Harding reports in Refugee crisis: Germany reinstates controls at Austrian border The Guardian 09/13/2015:

All trains between Austria and Bavaria, the principal conduit through which 450,000 refugees have arrived in Germany this year, ceased at 5pm Berlin time [Sunday]. Only EU citizens and others with valid documents would be allowed to pass through Germany’s borders, [German Interior Minister Thomas] de Maizière said.

The decision means that Germany has effectively exited temporarily from the Schengen system. It is likely to lead to chaotic scenes on the Austrian-German border, as tens of thousands of refugees try to enter Germany by any means possible and set up camp next to it.

German police began patrolling road crossing points with Austria at 5.30pm on Sunday. These checks may be rolled out to the borders with Poland and the Czech Republic. Chancellor Angela Merkel agreed the details in a conference call on Saturday with her Social Democrat coalition partners. The Czech Republic said separately that it would boost controls on its border with Austria.

The emergency measures are designed to give respite to Germany’s federal states who are responsible for looking after refugees. There is also discussion inside the government about sending troops to the road and rail borders with Austria to reinforce security, Der Spiegel reported.

As mentioned above, Hungary's rightwing, authoritarian government praises Merkel's government's action: "Hungary’s president Viktor Orbán welcomed the decision and said it would protect 'German and European values'. He and other east European leaders are insisting they will not accept a plan set out last week by the European commission chief Jean-Claude Juncker for mandatory refugee quotas."

This has become yet another problem with which the EU needed to deal in a substantive way. But instead, they followed Merkel's general approach of doing just enough to get by, or "extend and pretend" as it became known in the ongoing Greek crisis.

Wolfgang Münchau warns of the failure of the EU on the refugee crisis in Wiedereinführung von Grenzkontrollen: Europa ist auf dem Weg zurück zu Nationalstaaten Spiegel Online 14.09.2015. He notes that the national border controls are likely to spread. And probably won't go away quickly. This compromises the not insubstantial economic benefits of freer traffic within the Schengen area. He believes it will accelerate the nationalism that Germany has promoted during the euro crisis. And he notes that the lack of a common European foreign policy that could play a far more active role in Middle Eastern affairs also contributes to the refugee crisis.

Stated that broadly, I agree even with the last point. But creating "safe zones" like Republican front-runner Donald Trump is advocating would be part of escalating the civil war in Syria. And that raises every prospect of increasing the refugee flow and spreading further political chaos in the Middle East.

Gideon Rachman in the Financial Times echoes these grim presentments (The crises that threaten to unravel the EU 09/14/2015):

For the first time in decades, some of the fundamental achievements and tenets of the EU are under threat. These include the single currency, open borders, free movement of labour and the notion that membership is forever.

That refers to German Finance Minister Wolfgang's Schäuble's proposal to kick Greece out of the eurozone for a temporary basis.

Rather than rising to these challenges, the EU is creaking under the strain. Its 28 members are arguing bitterl

y and seem incapable of framing effective responses to their common problems.

These arguments are also taking place against an ominous backdrop. Large parts of the EU remain sunk in a semi-depression with high unemployment and unsustainable public finances. The problems of an imploding Middle East are crowding in on Europe, in the form of hundreds of thousands of refugees. And the political fringes are on the rise — with the latest evidence being the election of a far-left eurosceptic candidate to lead Britain’s Labour party.

What qualifies as "far-left" in the EU these days is advocacy for basic Keynesian macroeconomics instead of Merkel's and Schäuble's disastrous Herbert Hoover/Heinrich Brüning economics.

He also notes how the restored national border controls could increase the nationalist trend with the EU:

Question marks over open borders will easily shade into wider issues about access to welfare systems and labour markets. That is because EU countries are realising that — in a border-free single market — a unilateral change of asylum rules by Germany has implications for the immigration policies of all member states. Once migrants get citizenship in one EU country, they have the right to move to any other, to work there and to claim benefits. But if free movement of people and labour come into question, so does the EU’s single market — its central achievement. [my emphasis]

Appeal from 19 leading economists for better world rules on sovereign debt

Nineteen economists, including four of my favorites (Heiner Flassbeck, Jamie Galbraith, Thomas Piketty and Yanis Varoufakis) have signed a letter encouraging European countries to support Argentina's proposal backed by a solid majority in the UN General Assembly to establish reasonable international rules of sovereign debt (European countries must support the United Nations’ proposals for sovereign debt restructuring! – Open letter to the UN by 19 economists Yanis Varoufakis blog 09/08/2015):

The Greek crisis has made clear that individual states acting alone cannot negotiate reasonable conditions for the restructuring of their debt within the current political framework, even though these debts are often unsustainable over the long term. Throughout its negotiations with creditor institutions, Greece faced a stubborn refusal to consider any debt restructuring, even though this refusal stood in contradiction to the IMF’s own recommendations.

At the UN in New York exactly one year ago, Argentina, with the support of the 134 countries of the G77, proposed creating a committee aimed at establishing an international legal framework for the restructuring of sovereign debts. This committee, backed up by experts of the UNCTAD, today submits to vote nine principles that should be respected when restructuring sovereign debt: sovereignty, good faith, transparency, impartiality, equitable treatment, sovereign immunity, legitimacy, sustainability and majority restructuring.

They recognize that Cristina Fernández' government in Argentina has been a leader on this issue:

Argentina, standing at the forefront of these efforts, has been fending off “vulture funds” ever since it restructured its debt. These funds recently succeeded in freezing Argentina’s assets in the United States through the intervention of the American courts.

Yesterday Argentina, today Greece, and tomorrow perhaps France as well: any indebted country can be blocked from restructuring its debt in spite of all common sense. Establishing a legal framework for debt restructuring, allowing each state to solve its debt problems without risking financial collapse or the loss of its sovereignty, is a matter of great urgency in promoting financial stability. [my emphasis]

Varoufakis paraphrases a classic

Yanis Varoufakis gave a speech on August 23; actually he says "Sunday August 25" but the 25th was a Tuesday and the related YouTube video is dated August 23. (The Athens Spring lives on! Speech at Frangy-en-Bresse, with Arnaud Montebourg 08/25/2015)

From the full text:

Let me tell you why I am here with words I have borrowed from a famous old manifesto. I am here because:

A spectre is haunting Europe — the spectre of democracy. All the powers of old Europe have entered into a holy alliance to exorcise this spectre: The state-sponsored bankers and the Eurogroup, the Troika and Dr Schäuble, Spain’s heirs of Franco’s political legacy and the SPD’s Berlin leadership, Baltic governments that subjected their populations to terrible, unnecessary recession and Greece’s resurgent oligarchy.

The Varoufakis pseudoscandal

Greek police have investigated the Varoufakis pseudoscandal around his emergency planning as Greek Finance Minister for a "Grexit."

The found no "there" there. No surprise at all. (Polizei findet keine Spur von Varoufakis' Hacker-Manöver Süddeutsche Zeitung 08.08.2015)

Varoufakis is still keeping the international public informed via his blog. Here he reproduces an article, Vindicated, while Lagarde emerges a loser? – David Marsh in MarketWatch 08/04/2015. Marsh focuses on whether the IMF will come through with additional funds that were expected but not specifically agreed upon in the July capitulation forced on Greece by Germany:

Something is going badly wrong in relations between Christine Lagarde, the International Monetary Fund’s managing director, and the staff of the institution. Three times this month, in politically fraught negotiations over a Greek debt package, the IMF staff has disavowed its management over providing more loans to Greece as part of the third bailout deal of €82 billion to €86 billion that euro leaders stated they sealed on July 13.

Yanis Varoufakis: "In 1967 there were the tanks and in 2015 there were the banks"

"Europe is in the process of turning from a realm of shared prosperity, which is how we imagined it, into an iron cage for our peoples. I hope that Mrs Merkel decides that this is not a legacy she wants to leave behind."

That's from Yanis Varoufakis has been spreading the word about Greece's dire situation and the ills of the eurozone. Including In conversation with El Pais (Claudi Pérez), the complete (long) transcript 08/02/2015:

Didn’t you kill the troika?

Well, we got rid of them here in Athens. Now they are back: the troika is back. They could have acted as legitimate institutions. But they seem to have a clear preference to act as the troika of lenders. It’s their choice.

But they’ll be here until 2050, when your grandchildren will be adults.

No, they won’t. Because this agreement doesn’t have a future. It is continuing the extending and pretending charade: extending the crisis with new unsustainable loans, and pretending that this solves the problem… It can’t go on forever. You can fool the people and the markets for a short period of time, but in the end you can’t fool them for fifty years. Either Europe changes, and this process is replaced by something more democratic, and durable, manageable, humanistic. Or Europe will no longer exist as a Monetary Union.

Mr V gives France a central role in the politics of the eurozone as the Merkel government's primary target:

But which is your central scenario? Is [German Finance Minister Wolfgang] Schauble condemning Greece to go out?

You can see that there is a plan being implemented and which is in progress. Today we have read that Schauble wants to sideline the Commission and to create something like a Budget commissioner who oversees the ‘rules’ that strike down national budgets, even if a country is not under a program. In other words: to turn every country into a program country! One of the great successes of Spain in the middle of the crisis was that you avoided a full MoU (and only had a limited one stemming from the bank recapitalization program). Schauble’s plan is to put the troika everywhere, in Madrid too, but especially in ... Paris!

So Paris is the final game.

Paris is the larger prize. It’s the final destination of the troika. Grexit is used to create the fear necessary to force Paris, Rome and Madrid to acquiesce. ...

Why don’t you have allies in the Eurogroup? I mean, nor France, nor Italy, Spain, Ireland… Countries that at the beginning, with Syriza, had positive thinkings and at the end there were 18 against 1.

What you have to understand is that this 18-1 balance in the Eurogroup is an illusion. The 18 are divided very significantly in three groups. The very tiny, tiny minority who believe in austerity. The largest group of countries don’t believe in austerity but imposed austerity on their own people. And then there is another group of countries that neither believe in austerity nor practise it – e.g. France. But they fear that if they support us openly then austerity and the troika will come their way. [my emphasis]

He says of the forced agreement of July: "What happened in Greece was definitely a coup. The asphyxiation of the Government through the liquidity squeeze, a series of denials of any serious debt restructuring ... Then they gave us an ultimatum under the further threat of bank closure. This was nothing but a coup. In 1967 there were the tanks and in 2015 there were the banks." The 1967 reference is to the military coup that year.

Varoufakis even invokes Hegel: "Nobody can be free even if one person is a slave. That is Hegel’s well known master-slave paradox. Europe has to pay serious attention to it. Spain cannot prosper, or be free, or sovereign or democratic if its prosperity hinges on another member state being denied growth, prosperity or democracy."

He is right about the change in the public framing of Merkel's austericide policies:

I think that is a [sic] uncontroversial: your ideas about austerity and debt relief, everybody says you are right.

If you were talking to me in January it would not have been so. The only reason why now this is not controversial anymore is because we struggled for six months. For those who say to me we failed, these six months were in vain, I say “No we did not fail”. Now we have a debate in Europe which it’s not just about Greece, it’s about the continent. A debate we would have not had otherwise. A debate which is worth Greece’s, our continent’s, weight in gold.

But politics is about results. You called the first and second bailout like the Versailles Treaty. How would you define the third?

The Eurozone began life in 2000. It was badly designed and we realized that, or we should have realized that, in 2008 when Lehman Brothers collapsed. From 2009-2010 we have been in complete denial as official Europe has been doing precisely the wrong thing. This is a European phenomenon, it is an Europe-wide problem. Little Greece, 2% of Eurozone’s GDP, elected a government that raised issues crucial for all of Europe. After 6 months of struggles we had a major setback, we lost the battle. But we won the war of changing the debate. And this is a result!

The debate is the result?

Certainly! I cannot quantify this result for you. I cannot tell you how many billons [sic] it is worth. But some things are not measured in terms of prices but in terms of their value.