Seeds of Europe's Destruction Likely to be Planted Tomorrow

The future of Europe will be decided tomorrow. First, in an emergency meeting between Greek officials, presumably led by finance minister Yanis Varoufakis, and representatives of the troika the Syriza-led government will reveal their financing plan for Greece. Then in Minsk, leaders from Russia, Germany, France and Ukraine will meet to negotiate a new ceasefire for the Donbass.

These two issues -- the troika-dictated neoliberal austerity in Greece and the civil war in Ukraine -- are connected because both are being pursued by the the political class in the West absent a popular mandate. Indications are that the political class will continue to move in the opposite direction of its citizenry. For Greece, this will mean a prolongation of the Grexit crisis; for Ukraine, more war; both will translate to more loses for the established governing parties in Europe. The U.S. is relatively insulated from this because of a duopoly where both parties cater to the super-rich.

First, to Liz Alderman and Niki Kitsantonis in "Greece to Propose a Debt Compromise Plan to Creditors":

ATHENS — Hoping to defuse a standoff that has set Europe and financial markets on edge, Greek officials intend to propose a detailed compromise plan at an emergency meeting with creditors on Wednesday in Brussels, a finance ministry official here said on Monday. 

The plan will include the possibility of tapping part of a bailout loan disbursement of 7 billion euros, or $7.9 billion, that Athens had been saying it would reject, according to the official, who insisted on anonymity because the plans had not yet been made public. 

Greece still plans to reject some of the harshest austerity conditions attached to Greece’s bailout loans, but will propose retaining about 70 percent of the terms, according to the official. 

Athens will propose replacing the remaining 30 percent of the austerity conditions with new reforms that the Greek government will devise together with the Organization for Economic Cooperation and Development. The O.E.C.D. represents about three dozen of the world’s richest economies, including those of many of the European countries to which Greece owes money. 

The proposal, to be made at a gathering of eurozone finance ministers on Wednesday in Brussels, would also significantly extend the period Greece proposes for reaching a “new contract” with its creditors — by asking for a bridge-financing program through the end of August, instead of the May time frame Greek officials had previously discussed. 

The offer was being pulled together as the dispute escalated between Greece and its European creditors. In a speech in Parliament on Sunday, the new prime minister, Alexis Tsipras, appeared to draw a hard line, saying he was determined to eliminate Greece’s “cruel” austerity program. German officials have insisted that Greece would get no money to help pay debts unless it adhered to the conditions of the bailout program agreed to in 2012. 

Chancellor Angela Merkel of Germany appeared to show little leeway on Monday. “The basic rules” of the Greek bailout program “have always been the same,” she said at a joint news conference with President Obama in Washington. “You put in your own efforts and on the other side you’re being shown solidarity. A quid pro quo.”

Reading about the speech Tsipras delivered to Parliament on Sunday (Niki Kitsantonis, "Prime Minister of Greece Will Not Prolong Bailout") was like hearing for the first time that life had been discovered on another planet, so alien it is to have a politician say he is going to restore collective bargaining rights or give laid-off workers their jobs back:

Mr. Tsipras said extending the bailout would be tantamount to continuing the “mistakes and disaster” of the past, and he said his government needed “fiscal space” for discussion on restructuring of debt. 

“We only have one commitment: to serve the interests of our people, the good of society,” he said, noting that it was an “irreversible decision” of his government to fulfill its promises “in their entirety.” 

Mr. Tsipras also pledged to replace a hated unified property tax, which combines several levies, with a new tax on large property and to increase the tax-free threshold on annual income to €12,000 from the current €5,000. Cracking down on tax evasion and corruption were also underlined as priorities. 

Immediate action will be taken, he said, to restore collective wage bargaining, bringing unions back into negotiations on workers’ salaries and working conditions. He also pledged to gradually restore the minimum wage to €751 a month from €586. 

As a jab at Germany, which has been leading the austerity drive in Europe, Mr. Tsipras said it was Greece’s historical duty to seek war reparations and the repayment of a loan it was forced to make to Germany in World War II.

This was a shrewd move by Tsipras; basically, he burned the bridge at his back. The troika has been put on notice that Syriza will implement the pledges that brought them to power. If Syriza reneges, the Greek government will fall and Golden Dawn, currently the third largest party, will surge.

What I find interesting is that the conventional wisdom soon after Syriza came out on top in the election several Sundays back was that the troika was going to be willing to bargain, that bridge loans would be provided and negotiations would be extended into the summer, allowing Syriza's mojo to peter out gradually. In the end the troika would be willing to hand Tsipras and Varoufakis a few crumbs off the master's table to peddle to their pauperized public, maybe a free home heating program for the destitute.

So far, the opposite has been the case. European leaders have played hardball, demanding strick adherence to austerity and even fomenting a bank run. Yves Smith explains this morning in "Obama, Treasury Pushing Back Against Troika Grexit Threats; Bernie Sanders Presses for Fed to Prod ECB":

But what is far more worrisome is what we hear from a source with knowledge of the [U.S.] Treasury discussions, namely, that they are worried about the run on the Greek banking system. As readers may know, that started with the Syriza win and we suspect was in large measure due to oligarchs voting with their feet. However, the ECB kneecapping of Greece, by effectively ending its access to financial markets, has had the additional effect of re-stoking depositor worries about the banking system, since it called attention to the fact that the backstop, the Emergency Liquidity Assistance program, is subject to reauthorization every two weeks. Now in fairness, the ECB gave a big boost to the amount the Greek central bank could access under the ELA, from €15 billion to €60 billion. I am cynical enough to believe, and plenty of others share my views, that the ECB wanted to keep the bank run going to pressure Greece but have plausible deniability about what they were up to. And the continued impasse has led to a considerable ratchet up in media chatter about Grexit, which is another reason for depositors to take flight.

What is particularly troubling about the word from Treasury is that their concern about the Greek banking system is tantamount to saying that the ECB might withdraw the ELA. This would be catastrophic for Greece, and it would also mean that no depositor in the Eurozone could regard his deposits as safe, since the supposed leader of last resort reneged on that commitment for strictly political ends.

Ambrose Evans-Pritchard confirms this reading. From the Telegraph, emphasis ours:

The EU authorities have told Mr Tsipras that a series of crucial meetings in Brussels this week are his last chance to retreat from hot campaign rhetoric and agree to an extension of the Troika bail-out.

The clear threat is that the European Central Bank will cut off €60bn of emergency liquidity support for the Greek financial system when the existing Troika arrangement expires on February 28. This would force Greece to impose capital controls, nationalize the banks, and reintroduce the drachma within days.

Even if the ECB agrees to a stay of execution, Athens will start to run out of money in March, when it faces repayments to the International Monetary Fund, followed by other creditors. Tax revenues have dried up over recent weeks as Greeks wait to see what Syriza does in office. The treasury’s cash reserves have fallen to €1.5bn.

It is also worth noting that even if Obama gets something of a respite for Greece, it won’t amount to much. Given that the Administration is firmly neoliberal, we suspect they won’t do much to support Greece in its desire to improve wage and employments levels, and will instead push for a mere lessening of the severity of austerity. So rather than the Troika breaking Greece on the rack, its citizens will have to continue to labor in the salt mines.

Much is being made about the split between Europe and the United States about widening the war in Ukraine by supplying heavy "defensive" weapons to the junta. With this move, which is basically a done deal as far as the Obama administration is concerned, there goes the entire Ostpolitik raison d'être of the German state for the last 40 years.

A ceasefire is a longshot at Minsk because the Kiev junta, backed by the U.S., is not willing to accept its territorial loses since the original ceasefire was agreed to last September. What never gets reported in the atrocious Western press is that the junta never followed the original ceasefire. Read Israel Shamir's excellent "Putin Prefers a Bad Peace: From Syria to Donbass, Russians Endorse Peace, Americans Push for War":

Peace in Ukraine can be reached through federalisation, my source told me. That’s why two most important parameters of Minsk accords (between Kiev and Donetsk) were those we never hear about: constitutional and socio-economic reforms. Russia wants to secure territorial integrity of the Ukraine (minus Crimea) but it can be achieved only through federalisation of Ukraine with a degree of autonomy being given to its regions. Its west and east speak different languages, worship different heroes, have different aspirations. They could manage together, just, if the Ukraine were a federal state, like the US or Switzerland or India.

In Minsk, the sides agreed to establish a joint commission for constitutional reforms, but Kiev regime reneged on it. Instead, they created a small and secretive constitutional committee of the Rada (Parliament). This was condemned by the Venice Commission, a European advisory body on constitutional matters. Donetsk people wouldn’t accept it, either, and it is not what was agreed upon in Minsk.

As for integration, it was agreed in Minsk to reintegrate Donbass within Ukraine. This was disappointing for Donbass, but they accepted it, – while Kiev laid siege to Donbass, cut off its banks, ceased buying Donbass coal, stopped to pay pensions. Kiev troops daily shell Donetsk, a city of a million inhabitants (in peaceful times!). Instead of amnesty for rebels, as agreed in Minsk, there are more government troops pouring eastwards.

The Russians did not give up on Minsk accords. The Minsk agreements could bring peace, but they have to be implemented. Perhaps president Poroshenko of Kiev would like to, but Kiev war party with its western support will unseat Poroshenko if he goes too far. Paradoxically, the only way to force him to peace is war, – though Russia would prefer the West to put pressure on its clients in Kiev. The rebels and their Russian supporters used warfare to force him to sign Minsk accords: their offensive on Mariupol on the Black Sea was hugely successful, and Poroshenko preferred to go to Minsk in order to keep Mariupol. Since then, Kiev and Donetsk had a few cease-fires, they exchanged POWs, but Kiev refuses to implement constitutional and socio-economic demands of Minsk accord.

It does not make sense to cease fire, if Kiev uses it to regroup and attack again. Cease fire should lead to a constitutional reform, said my source, a reform negotiated in an open and transparent dialogue of the regions and Kiev. Without a reform, Donbass (or Novorussia) will go to war. So the Debaltsevo operation can be considered as a way to force Poroshenko to sue for peace.

Russia does not intend to take part in the war, or in peace negotiations, said the source. The Russians are adamant to stay out, while the Americans are equally adamant to present Russia as a side to conflict.

Meanwhile, the Russian-American relations were moved forty years back to Jackson-Vanik amendment of 1974 by the Ukraine Freedom [Support Act of 2014]. The US Secretary of State John Kerry considered this act an unfortunate development, but a temporary one. The Russians are not that optimistic: for them, the Act codified anti-Russian sanctions. The US tries to turn other states against Russia, with some success. In one sweep the German Kanzlerin Angela Merkel eliminated all organisations, structures and ties built between Germany and Russia for many years. Every visit of Joe Biden causes a conflagration.

The Russians are upset with the story of the Malaysian Boeing. In every high-level encounter with the Americans, they remind of the hysterical accusations and claims that the liner was downed by the rebels using Russian missiles. Six months passed since the tragedy; still the Americans did not present a single proof of Russian and/or rebel involvement. They did not present photos of their satellites, nor records of their AWACS aircraft hovering over Eastern Europe. My source told me that the American high-ranking officials do not insist anymore that Russians/rebels are involved, but they stubbornly refuse to apologise for their previous baseless accusations. They never say they are sorry.

The U.S. can supply all the weapons it wants, Kiev will not win. But the European Union as presently configured certainly will lose. Le Pen's National Front will rise to become the most popular party in France, and she has promised to take France out of the European Union. It is hard for "guns and no butter," austerity and war, to be maintained indefinitely in a democracy.