Grexit Sturm und Drang

Europe has problems. A barrel of Brent crude fell below $52, causing the euro to drop to a nine-year low, $1.19, against the dollar. A contentious meeting of the European Central Bank will be held on January 22, a few days prior to the election in Greece, to consider some form of quantitative easing in order to stave off deflation. As Jack Ewing explains in "Falling Euro Fans Fears of a Regional Slowdown":

The further declines in the euro and in oil did not change expectations that when the European Central Bank meets on Jan. 22 that it would unveil further stimulus, broad-based purchases of government bonds, so-called quantitative easing. 

When deciding policy, E.C.B. officials are probably focused on the inflation rate more than the value of the euro or the price of oil, and the German data indicated that inflation continues to fall to levels considered dangerously close to deflation — a downward price spiral that is poisonous for corporate profits. 

German inflation was just 0.1 percent in December, according to an estimate by the government statistics office. 

An official estimate of inflation in the eurozone as a whole is to be released on Wednesday. Analysts expect the rate to fall to close to zero or even below it, putting further pressure on the European Central Bank to act.

Germany, which is dealing with a burgeoning nativist movement that is eroding the base of support for mainstream conservative parties (Alison Smale, "Anti-Immigration Rallies in Germany Defy Calls to Desist"), will argue against quantitative easing. The Germans will reason that the oil-price drop will act as a form of stimulus:

There are still many economists and public officials, though, who maintain that in fact cheap oil and a cheap currency are overwhelmingly good for Europe. One of them is Jens Weidmann, president of the Bundesbank and an influential member of the Governing Council of the European Central Bank. 

“The cheaper oil price works like a stimulus program,” he said in an interview published Sunday by the Frankfurter Allgemeine newspaper. “Consumers and companies have to spend less and can consume and invest more.” 

The statement was a signal by Mr. Weidmann that he remains skeptical about whether more E.C.B. stimulus was needed. 

While a majority of the E.C.B. Governing Council appears to support embarking on a quantitative easing program, members may be reluctant to risk alienating Mr. Weidmann and the larger German public whose views he represents. Germany worries that it might get stuck paying a big part of the bill if the European Central Bank loses money on any eurozone government bonds it might buy as part of quantitative easing.

These German worries of being left holding a huge bag of worthless bond paper are compounded by Syriza's lead in the Greek polls. Alexis Tsipras, the leader of Syriza, has promised if elected to renegotiate and possibly repudiate loans with the troika (European Commission, European Central Bank, IMF). For the last week German government officials have been lecturing Greeks to stay in line and not monkey with austerity. Liz Alderman has a helpful summary today ("Euro Countries Take Tough Line Toward Greece") of this hectoring:

On Monday, Germany’s economics minister, Sigmar Gabriel, said Europe would not accept undermining the stability that has returned to the eurozone in the last couple of years.

“We aren’t vulnerable to blackmail,” he said in an interview with the German newspaper Hannoversche Allgemeine. “We expect from the Greek government — regardless of who will form it — that the agreements made with the E.U. will be respected.”

Last week, Wolfgang Schäuble, the German finance minister, cautioned Greece against moving away from its current economic reforms, saying: “If Greece takes another path, it will be difficult. Any new government will have to stick to the agreements made by its predecessor.”

In an acknowledgment of the delicacy of the situation, German officials on Monday quickly backed away from a weekend report by the magazine Der Spiegel that suggested that Chancellor Angela Merkel and Mr. Schäuble believed that the eurozone could cope if Greece quit the euro and returned to the drachma.

A government spokesman denied that contingency plans had been made for such a possibility, and insisted that Germany wanted Greece to remain in the eurozone.

Officials in Brussels, too, emphasized Monday that membership in the euro bloc was “irrevocable,” although they left open to what extent Greece could renegotiate the terms of its bailout after the election.

“The euro is here to stay,” said a European Commission spokeswoman, Annika Breidthardt.

Guy Verhofstadt, a former Belgian prime minister who leads the Liberal group in the European Parliament, called the idea of a Greek exit, or “Grexit,” from the eurozone “nonsense,” not only because most Greeks do not want to leave the euro, but also because European taxpayers would wind up losing billions of euros that Greece owes them.

If Greeks can hold on and weather the threats and fear mongering (incumbent prime minister Antonis Samaras is campaigning on a purely fear-based appeal asserting that a havoc-plagued Grexit will result if Syriza triumphs) and Syriza can form a government, Tsipras will have a solid bargaining position. Europe is engaged in a pestilential fiction that an austerity-ravaged Greece can actually pay back the loans she has been awarded.

Alderman concludes her story by quoting two Commerzbank economists, Jörg Krämer and Christoph Weil, who say that renegotiation is the most politically expedient option Germany has, despite all the threatening noises from Schäuble et al.:

Still, most observers expect a Greece run by Mr. Tsipras would stay within the eurozone, and that a new Greek government would reach an agreement with its European creditors following a period of turmoil. After all, if Greece were to return to the drachma, the country would likely face new economic upheaval that it could ill afford. 

Preventing a Greek exit is also still desirable for Germany and other countries, since billions of euros in European taxpayer money could be wiped out if Greece were to leave the euro, raising the risk of a political backlash against leaders in those countries, said Jörg Krämer and Christoph Weil, the Commerzbank economists. 

“It would be much easier politically to renegotiate a compromise with Greece, albeit a lame one, and thus maintain the fiction that Greece will pay back its loans at some point in time,” they said.

The fear mongering has just begun. Greeks will pummeled with every type of propaganda and every form of thought control over the next three weeks. Dire warnings of anarchy will be broadcast. The proud Scots were made to buckle recently. Can we expect the Greeks to act rationally and vote to reject the pestilential fiction of austerity?

Last week I was sanguine. Years of brutal benefit cuts and high unemployment would inure the Greek voter to fear mongering at the polls. Now I am not so sure. Deflation on the European continent is going to up the ante and turn the January 25 poll into total war. No effort will be spared to maintain the neoliberal credo of austerity. Alderman reports that Tsipras has only a three-point lead with 20 percent undecided. Not terrific numbers.

The Question Greece Poses to Empire's Power Elite: What is to be Done?

Empire is in a pickle. Its mainstream political parties have faithfully implemented the neoliberal credo of austerity -- attempting to balance budgets during recession by cutting basic government services and spending -- and the results -- slow growth, no growth, large numbers of long-term unemployed -- have discredited the mainstream political parties with the citizens that they putatively represent.

So a situation arrives like the one we now have in Greece, a parliamentary democracy that has been a laboratory for experiments in austerity, where Empire -- here represented by the troika (European Commission, European Central Bank and IMF) of creditors -- can no longer feel confident that it can control the outcome of elections.

From the perspective of the power elite, the captains of the foundering mainstream political parties, Empire's 1%, what then is to be done? We will find out on January 25. If Syriza wins fair and square and Alexis Tsipras becomes prime minister, maybe the troika will do the smart thing and rescind some of its demands for austerity. This is unlikely because the bankruptcy of neoliberalism would then have to be publicly acknowledged and governments in France, Italy and Spain would likely collapse.

So the question once again for the power elite is what is to be done? Certainly a repeat performance of the "No" vote on Scottish independence will be staged. You will recall that was a combination of undefined promises of future goodies coupled with dire predictions of mass joblessness and a non-existent currency. All the mainstream organs of opinion will trumpet fear as well as blessings if the good little Indians of Greece should stay on their austere reservation.

The problem with the parallel to Scottish independence vote, as Suzanne Daley makes clear today in her excellent story, "Greek Patience With Austerity Nears Its Limit," is that Greeks will be immune to scaremongering:

Nowhere have austerity policies been more aggressively tried — and generally failed to live up to results promised by advocates — than in Greece. After more than four years of belt tightening, patience is wearing thin, and tentative signs of improvement have not yet trickled down into the lives of average Greeks. 

Now, after its Parliament failed to pick a president on Monday, forcing early elections, Greece faces a turning point in how to heal its devastated economy.

In the Jan. 25 general election, a majority center-right coalition government that has reluctantly stuck with austerity policies will face a charismatic left-wing challenger who says it is time for Greece to take its future into its own hands and do what it can to stimulate growth. Whichever path the country chooses, the outcome is likely to have broad implications for Greece and its place in the European Union.

In 2010, with Greece crippled by debt and threatening the survival of the euro, the European Union, the International Monetary Fund and theEuropean Central Bank began imposing German-inspired austerity on the country. The aim was to slash the budget deficit and address fundamental problems like corruption and a failure to collect taxes. Such policies, they promised, would get Greece back on its feet, able to borrow again on financial markets.

Greeks grudgingly went along, assured that painful reform would return the country to growth by 2012. Instead, Greece lost 400,000 jobs that year and continued on a decline that would see a drop in the gross domestic productsince 2008 not much different from the one experienced during the first five years of the United States’ Great Depression.

Greece’s unemployment rate was supposed to top out at 15 percent in 2012, according to International Monetary Fund calculations. But it roared to 25 percent that year, reached 27 percent in 2013 and has ticked downward only slightly since.

Among international policy makers and economists, the debate over austerity remains as intense as ever. Chancellor Angela Merkel of Germany, the most high-profile advocate of the argument that only through fiscal prudence can nations achieve stability and prosperity, has given little ground even as larger and more influential countries like France and Italy have started balking at her demands.

But at the street level in Greece, there is little debate anymore, if there ever was. The images of suffering here have not been that different from the grainy black and white photos of the United States in the 1930s. Suicides have shot up. Cars sit abandoned in the streets. People sift garbage looking for food.

*** 

Even supporters of Prime Minister Antonis Samaras say that he faces an uphill battle to persuade the electorate to stay the course after five years of austerity.

His principal opponent, Alexis Tsipras, is promising to defy Greece’s creditors, renegotiate the country’s enormous debt, cut some taxes and work to restore cut pensions. 

It is unclear where such an act of defiance might lead, whether Greece’s creditors would be willing to change their approach or whether Greece even might find itself in the unprecedented position of facing expulsion from the eurozone, or even the European bloc altogether. 

Yet for many Greeks who have lost everything, rebellion may be a choice they cannot resist, even if it is a scary one.

***

In a wide-ranging review of the Greece program last year, the I.M.F. found that many of its predictions had failed. There was a sharp fall in imports, but little gain in exports. Public debt overshot original predictions. Predicted revenues from selling public assets were way off. The banking system, perceived as relatively sound at the beginning of the bailout, began having problems as the economy soured. 

Looking back, the I.M.F. concluded that many errors had been made, including too much emphasis on raising taxes instead of cutting expenses. In addition, the monetary fund overestimated the ability of the government to deliver the changes it was demanding — because they were proving politically unpopular and because Greek institutions were far weaker that anyone understood. 

Over the last four years, the three lenders have demanded more than 800 actions a year, Greek officials say, requiring hundreds of new laws, sometimes changed and readopted within weeks or days. 

Administering these changes would have been difficult in a country with sound institutions, but Greece’s were filled with poorly qualified political appointees and were undergoing hiring freezes and budget cuts even as they were supposed to be managing a huge overhaul: a large assortment of new taxes, the opening of closed professions and the sale of state-owned assets. 

Experts say that even now the Greek tax collection system does not truly function. Investigations into the Greek elite and their secret foreign accounts have foundered even in the face of public exposure of the accounts.

Germany will not allow a collapse of the eurozone. The eurozone benefits Germany; it gives Germany a continental-sized economy to lord over. But it won't yield to Tsipras' demand for growth-first budgeting. So what is to be done?

It seems to me that if Syriza cannot be defeated at the polls by ballot stuffing and blackmail then the next step will be for the troika to draw out negotiations while at the same time attempting to crack and destabilize the solidarity of the Greek majority.

If one were to look at Chile under Allende as an example of the kind of terror the dominant Western powers have in store for Greece led by Syriza, one would foresee the possibility of transportation strikes, power struggles within the military, etc. -- a panoply of subversion and skulduggery. The coming year will be a momentous one.

Greece's Syriza Soon to Deliver a Mighty Blow to Empire

The announcement this morning (Niki Kitsantonis, "Greece Heading to Early Elections After Presidential Vote Fails") that Greek Prime Minister Antonis Samaras failed to force through the election of his candidate, Stavros Dimas, for president means that there will be early general elections by the end of next month. Syriza, the leftist party that for years has been seeking to renegotiate the bloodthirsty debt agreement with the troika -- the European Central Bank, the European Commission and the International Monetary Fund -- is favored to win:

Opinion polls show the leftists firmly ahead of Mr. Samaras’s conservative New Democracy party, although Syriza’s lead has narrowed in recent weeks as the prospect of protracted political and financial uncertainty has grown. The Athens Stock Exchange fell by 10 percent during the vote, trimming losses to 7.4 percent later in the day.

The yield on 10-year government bonds, which moves in the opposite direction to the price, spiked nearly a full point to 9.3 percent. The outcome of the parliamentary vote also weighed on markets in the overall eurozone, with the Euro Stoxx 50 blue-chip index losing about 1 percent. The euro was little changed at $1.2199. 

In an interview with state television over the weekend, Mr. Samaras pushed opposition legislators to align with the government in Monday’s vote, saying that failing to elect a president would be “political blackmail” and would result in “pointless upheaval” for the country. 

Despite furious lobbying by the government, Mr. Dimas received only 168 votes, the same number as in the second ballot last week and eight more than in the first vote on Dec. 17. [Votes needed: 180]

Mr. Samaras accused Syriza of “foolish bravado,” adding that the leftists’ economic program was “full of unilateral moves” that would upset Greece’s creditors and jeopardize the country’s fragile return to growth.

Mr. Samaras’s coalition government is working with the so-called troika of lenders, which has granted Greece two bailouts worth 240 billion euros, or about $292 billion, since 2010 to keep the country liquid. In return, the troika has demanded an array of austerity measures that has slashed household incomes by a third and pushed unemployment above 25 percent. 

Negotiations with the members of the troika — the European Commission, the European Central Bank and the International Monetary Fund — on a tough economic program have been dragging amid rising opposition in Greece to austerity. But eurozone officials have expressed their readiness to extend Greece a precautionary credit line next year.

The possibility of Syriza coming to power is threatening to upend the economic negotiations. Wolfgang Schäuble, the German finance minister and a champion of austerity in Greece and other countries, said in an interview with the German daily Bild on Saturday that any Greek government would have to honor existing agreements. 

“New elections won’t change anything about Greece’s debt,” he said, referring to a debt burden equal to 174 percent of gross domestic product, the highest rate in the eurozone. 

Mujtaba Rahman, an analyst at the London-based Eurasia Group, said the domestic troubles in Greece had the potential to once again bring broader consequences for Europe. 

“France and Italy will be vulnerable economically, as both have done little to reform since the days of the debt crisis,” he said, adding that the southern periphery would be more immune in economic terms. “They will be at risk politically, given their own troubles with populist parties.” [In other words, "Watch out, neoliberal elites. The people are pissed and aren't going to take it anymore."]

The key to investor confidence, he said, will be the E.C.B. and whether it undertakes bond buying at the turn of the year. “If the E.C.B. does not deliver, this could be the trigger for a major reversal in Europe wide market sentiment,” Mr. Rahman said. 

Mr. Tsipras insisted over the weekend that his party’s program for tackling the “humanitarian crisis” in Greece was “not negotiable,” though Syriza has not explained how the Greek state would pay for the promised benefits.

Here the reporter, Niki Kitsantonis, is either being lazy or disingenuous because Tsipras does explain how Syriza will pay for a return of benefits that have been slashed to feed the austerity beast. ZNet recently published the Syriza program, "What the SYRIZA Government Will Do." Tsipras plans to negotiate a growth clause. Meaning that debt payments will come only after growth has returned to the Greek economy. Funds from the troika will be used to promote growth first:

THE CONTEXT OF NEGOTIATION 

We demand immediate parliamentary elections and a strong negotiation mandate with the goal to: 

• Write-off the greater part of public debt’s nominal value so that it becomes sustainable in the context of a «European Debt Conference». It happened for Germany in 1953. It can also happen for the South of Europe and Greece.

• Include a «growth clause» in the repayment of the remaining part so that it is growth-financed and not budget-financed.

• Include a significant grace period («moratorium») in debt servicing to save funds for growth.

• Exclude public investment from the restrictions of the Stability and Growth Pact.

• A «European New Deal» of public investment financed by the European Investment Bank.

• Quantitative easing by the European Central Bank with direct purchases of sovereign bonds.

• Finally, we declare once again that the issue of the Nazi Occupation forced loan from the Bank of Greece is open for us. Our partners know it. It will become the country’s official position from our first days in power.

On the basis of this plan, we will fight and secure a socially viable solution to Greece’s debt problem so that our country is able to pay off the remaining debt from the creation of new wealth and not from primary surpluses, which deprive society of income.

This is all Econ 101, nothing radical or something to be dismissed as frothing-at-the-mouth lunacy of an atavistic Marxist; it is the kind of reasoning often found in Paul Krugman's column. That's why it is troubling that the Gray Lady's reporter dismisses Syriza's program without comment.

One key predictor of how the Obama administration is going to react to Greece's early election -- and, therefore, how Empire is going to react -- is to see what Krugman says about Syriza. Krugman has been nothing if not consistent in debunking the "austerian" credo. He has written countless columns from the outset of the Great Recession pointing out the devastating consequences of slashing government budgets while the economy is contracting. For Krugman not to endorse Syriza's program for Greece means the fix is in.

But Krugman opposed Scottish independence. And recently he has engaged in pathetic Putin bashing. So it might well be that 1) he either avoids commenting altogether, or 2) he carries water for Obama yet again and bashes Tsipras.

While it is true that the Scots were made to buckle at the polls in September because of threats and scaremongering, it seems to me that Greeks who have lost a third of their household wealth will be more immune to such tactics.

What is certainly true, based on last May's European Parliament elections and the recent U.S. midterm poll, is that there is massive erosion in support of, belief in, allegiance to the large, established, mainstream political parties of the West.  These political formations have been completely captured by a corrupt, disconnected, neoliberal power elite and a majority of people have woken up to this fact.

A clue to the direction of where it will all end will be provided by Syriza in January. The people have reached a level of disgust with the status quo that is going to start manifesting itself positively. The real question is going to be, "How destructive will the Empire be in maintaining the status quo?"

I have to say, "Plenty."