Showing posts with label Papendreou. Show all posts
Showing posts with label Papendreou. Show all posts

Sunday, November 20, 2011

Wrestling Greco-Roman Mythology

"Greece and our money"
You hear it all the time. The Greeks are lazy. Those indolent loafers deserve what they get seeing as they've been living high on the hog for the past decade on cheap credit. Retiring at 50 after a life on the payroll of the state where they took ouzo-filled three-hour coffee breaks filled with idle chit-chat about how to avoid paying their taxes before kicking off work early to head to the beach. It's all their fault the financial markets are gyrating wildly, freezing the lines of credit needed to feed the economic recovery that's just around the corner. Don't get me started on the Italians and how they'll be better off now that Berlusconi's gone. We all know his lascivious penchant for underage girls and bunga-bunga parties were the reason the bond market had turned its attention to Italy driving rates over the unsustainable 7% level. It's too perfect to be true and so, as usual, it isn't. Its all propaganda, doing its job of diverting our attention from what's really happening as democracy does its elephant imitation and returns to die in its birthplace.

Yeah, I know cliche, but c'mon. Tragedy, pandemonium, chaos and drama are all Greek words, tailor made for headlines that mix truth and lies. The stories are almost pre-written - the financial fixes proposed so far are just rearranging deck chairs on the Titanic, water guns when we need bazookas and so on. Only farce could bring us the word play of a Papendreou being replaced by a Papademos on the orders of Merkozy or a surreal comedy get away with having a communist president finally replacing a buffoon like Berlusconi with a bankster butler named Monti. Yet neither Monty Python nor Groucho Marx had anything to do with it, the iceberg has already hit and it isn't very funny. Calling them unity or caretaker governments is meaningless as they aren't legitimate, nothing but our civilized version of a military coup with bankers in place of generals to pass and enforce austerity measures the people would never agree to and will be voted out once the dirty work is done. We'll pat ourselves on the back for returning the power to the people but it'll be too little too late.

Before we go back to the beginning, let's dispel a few of those myths that somehow make this takeover palatable. Greeks, along with the rest of the Club Med countries, work more hours per week and receive less paid holidays than German workers. At 42 hours/week, the Greeks top the EU table while you find the Germans mid-table at 36 and the Dutch at the bottom clocking in 31 hours. In fact, a quick look at all the OECD nations tells us the Greeks trail only the South Koreans in the developed world. The Greeks, Spaniards, Portuguese and the Irish all retire later than Germans while the percentage of GDP devoted to public pensions is roughly the same in Greece, France and Germany. As for that profligate Greek spending, well they lay out less for their public sector as a percentage of GDP than the EU average. Yes, they've got some tax collection problems but it's clearly not the average Greek who's to blame for the problems and understandably don't want to be the ones to pay for them.

The next fallacy is that this is a crisis caused by Greek/Irish/Portuguese/Spanish/Italian debt. Neither jubilant crowds celebrating the departure of Silvio Berlusconi in piazzas across Italy, nor Greece swearing in a new cabinet after George Papandreou's resignation, nor Ireland paying billions to unsecured Anglo Irish Bank bondholders, nor Portugal's recently elected prime minister Pedro Passos Coelho promising his serious looking suit-clad visitors from Brussels and Frankfurt that his country will fulfill the pledges the previous caretaker government made, nor Spaniards replacing their government today with the same party that got them into trouble and promises to make deeper and more painful budget cuts, will get us any closer to solving the problem. No, no, no, no and no, we've been witness to a putsch executed with blietzkreig efficiency, a European disaster that is doing exactly what should have been expected, subsidizing German producers and punishing the PIIGS for feeding at the trough placed in front of them.

It's the Germans who have been the most heavily subsidized for the past decade thanks to the creation of the eurozone. Waaaaah? That's right. Think about it, the euro has given German producers a powerful boost while crippling the peripheral, low-capital investment economies. The 17 current members of the eurozone share the same currency but have wildly divergent cultures, economies and policies. Yeah, only in theater of the absurd could anyone have expected a worker in Greece to be as productive as a German given the capital infrastructure differences. Exchange rates have traditionally been the mechanism by which countries regain competitiveness but these countries have now had over 12 years of fixed rates (10 for Greece). So, not only has German industry been granted a huge barrier-free market but also a set exchange rate to keep its goods reasonably priced from Lisbon to Athens. The explosion of Benzes, Beemers and Audis on the streets of Madrid and Dublin created a surplus that found its way back to German banks who had to lend this money to someone and were happy to find eurozone approved customers from Porto to Thessaloniki so that they could buy more German cars and build beach resorts for their builders. If Germany had its own currency, the New Deutschmark would be like the Swiss Franc on steroids and appreciate dramatically while the currencies of other nations would fall making their products more competitive, helping their domestic industries while forcing German industry to contract.

"The traitor within the European family"?
It's hard to remember but the German economy still hadn't fully recovered from reunification by the launch of the euro, even falling in 2003 as the Economist wrote of the Teutonic Plague (there's those misleadingly true headlines again!). By setting interest rates artificially low, the ECB helped German and French exporters but it also inflated real-estate bubbles in Spain and Ireland. The resulting decade of eurozone-aided German current account surpluses and the corresponding accumulation of debt willingly doled out to the PIIGS has given rise to contagion fears of another kind, debt default. It's no coincidence that the combined $183 billion current account deficit of Italy, Spain, Portugal and Greece are almost perfectly offset by Germany's current account surplus of $182 billion. The only solution we are told is for the PIIGS to implement austerity in exchange for more debt. Yet the only entities being helped by this are the banks while ensuring long term pain for everyone else in the countries receiving the 'help'. We've mentioned it here many times but it bears repeating, almost all of the bailout money winds up being siphoned out of the country by the banks and the payments only grow with each 'rescue' package. Meanwhile, the austerity measures demanded in return only serve to slow economic growth meaning further bailouts will be needed.

One need only have looked at the forerunner to the euro, the European Exchange Rate Mechanism (ERM) based on the European Currency Unit (ECU) to have foreseen the impracticality of fixed exchange rates among countries without common economic policy. This was a semi-pegged system based on fixed currency exchange rate margins, but with exchange rates variable within those margins. Only looking between November of 1991 and July of 1993, the Finnish markka was first devalued by 12% then severed the link altogether, the British Pound fell to its lower limit leading to its suspension, the Italian lira was devalued by 7%, as was the Spanish peseta, first by 5% then later another 8% along with the Portuguese escudo by 6.5% and the Irish punt by 10%, then Sweden and Norway abandoned the peg until finally the trading band had to be widened from 2.25% to 15% to save the French franc. Yet, 1999 apparently offered a unique point in economic ceteris paribus time when currencies could forever be fixed againt each other. It's not that currency pegs have failed time and again or have ever given powerful exporting nations an advantage leading to balance of trade problems, otherwise we might have known the idea was doomed to failure.

"Those who would give up Essential Liberty, to purchase a little Temporary Safety, deserve neither Liberty nor Safety"
- Benjamin Franklin

The funny thing about the whole EU project has been how anti-democratic it's consistently been from its ECSC beginnings, from Maastricht through the Lisbon Treaty all the way up to murdering democracy in its cradle. Even opposing the idea has somehow always been considered heresy, you've gotta be a wacky UKIP supporter or conspiracy theorist to have questioned it at any point. Yet nobody voted for the Treaty of Paris in 1957 that created the first incarnation of the EU suprastate, the European Coal and Steel Commission between France, West Germany, Italy, Belgium, Luxembourg and the Netherlands. Though ostensibly a trade arrangement, Robert Schuman, the man who first proposed the idea, declared his aim was to "make war not only unthinkable but materially impossible." To do this, the temper of the people had to be cooled, no more nasty Hitler-type populism-fueled democratic uprisings. When the ECSC morphed into the EEC, again there were no ballots. From time to time, annoying national constitutions required a yes vote in a referendum. Given the choice, the Danes rejected Maastricht and the Irish Lisbon, but both were told they had voted wrong and made to do it right. So who was surprised when the Papendreou was forced out for giving the Greek people a choice of whether or not to turn up the torture of the past few years?

I pity poor Papendreou a bit. Elected in October 2009, he not only inherited a crisis but was finally forced to fully revealed the extent to which the Greek books were cooked. National debt had been concealed, hidden and masked in order to get them into the eurozone and had now exploded, making the debt to GDP ratio unsustainable. The austerity demanded by the troika (the ECB/EU/IMF) in exchange for bailouts to keep the debt payments being made to the (mostly) French and German banks not only adds debt to the numerator and lowers GDP in the denominator but also fuels skyrocketing suicide, drug use and HIV rates while crippling employment, support and hope. There was no alternative until he wanted to give the people one. Reality becomes conspiracy from this point as the elected leader of Greece was summoned to the G20 meeting early where he received a scolding of French in one ear and German in the other. We learned Merkozy was annoyed, orders were issued and we were told the Greeks would have a new prime minister. Oh, and there wouldn't be any kind of referendum as it would have to be about being in or out of the EU and not about accepting more debt in exchange for death.

Whether it was a political ploy on Papendreou's part or not, announcing a referendum on the latest plan to (en)s(l)ave Greece was the right thing to do. The headlines trumpeted the EFSF, the European Financial Stability Facility, as cutting Greek debt by 50% in exchange for another €100 billion or so and more austerity pain. However, €150 of the total €350 or so billion in debt, the portion lent by the ECB and IMF, wouldn't be touched by this plan, making it a reduction of less than 30% (do the math 200/2=100; 100/350=.2857). Even more importantly, the wording states the private lenders were 'voluntarily' accepting the plan. Ha! Who are they fooling? Oh, that's right, the ISDA, the body that determines when a credit event occurs (PDF) and triggers all the CDS (Credit Default Swaps, you remember those right?) and a replay of Lehman Brothers 2008. They're the big reason neither default nor leaving the currency could be discussed until now. Yet while Papendreou's gambit may have backfired, it has made leaving the EU a possibility. After over a year of strikes and rioting he finally knew it was time to ask the people after seeing the national day parades to commemorate the Greek refusal to surrender to a Hitler-backed Mussolini being halted by violence and the president being shouted down as a traitor.

(Not so) funny enough, across the Adriatic the Italians got a new PM with much the same credentials as the Greek PM and the head of the ECB. Yes, newly appointed (last week) Greek PM Lucas Papademos and Super Mario Brothers, as in the new president (as of November 1st) of the ECB Mario Draghi and new Italian PM Mario Monti (last week) are all Goldman Sachs alumni. Greece gets a former ECB official who worked at Goldman Sachs, Italy gets an EU near-lifer with a bit of Goldman advising thrown in all because the current Italian head of the ECB, another Goldman Sachs alumni won't bend the ECB directives to bail out his countrymen and print euros. While the Germans try to hold the line on turning on the printing press for fear of a 1930s style inflation disaster, the vampire squid has maneuvered its tentacles around the economic lifeline of Europe much as it has done in America. No wonder we can't talk about how we got here otherwise we might notice that the same folks who wrote the opening scenes of this farce are being placed in charge of fixing it.

We need to flashback again. The 1990s saw a number of countries, notably Italy and Greece deliberately engage in financial transactions with no other purpose than to mask their public debt levels in order to secure entry into the euro. We don't need to look far to find those who put these debt bombs in place; Greece's PM Papademos oversaw his country's entry to the euro running the Central Bank of Greece from 1994 to 2002 before he became vice-president of the ECB in between stints advising Goldman and indoctrinating the next generation of neoliberals from Colombia University; Italian PM Mario Monti had to quit his role as adviser to Goldman Sachs before taking his new job while Mario Draghi was head of the Italian Treasury from 1991-2001 before heading to Goldman until 2005 until he took over at the Italian Central Bank. By using complex derivatives supplied by Goldman Sachs, Italy and Greece were able to slim down the apparent size of their government debt, which euro rules mandated shouldn't be above 60% of the size of the economy and thus created the problem the technocratic rulers are now tasked with fixing.

"Resistance is Futile"
 - Locutus of Borg

I'm not the only to have noticed that it seems as though technocratic overlords have been dropped into erstwhile democratic nations in order to implement the medicine that their kind deems necessary. Goldman Sachs Conquers Europe; Goldman Sachs, le trait d'union entre Mario Draghi, Mario Monti et Lucas Papadémos; Our Friends From Goldman Sachs; The great euro Putsch rolls on as two democracies fall, read headlines from Paris to London. As the Financial Times itself said, it's like we've decided the Borg would make a better commander of the Enterprise than Jean Luc Picard. Worse yet, they have provided a smokescreen for the vile Berlusconi to transform himself from goat to sacrificial lamb. Instead of being tossed from the legislative to the prison chamber for any of the many criminal cases pending against him or new revelations of some perversion vile enough to revolt even his media desensitized pubic, he offered himself up in exchange for passing austerity measures the markets had suddenly deemed necessary. This despite the fact the country runs a primary fiscal surplus, its fiscal deficit to GDP ratio being only 60% of the OECD average, less than the euro area average and its ratio of non-financial private debt to GDP also being very low relative to other OECD economies. Every new announcement is met by cheers from the market, but each period of euphoria is shorter than the last, like a junkie perpetually searching for a quicker hit.  I'm taking bets Berlusconi's back in a few years and will be PM again as the Italians were robbed of the opportunity of purging the toxin themselves.

You'd think the Goldman/ECB/unity/caretaker/technocratic overlords in Italy and Greece would be careful about naming ministers representative of the people's wishes while (fourth)Reich-enbachs land in Athens and Rome to ensure compliance and Monti parrots Merkel's phrase about Europe facing its toughest test since WWII. No, Monti's cabinet is technocratic not democratic, consisting of bankers, soldiers and diplomats without a single elected member. It's worse in Greece where Papademos has named a motley crew with multiple links to the pre-1974 military junta. Full blown former fascists are being transformed into non-ideological technocrats to administer the neoliberal medicine to solve the problem, modern day quacks applying leeches to cure their patients. Terms of surrender are accepted not for fear of bullets and bombs but of losing our pensions and iPads, the former getting more elusive and the latter more addictive as it becomes harder to qualify for benefits and gadgets get ever more distracting. Few even noticed that while most Greek government bonds were issued under Greek law where the bonds could be redenominated in new drachma should they ever have to leave the euro, the deal stuck October 26th changes the jurisdiction governing the bonds to English law, making redenomination impossible, resistance is indeed futile, we're being assimilated.

You want worse? Well, the Spaniards are about to vote in the PP, the right wing freakshows that brought us the Jose Maria Aznar gongshow, now led by a non-entity named Mariano Rajoy because they'll do a better job of following the banksters orders. Yeah, right. Not only did the Irish people start paying back unsecured Anglo-Irish Bank bondholders as penance for their sins, they also watched as the one-time richest man in Ireland Sean Quinn who owes Anglo-Irish some €2.9 billion declare personal bankruptcy - in Northern Ireland where the law is more friendly. In Portugal, retired Col. Otelo Saraiva de Carvalho, a leader of the democracy-restoring 1974 "Carnation Revolution", told Lusa news that a growing dissatisfaction with the government could trigger a military revolt. The entire euro zone is already in severe recession, yet the ECB, the Germans, the French and virtually every single policy maker in the core continue to advocate the economic equivalent of medieval blood-letting via ongoing fiscal austerity in order to keep the interest payments flowing to the banks so they can gamble on the commodity markets, driving the price of heating oil and corn up so we freeze and starve. And, surprise, surprise, the public deficits continue to grow. Americans can't be too smug about the situation seeing as their government was long ago taken over by Goldman Sachs, Citigroup et al and are about to pay their pound of flesh across the board as the 12 person "super committee" can't seem to agree how to serve 200 lobbyists rather than 300 million citizens. Wouldn't it be interesting if we spent more time talking about the reality of who this craziness is helping instead of the mythology of lazy Greeks and Berlusconi's bunga-bunga?

Ultimately Greece will have to default and in all likelihood so will Italy, Spain, Ireland and Portugal (and yes, eventually the UK and the US too). The technocrats are nothing but another ploy played by the bankers to keep skimming off as much as possible for as long as possible, repeating over and over that there is no alternative. As long as we keep believing their myths we'll stay pinned to the mat as our rights are slowly stripped away along with our wealth. We just need to turn our heads away from the screen to see the choices we really have instead of what they're offering us. Argentina declared bankruptcy as recently as 2001, Russia in 1998 as has almost every other nation on Earth while Greece was the first recorded case of sovereign default in 377 BC. You want a more modern model? Just compare Iceland's quasi-default to Latvia's austerity. Yes, it'll be a tragedy, pandemonium, chaos and drama but would it really be so bad if they had to import a little less stuff for a while? The money lenders will always return and at least it offers a light at the end of the tunnel instead of this cycle of doom and gloom. Modern Greece has already tried being a failed German state; it's time to shake off the myths and remember that Athenian democracy could only be established after Solon legislated "shaking off the burdens" to free the people from debt slavery.