Collapse: Greece + Yemen

The situation for Greece seems hopeless this morning. Reports over at Naked Capitalism highlight 1) that Tsipras never expected, never wanted to win the referendum and now has no idea what to do, that is why apparently Varoufakis' replacement, new finance minister Euclid Tsakalotos, showed up in Brussels without any proposal to present; and 2) complete capitulation by Syriza is coming fast. A proposal must be submitted by tomorrow and final agreement reached by Sunday. The new D-Day is now July 12, not July 20.

Though Yves Smith is reporting that Tsipras is already signalling his intention to accept most parts of the austerity package that was overwhelming rejected by Greeks at the polls this past Sunday, this might not be enough to satisfy the hardliners in the eurogroup, who are now rallying for even more austerity.

I think we have arrived at the point of Grexident. I suppose Tsipras can abjectly surrender to the eurogroup, that might have been the point of convening all parliamentary parties in a show of solidarity heading into negotiations. But then how does Syriza survive politically after receiving that 61% "Oxi" vote? It can't.

So it looks like drachmas it is. A lot of chaos is coming.

Which brings us to what I wanted to mention this morning -- Yemen. Yemen is infrequently covered in the "newspaper of record." Whether because its "Mad Max" landscape prevents Times' reporters from being dispatched to a war zone, or the more malign reason that the Gray Lady shares the foreign policy goals of the Obama administration, and the Obama administration is actively involved in the Saudi-led genocidal campaign against the poorest Arab country, New York Times readers are not receiving daily coverage of the ongoing slaughter in Yemen.

The numbers of dead as reported by CNN are as follows:

In total, more than 3,260 people have been killed in Yemen since March, [Stephen O'Brien, the top U.N. humanitarian affairs official, said Tuesday] and close to 1.3 million people have been displaced.

Of the dead, more than 1,500 are civilians, according to the U.N. human rights office.

The Gray Lady did publish a topnotch unsigned editorial yesterday, "As Yemen Collapses":

Yemen has now been added to the United Nations’ list of most severe humanitarian emergencies, along with South Sudan, Syria and Iraq. It is a tragic distinction, highlighting the peril to 80 percent of the country’s 25 million citizens. The international community, including the United States, is not doing enough to push for an immediate cease-fire in the war that is ravaging the country to make it possible to deliver aid.

Yemen, a poor country, was deeply unstable even before a coalition, led by Saudi Arabia and backed by the United States, started bombing the Houthi rebel movement in late March. Last week, Ban Ki-moon, the United Nations secretary general, declared the situation a “catastrophe.”

The coalition is seeking to reinstate the government of President Abdu Rabbu Mansour Hadi, who is now in exile in Riyadh. Mr. Hadi was ousted by the Houthis, an indigenous Shiite group allied with Iran. Most Yemenis are Sunnis, and Saudi Arabia, a leading Sunni country, has feared that a Houthi takeover would extend the influence of Iran, its regional rival.

The statistics are staggering. Over the past three months, the conflict has forced over a million Yemenis to flee their homes, and 21 million are in need of immediate help. Close to 13 million people are hungry and nearly half the provinces are “one step away” from famine, the United Nations said. Some 15 million people have no health care, and outbreaks of dengue fever and malaria are raging unchecked, in part because a fuel shortage has cut the electricity that keeps water pumps functioning.

The armed conflict is the biggest obstacle for United Nations relief agencies and private groups that are trying to reach desperate Yemenis, but a Saudi-imposed blockade along the coastline is also impeding crucial supplies from getting to those in need.

Mr. Ban and his special envoy, Ismail Ould Cheikh Ahmed, have been working to arrange a pause in the fighting so humanitarian aid can be delivered, and late last week aid groups were told that a cease-fire lasting about five days could begin soon. But the Saudi-led coalition may have hurt that goal by unleashing more airstrikes in the past few days against the Houthis and causing scores of new civilian casualties. One attack, on a marketplace near the city of Aden on Monday, killed more than 45 civilians, The Associated Press reported. In all, the United Nations has said 3,000 Yemenis have died since March, half of them civilians.

Some aid groups say five days is not enough time to resupply the millions of civilians caught in the fighting. And even if there is a pause, the conflict could grow worse unless all sides pledge not to use it to seize more territory. The Houthis did exactly that in the last brief break in the fighting.

What is needed is a permanent political solution that will ensure the Houthis, who have some legitimate grievances and are unlikely to give up, get a significant role in any new government. Negotiations should be started without preconditions. But Saudi Arabia and its allies have appeared intent on forcing the Houthis to surrender, no matter what the cost to civilians and Yemen’s cities and villages.

Yemen has been a breeding ground for extremists, including Al Qaeda in the Arabian Peninsula, the most lethal Qaeda affiliate. Its further unraveling will make it impossible to contain those threats, and that is a consequence all sides should fear.

Add to this the two Islamic State in Yemen car bombs that struck Sana yesterday, and you have a picture of superpower backed states bombing from above while its takfiri proxies Islamic State and AQAP bomb from down below.

At this point it is obvious that even if all Houthis were to spontaneously combust, Yemen would remain a cracked, failed state, a staging ground for takfiri jihad for the foreseeable future.

We have entered that stage of the dialectic where state powers in order to maintain their hegemony are destroying the possibility of any peace.

Grexident vs. Kicking the Can Down the Road

Since Friday the Syriza-led government of Greece has suffered a blow to its public image; it was then, despite weeks of avowals to the contrary, that Greek finance minister Yanis Varoufakis signed a troika memo committing his country to the creditor-dictated austerity program accepted by previous Greek governments.

While there was confusion and despondency in the blogosphere over Syriza's capitulation, there was some gloating in the mainstream prestige press. The opening to "A Deal That Preserves Greece’s Place in Eurozone, and Fiscal Restraints" by Andrew Higgins (well known to readers who have been following for the last year the U.S.-engineered coup in Kiev and the subsequent civil war in the Donbass as a reporter who will parrot the grossest of lies) provides a good example of "There Is No Alternative" schadenfreude:

BRUSSELS — Just a month ago, after being propelled to power by a wave of anger at Greece’s economic miseries, Alexis Tsipras declared his left-wing Syriza party’s election victory the start of a Europe-wide revolt against austerity. “Europe is going to change,” he said before setting off on a tour of European capitals to rally support for a more relaxed new direction. 

The “anti-austerity revolution” proclaimed by Syriza and its fans elsewhere, however, has now fizzled, its passions doused by the political reality that leaders in the rest of Europe do not want to join or, more important, finance the Greek-led revolt.

Yves Smith of Naked Capitalism has been pessimistic from the very beginning regarding Syriza's chances of re-working the troika's austerity program. Her Saturday "morning after" assessment, "Benchmarking the Greece/Eurogroup Bailout Memo and Process," was grim:

General Observations

There is no way of putting a pretty face on this document [the memo released yesterday by Greece and the europgroup]. It represents a huge climbdown for Syriza. Despite loud promises otherwise, they’ve agreed to take bailout funds, and the top and the close of the memo confirm that the baillout framework is still operative (emphasis ours):

The Eurogroup notes, in the framework of the existing arrangement, the request from the Greek authorities for an extension of the Master Financial Assistance Facility Agreement (MFFA), which is underpinned by a set of commitments. The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions…

We remain committed to provide adequate support to Greece until it has regained full market access as long as it honours its commitments within the agreed framework.

Even writers who take a positive view of what Syriza accomplished are under no illusion as to how far short Syriza has fallen relative to its lofty promises. From Paul Mason’s blog:

I asked Dijsselbloem in the press conference: “What do you say to the Greek people, whose democracy you’ve just trashed.” He replied that he did not think that was a very objective question. We’ll have to agree to differ.

There is also language in the memo that looks to authorize the return of the Troika monitors: “In this context, the Greek authorities undertake to make best use of the continued provision of technical assistance.” The Financial Times reads it the same way:

It also leaves the IMF and EU institutions — the European Central Bank and European Commission — in control of evaluating Greece’s economic reform measures and the disbursement of bailout funds, despite Mr Tsipras’ vow to rid Greece of the hated “troika” of bailout monitors.

Mind you, despite the foregoing, it is doubtful that Greece could have done much better, particularly in light of the way the ECB had worked to intensify the already-in-progress bank run and boxed the Greek government in by giving it only a thin increase in the ELA limits. A contact told me the Greek government would have had to impose capital controls over the weekend in the absence of a deal; the Financial Times reported close to the same thing by stating that Greece was on track to hit the limits of the ELA on Tuesday (the day after a long holiday weekend). And let us not forget that the Greek government is also slotted to run out of cash by February 24.

Then her conclusion:

In sum, it looks very likely that the top priority of the Troika will be to get Syriza to delineate in detail what they intend to do in the way of the 70% of the structural reforms that Varoufakis said that they and his counterparts already agreed to, and only throw a few bones on the humanitarian front out of the other 30% that Varoufakis wants. And if you’ve ever been party to legal agreements, more specific commitments operate to the disadvantage of the party making them.

Moreover, Syriza has already shown a propensity to overpromise and underdeliver. That would be likely to happen independent of what looks like an optimism bias among the leadership team merely by virtue of inexperience, as in underestimating how long it takes to change bureaucracies and design and launch programs.

As I have said, I would be delighted to be wrong, but even if the ambiguities in the memo language all resolve in Syriza’s favor, they have a mammoth task in what is achieving what is set forth in it, and an uphill battle in meeting the Troika’s and the Eurogroup’s reform expectations. I wish them the Greek government the best of luck.

Varoufakis yesterday submitted a draft proposal of reforms that his government plans to implement. The deadline for that proposal is today. Yves Smith comments this morning, "Troika Not Happy with Initial Draft of Greek Reforms; Eurogroup Reported Still in the Mix," that Varoufakis was wise to get his list in early because the troika is not satisfied by its level of specificity; she raises the possibility that the deal could still unravel, giving way to a sloppy "Grexident," though she sees the European Central Bank, the institution that has been steering negotiations behind the scenes, as exerting force on the eurogroup to accept Greece's proposal:

In any event, there is still the possibility that we could see a disorderly Grexit, or what one account called a “Grexident,” an exit triggered by mistakes rather than design.

However, with the ECB not afraid to invoke the Market Gods to beat the Eurogroup into line, the odds favor them using the same approach even if the Greek draft is not up to Troika working staff and/or Eurogroup standards, pushing them to sign off despite reservations.

But if that is how things play out, it would be a mistake to consider it a Greek win. Remember this is only the first step in an interim deal where Greece has to meet other Troika and Eurogroup targets, as well as work on the even more important task of negotiating what happens when other debt matures over the summer. The more that the Troika and Eurogroup continue to think that Syriza is not willing or capable of meeting its demands, the more any ambiguity in the memo will be resolved against Greece, except in those instances where a favorable resolution for Greece happens to coincide with what the Troika wants to do regardless. Similarly, the less smooth the process over the non-bailout baillout period, the less likely the creditors, which includes the Eurogroup, will be likely to be accommodating in negotiation over longer-term arrangements.

Reasonable or not, Greece has been put in the unfortunate position of having to appease its creditors to get any further breaks. They thus need to be good austerity designers and enforcers over the near term. That also means that remarks by Greek officials to the international media that look to be attacking the Troika or fomenting opposition to austerity in other debtor countries with governments that are making their citizens wear the austerity hairshirt would also be treated as demerits.

Thus, unless there is a serious procedural mishap on Monday and Tuesday, Varoufakis is very likely to be proven correct that his revised list of reforms on Monday will be accepted. But how bumpy that process turns out to be has significant implications for the long-term success of his effort to keep Greece in the Eurozone. The flip side is that there is the potential that even if this week is rocky, the Greek government could recover ground with its official minders once it does get control of the government, but it will need to be cognizant of how far it needs to go.

Thus no matter how you look at it, the new Greek government has a gauntlet to run between now and June. And as much as we’ve stressed that a Grexit is almost certainly an even worse outcome than acceding to the Troika’s demands, it is important to recognize that the best cases scenario for Greece is getting austerity lite as opposed to austerity regular. Even Varoufakis’ target of a primary surplus of 1.0% to 1.5% is still contractionary. Bill Mitchell estimates that Greece will need to run budget deficits of 10% of GDP to restore its economy to a semblance of normalcy. The US had unemployment levels in the Great Depression that were comparable to Greece’s now and have to run a much higher lever of deficit spending to pull the economy out of the ditch for good. 

Thus all of these hard-fought efforts by the Greek government are to eke out gains that don’t even begin to reach the level of intervention that Greece needs. So it isn’t simply that last week’s memo is yet another example in a long series of the European elite’s fondness for “kick the can” solutions to pressing problems. It appears that if Greece is indeed the recipient of new and improved flavor of austerity, it’s a higher-order delaying tactic meant to buy years more of sullen acquiescence from long-suffering citizens in periphery countries. 

This analysis sounds correct to me. Dominant neoliberalism survives by maintaining the paradigm at all costs. That is why Syriza has to be crushed even though what Varoufakis has been telling anyone who is willing to listen -- that paying off Greek debt by means of austerity is a cruel fiction -- is widely acknowledged to be true. Better to kick the can down the road and pretend that everything is going to work out.

One scenario that Yves Smith does not entertain, but one taken up by James Kanter and Niki Kitsantonis, "Greece’s Leaders Face a Revolt at Home as They Try to Appease Creditors," is that Syriza's parliamentary majority will fracture over the deal with the troika:

The deal reached Friday allows Mr. Tsipras to ask to drop austerity measures to which the previous government committed but never enforced, such as further cuts to pensions, an increase in a special value-added tax on the Greek islands and the relaxing of restrictions on mass dismissals in the private sector.

In return, Mr. Tsipras and his government are expected to propose other, chiefly structural changes, including some actions that the previous government failed to deliver on, such as a crackdown on tax evasion and corruption.

Such changes, if accepted, might ease the burden on the majority of Greeks who have been hit by austerity over the years, and shift more of it to the rich and privileged who have emerged from the crisis relatively unscathed and who, creditors insist, should shoulder part of the solution.

Indeed, many now expected that the government would propose changes aimed at helping those hit hardest by years of austerity in Greece, perhaps by raising low-income pensions. On Sunday, the changes seemed to be headed in the direction of focusing on a crackdown on tax evasion and corruption, and an overhaul of the public sector, a government official said.

If Greek lawmakers do not like the deal, they can vote it down. The coalition government in Athens has 162 seats in the 300-member House.

*** 

Even as government officials scrambled to complete the list and an accompanying analysis demanded by creditors, there were indications of internal dissent, with many prominent members of Syriza saying Athens should not give in to creditors.

Giorgos Katrougalos, the minister for administrative reform, told Greek television he would resign if “our red lines were not respected.” He said several of the pre-election pledges that brought Mr. Tsipras to power were not up for negotiation, including the rehiring of thousands of dismissed civil servants.

Manolis Glezos, a veteran Greek leftist, denounced backtracking by Syriza and suggested that the party’s leadership had deceived voters by bending to demands by Brussels and by agreeing to prolong the previous program.

"I apologize to the Greek people because I participated in creating this illusion,” Mr. Glezos, a member of the European Parliament, wrote on a blog, Active Citizens Movement, run by a group within the Syriza party.

Mr. Glezos called on “members, friends and supporters of Syriza” to “react before it is too late” by holding emergency meetings at all levels “to decide if they accept this situation.”

A government official responded that Mr. Glezos “may not be well-informed on the tough and laborious negotiation, which is continuing.”

Another group within Syriza, called Communist Tendency, on Saturday described the Eurogroup deal as “submission to the blackmail of the troika” and called on lawmakers to oppose it in Parliament.

Sofia Sakorafa, another member of the European Parliament for Syriza, wrote on her Twitter account on Sunday, “The people gave a mandate for the memorandum to be annulled” and “we have no political justification to do the opposite.”

Clearly not good for Syriza. Whether a Syriza-led government can survive I don't think is the question. I think it can, even if there are some very acrimonious resignations and public recriminations. The question is what kind of government Syriza is going to be. Another Obamaesque "Hope & Change" charade or a popular movement to crack the neoliberal paradigm?

Hugo Dixon of Reuters has a piece today, "Greece Needs to Embrace Radical Reform," urging Tsipras to go all in fulfilling the troika's demands for structural reform, going back to the voters again if need be:

Mr. Tsipras now has to present his own list of reforms by Monday evening. He must resist any temptation to come up with half-hearted proposals that might appease his extremist colleagues.

Instead, Athens should propose radical reforms that the previous conservative-led government was too conflicted to embrace. It should surprise its eurozone partners with its zeal and so help restore their trust.

Mr. Tsipras has long said he wants to combat tax evasion, corruption and special privileges, as well as rein in the oligarchs who control swaths of the economy and stifle enterprise. Now is his chance to prove he means business.

At the top of Athens’ list should be the creation of a genuinely independent tax authority. The last government, led by Antonis Samaras, sacked the authority’s boss. Buttressing it with strong legal safeguards would show that Mr. Tsipras was serious about tackling tax evasion.

The prime minister should also promise to remove tax and social security privileges enjoyed by the rich. For example, judges, generals and senior civil servants should have to wait for their pensions as long as ordinary people.

Similarly, the Greek Orthodox church should lose its exemptions from the country’s unpopular property tax. Nor should the government continue to pay for priests’ pensions and salaries. The church should offer to fund them itself.

Mr. Tsipras should also revive an idea, discarded by Mr. Samaras, to tax the country’s rich ship owners. It is astonishing that they slip through the tax net.

Next on Athens’ list should be liberalizing markets, which are still gummed up by restrictive practices. This would attract investment and give consumers a better deal. 

Mr. Tsipras should also set up a “bad bank” along the lines of what Spain and Ireland have done successfully. Separating nonperforming loans would not just free the banks to provide credit to the economy, it could also help clear up corruption, as many of the bad loans are provided to oligarchs who are clever at pressuring the banks not to foreclose on them. 

There is understandably some fear that a bad bank could end up as a backdoor means of helping corrupt businesses, by writing down their loans while letting their current owners stay in control. 

Greece’s creditors have the country on a short leash. They have not said how they will provide Athens with the money to stop its going bust next month. They have dangled the possibility of relaxing the punishing fiscal austerity but haven’t said by how much. 

If Mr. Tsipras can surprise his eurozone partners with radical reforms, they will be more willing to find Athens the cash to avoid bankruptcy, probably by letting it sell more short-term treasury bills to its banks. They will be more likely to relax the fiscal squeeze, allowing the government to fund some of its more pressing antipoverty policies. They will also be more amenable to relieving Greece’s vast debt burden, an idea currently on the back burner. 

It will not be easy for Mr. Tsipras to do all this, both because of his far left colleagues and vested interests that support his party. But he is popular enough to do this, especially if he secures a new mandate with a referendum or a second election. Now is the time to break with factions and side decisively with the Greek people.

This is the classic "triangulation" move from the neoliberal playbook perfected by both Bill Clinton and Tony Blair. Run against your own party. It is not going to work here. Syriza, like Podemos, is a recent political formulation, which means it is still connected to the rank and file. Tsipras couldn't split his own party without it collapsing.

Which means a Grexident is not out of the question at this point, though, like Yves Smith, I don't see how the neoliberal can does keep getting kicked down the road.