Frances Coppola — Greece and the EU: a question of trust
I have been mulling over the terms of the agreement between Greece and the Eurogoup. Initially, I thought that Greece had ended up with an appalling deal, getting almost none of its aims and losing control of EFSF funding for its banks. The retention of future primary surplus targets under the November 2012 agreement - only the target for this year is under review - seemed particularly harsh.
But then I listened to Pierre Moscovici explaining the thinking behind the deal, and suddenly the penny dropped. We've all been missing the point. Holger Schmieding of Berenberg Bank was on the right lines - he commented recently that the real problem in the Greek negotiations was that trust had broken down. Indeed it has. But not recently. Trust in Greece broke down a long time ago.…
This, in a nutshell, was the obstacle. Syriza wanted a new arrangement in which the rest of the EU would trust it to deliver on its promises. The rest of the EU wanted Syriza to prove its trustworthiness by completing the current programme. Deadlock.…
So although the Greek government didn't get debt relief, and it didn't get a commitment to reducing primary surpluses from 2016 onwards (this will have to be negotiated on the basis of revised forecasts taking into account the effect of the new reforms), it got something much more important - the opportunity to prove that it can be trusted.…
This agreement, rather than treating it as a basket case that must be told what to do and supervised closely, offers it the opportunity to earn that trust by doing the following:
- creating a programme of credible and achievable reforms that will deliver the growth that Greece desperately needs
- delivering the reforms agreed with the supervising institutions
- meeting all of its existing commitments
If it can do this, then it will be trusted by others to deliver more - possibly including a complete programme of its own design. And in this way it will restore the dignity of Greece.
That's the challenge to Syriza.…
37 comments:
Old government had already the trust Coppola is describing. I am sorry but the left is pathetic. Whatever excuses they can come up with.
"reforms that will deliver the growth that Greece desperately needs "
By "reforms" the only thing being talked about is cuts to the govt top line leading spending. .. and some nebulous "tax enforcement".... ie 'expansionary austerity' it doesn't work...
Sounds more like to me that balances were leaving the Greek banking system faster than Syriza anticipated and they had to cave in (short term)...
Syriza made promises to its desperate people it obviously didn't have the wherewithal to keep. That's simply political suicide any way you cut it. If Monday passes and it comes to full light that Syriza walked back most of its promises to the electorate you can bet the farm they won't have a pot to piss in politically four months down the road. Oh, and all the fear mongering that Golden Dawn will ascend from Syriza's ashes is so much smoke. Won't happen.
Mal,
Maybe they honestly think they can do a Piketty Tax to "reduce inequality" and it will work (this Piketty stuff is the latest 'big idea' out of the left)....
YV starts to sound extremely confident when he starts to talk about the tax increases and enforcement part of his 'reforms'...
Rsp
YV is going to find out just how difficult taxing the oligarchs will be. Even if Syriza accomplishes an effective mechanism to accrue taxes, how, pray tell, will that help the regular folk given that these taxed revenues recycle back to the euro bankers? But at any rate Syriza is not going to get that far in any purported tax plan because Syriza will be out of power long before then.
" given that these taxed revenues recycle back to the euro bankers?"
Well you have to understand what is going on in the complete circuit to be able to see that... rsp,
Here's the money shot excerpt from the Eurogroup yesterday:
"...The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday February 23. The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review. This list will be further specified and then agreed with the institutions by the end of April.
Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF programme and the transfer of the 2014 SMP profits. Both are again subject to approval by the Eurogroup..."
http://www.consilium.europa.eu/en/press/press-releases/2015/02/150220-eurogroup-statement-greece/
So in actuality, depending on what reforms Syriza comes up with, Monday is for all intents and purposes DDay?
"and the transfer of the 2014 SMP profits..."
Says here that the net income for the whole ECB including SMP in 2014 was only:
"The ECB said in a statement its 2014 bottom-line net profit, after subtracting risk provisions, amounted to 989 million euros, down from 1.44 billion euros a year earlier."
http://www.businessinsider.com/afp-ecb-says-profits-down-in-2014-2015-2
And this is from the whole EZ.... so this would be way less than 1B EUR for Greece ... big deal thats not going to help...
So with the negative rates in 2015 they are probably looking at posting a loss this year (like the Swiss CB in 2013...)
... so I find it hard to believe that they would give any funds back to Greece if they could figure out how to swing it they are probably desperate for every penny they can get a hold of...
I think Greece just bought some time to catch their breath and put together a comprehensive economic strategy plan to sell to their own public.
Greece's negotiating stance was much weakened by the fact that they went straight from elections into negotiations, and have no clear alternative plan on the table around which they could rally support.
Dan, if as Yves Smith claims that Syriza has already walked back 70% if not more of it's promises to the electorate who's going to believe they can deliver a grand plan four months down the road? That's just not politically feasible. They won't be in power that long.
Hopefully come Monday YV will prove Smith wrong by not folding on any of Syriza's promises. But then, of course, the Eurogroup will reject and it's back to Grexit possibility.
What promises have been walked back Malmo? What did they promise to do? And on what time scale? Greece didn't really commit to anything yesterday that goes beyond a couple of months.
Oh and you know what, I haven't seen Naked Capitalism propose anything concrete, anything that comes close to a serious economic plan for Greece. And I have been reading the site quite a bit. I really don't think those folks are capable of that kind of thinking. So all of their Monday morning quarterbacking and peanut gallery grousing is worthless.
And when the Persian fleet was observed off the coast of Thermopylae King Varoufakis commanded his mighty 300 to...
..RUN LIKE HELL!!!
Regarding the walk backs Smith is alluding to, I don't know for sure because she gave no specifics. I suppose she thinks YV's reforms to be announced on Monday to Eurogroup will fall far short of what they promised. Not exactly sure how she knows this.
It seems to me there is no way for Greece to stay in euro and dig itself out of the hole it finds itself in. Syriza must act boldly, yet if it does the EZ will bury its membership within. YV claimed the original bailout terms cannot work. If he folded on that then we can kiss his butt bye bye. Contrary to Smith, I'm not sure he has done that yet. Guess we'll know if it's a full fledged surrender come Monday.
Dan,
Naked Capitalism has proposed that Greece cannot and should not leave EZ, as that would be a worse case scenario. I hear Smith say that over and over again, but with little evidence to support such a claim. It seems as if she fears a 1930's redux. If so I think that's unrealistic fear porn similar to ISIS and Russian fear porn. Just my two cents.
Extracting money from people who have cheated on taxes and who leave the mony offshore would have no negative impact on final demand (in Greece, it may dampen London luxury properties). The only way the Greek national accounts make sense is that there is a lot of this, otherwise why did these deficits have no inflationary impact? Under this logic, "expansionary deficit cutting" is possible. In fact, it is the only way Greece could hope to survive in the eurozone.
As for "losing" the negotiations, Greece got th best deal that was possible. Even if we ignore the troglodytes, the other countries would not give Greece complete flexibility. I assume that Syriza knew that all along.
The Germans were so obnoxious that I doubt that Syriza will be blamed for giving up whatever ground it appears they lost.
Even if the secret plan is to leave the euro, they would need time to prepare. So this deal is exactly what Greece needed if you believe that Greece should leave the euro.
People need to start offering Greece solutions that do not begin with "Leave the eurozone."
Suppose the state of Mississippi elected a progressive governor and legislature, and they said, "We're sick of being the butthole economy of the United States. Mississippi is determined to embark on long term plan to become one of the most dynamic and prosperous economies in the country!"
Great! And I'm pretty sure people could come up with many helpful ideas and solutions that didn't start with "Secede from the United States and create your own currency."
Greece needs to ignore all of the faux friends on the europhobic, nationalist, isolationist right, and also all of the cranks who think every problem is everywhere and always a monetary problem, and get get busy with an ambitious plan to rebuild the Greek economy.
Dan,
Your analogy is specious. The EZ is not even close to being a United States of Europe. The national government in the states does not treat her member states in any way shape or form like the EZ is treating Greece.
Leaving the euro precipitated by the awful conditions Greece labors under is not some right wing, ultra nationalistic knee jerk reaction. I'm not implying by saying that that Greece should necessarily leave the EZ, but it's naive to think their northern overlords are going to change their behaviors going forward, so it isn't an irrational act to ponder leaving those who torture you.
You keep talking of a Greek ambitious plan that needs implementation. That's well and good, but any plan must meet with strict Troika guidelines that are self defeating. But this is the price for wanting to remain in the monetary union. You simply can't have your cake and eat it to, as a massive debtor in the EZ. Greece can have an ambitious plan, but not as a vassal state.
Even if the secret plan is to leave the euro, they would need time to prepare. So this deal is exactly what Greece needed if you believe that Greece should leave the euro.
From what I read, the ECB was preparing for Grexit if a deal was not signed on Friday. That would have been it. Tsipras and Varoufakis is not have a mandate for that, so they postponed it with an agreement to agree on a plan on Monday. So the can is still being kicked down the road.
With German intransigence, the Greek people are getting more and more disaffected and open to Grexit.
As we know, Grexit is in the only viable solution.
BTW, if your didn't see in on FB, WM reported there that YV emailed him to call the MMT off since they were filling up his mail box. Actually, WM put up a copy of the email. So if you didn't get this message already, don't email YV telling him to get out of the the EZ cage.
Greece needs to ignore all of the faux friends on the europhobic, nationalist, isolationist right, and also all of the cranks who think every problem is everywhere and always a monetary problem, and get get busy with an ambitious plan to rebuild the Greek economy.
The point is that one the terms that they are being given, there is no possibility of doing that. This is why there is a problem in the first place, not only in Greece but the entire EZ other than the core. The peripheral countries are all failing and have no policy space to deal with it because the core won't cut them any.
The only two solutions are either to go forward — and it's politically impossible to from a political union or even a fiscal union, or else to exit the currency zone, which means going it alone in an economically hostile environment.
These countries should have considered the downside before giving up currency sovereignty, and it's not too late to do so now.
" So if you didn't get this message already, don't email YV telling him to get out of the the EZ cage."
That's bad manners. Like shouting in the man's face. He's got a tough enough job as it is.
However the problem is simple. The left are addicted to the idea of destroying the nation state and can't cope with the reality that it doesn't work and hasn't worked.
Instead it has become a totalitarian regime run once again by the German political elite. This time however they got across most of Europe. But they are still killing people.
Tom Hickey "As we know, Grexit is the only viable solution."
I would say: not so fast. Grexit is the only viable solution, IF there is no relaxation of the fiscal norms embedded in the stability pact.
However, euro area countries could move to what American liberals call "reality based policy". If the automatic stabilisers are allowed to work, their economies could return to what passes for "full employment" in modern economies. This what Syriza is implicitly aiming for (although they might characterise things differently), but there is no chance of this happening overnight.
Also, the ECB _should_ be ready for Grexit, they would be incompetent if they were not to do such analyses. But they appear to lack the authority to "pull the trigger"; they have to react to a decision by politicians.
The left are addicted to the idea of destroying the nation state and can't cope with the reality that it doesn't work
So sad - and true.
That's true and basically it would require changing the Masstricht Treaty, which is not in the cards.
The problem and solution here is not economic but political. Basically, the core politicians, reflecting the wishes of the majority of their voters, don't want to cut the periphery any space that might in any way affect their own countries finances, and these politicians and voters strongly believe that their taxes will fund the periphery in the end and they have said, No way!
This makes a lasting economic solution impossible because the periphery is now so deeply in debt and in the throes of debt deflationary depression. There's no bandaid fix possible now.
As Michael Hudson likes to say, Debts that cannot be paid won't be.
YV offered a way out with consols but that was rejected as basically debt forgiveness.
Politically, the EZ is on the way to economic disaster even through there are patches available to postpone it. But in the end the present arrangement is doomed in that the net exporters want the net importers to become net exporters, too, which is basically to dump the problem on the ROW. That is not going to happen, and if it does, it won't last because other countries won't accept Europe's problems being foisted on them as debt.
Usually, old debts are paid with the proceeds of new debt. It´s a rollover.
In the case of the eurozone, it´s possible for a government to contract new internal debt (commercial banks create euros by lending to the government) pay the debt held abroad and have its TARGET2 balances rise by a corresponding amount.
TARGET2 balances pay the MRO rate, currently next to zero percent. They have no maturity date - and there is no principal to "pay back".
The government will then - and only then - be in a position to leave the eurozone, free from a crushing external debt burden in a strong currency; and willing to keep paying the interest (in euros) on the TARGET2 liabilities.
As for the internal debt, it will constitute no problem at all after the government regains monetary sovereignty by issuing a new currency.
I'm just saying that Greece has taken Grexit off the table - end of story. So instead of kvetching about that fact, and incessantly encouraging them to do something they have no intention of doing, move onto something else.
Only 39% of Greeks are employed. That's insane. No country can compete effectively for a prosperous life in this world - whether a modern world, a medieval world or an ancient world - when such a small percentage of the country is employed in the generation of output. If Greece could get that number up to even 50%, the economy would surge dramatically.
So put people to work. Pay them somehow, anyhow; if not with euros, pay them with bus tickets, or fish coupons, or shares in co-ops, or pieces of the true cross, or freaking draft them into some kind of national labor corps. Something; anything. But prosperity comes from labor, and Greece has a vast ocean of unutilized labor. It's leaving vast economic potential on the shelf.
Spain, Portugal and Italy need to do the same thing.
"This, in a nutshell, was the obstacle. Syriza wanted a new arrangement in which the rest of the EU would trust it to deliver on its promises. The rest of the EU wanted Syriza to prove its trustworthiness by completing the current programme. (...)
"[The Greek government] got something much more important - the opportunity to prove that it can be trusted".
So, both parties in the negotiation got something, according to Frances Coppola. Maybe she's right. The EU got to impose its conditions, the Greek government got the chance to prove its trustworthiness (!)
But, aren't we forgetting something? What the fuck did the Greek people get?
Wasn't the Greek government supposed to be merely a representative of the Greek people?
Greece is in desperate shape. They need a J. K. Simmons type from Whiplash to stand up to those sadists to the north. Tell em how the cow ate the cabbage and really mean it and deliver the goods for Christ sake. Mr Nice Guy isn't going to cut it with the Eurogroup. There's nothing contradictory with being a liberal and possessing some backbone, or is there? Shit Mike Norman would do far better I'm sure.
One of the strangest things in this debate was the number of people on the liberal side who seemed to be under the impression that the mere fact that Syriza was elected meant that "the people had spoken" and that Germans and others were now required to follow the Syriza program or else they were "disrespecting democracy."
That's a pretty silly understanding of democracy. Merkel was elected by the Germans too. Does that mean that Greeks are required to endorse and cooperate with the German program?
The only weapon Greece has against its creditors is the threat of default. If it is not willing to employ that weapon, then the creditors rule.
Then, the Greek government should face up. Go to the people who elected them and tell them:
We tried to reach an agreement with these people, God knows we did. And we failed.
Now, the only choice we have is between (1) either take whatever shit these people want, or (2) dust ourselves down and exit the eurozone.
Both choices are hard. Your call.
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What they cannot do is (1) to demand ever more patience from the Greeks, and (2) spin this disaster into a victory.
@ Magpie
Exactly!
Have never understood this 'Greek strongman puts head in hydra's mouth' business?
A default doesn't necessarily get Greece booted from the EU, right? It certainly would get them booted from the EZ, I think, but I'm not sure even of that outcome. Those are important questions to be answered.
At any rate leaders lead. They make tough, even unpopular choices, even in a democracy. What viable leaders don't' do is make promises they can't keep only several weeks into their being elected. That's political suicide. If I'm a shit on pleb in Greece and hear that my elected leaders folded after only a few weeks on the job, then it's out the door with you spineless wankers and make sure it doesn't hit you in the ass on the way out.
The impression I get is that the German politicians have pretty much decided that if Greece doesn't meet its prior commitments, then Greece is out of the EZ. This is why Syriza felt it had to buy time on Friday and therefore, why they declared a temporary victory in getting an extension without committing to the priors that Germany was demanding. We'll see how it goes with the Greek plan to be delivered by Monday, since this agreement was actually only a postponement. The deal is not yet done.
Nobody seems to mention it much: but at least as much attention should be on Germany as Greece?
The German people, blinded by power and ideology were fertile ground for an immature doctrine (delusion) of a super-race to rear its head. When they saw the devastation done they were truly sorry. Today they believe they are good honest hard-working European citizens, and the misfortunes of the Greeks have little to do with the merciless exercise of power. Germany could, in real discussions about the exercise of humane power to the benefit of all of the EU (in partnership with French intellect and Italian passion) actually lead. The Brits and Yanks seem captured by the City and Wall Street; the Russians fighting to survive; the Chinese busy nation-building. The real potential of the EU is to demonstrate to the world how Nations can thrive with cooperation. I just don't know whether fiscal transfers around the EU is possible – it seems such a large step when people think 'scores' are something? The politicians could fight out their differences in the Rome Stadium with nice thick gloves on so they don't do too much harm – good Friday night entertainment.
I still think the hydra (selfishness) only lost a head in WWII and the painful wisdom and experience gained through that devastation, out of which ashes rose the creation of the UN (to provide a platform for Ideals to be fought out quarantined in the mental arena - and never again physically) has been severely compromised. Reliance on M.A.D. is actually insane! And of course the hydra rears its head in every Nation. It's a sorry world with the monkey on our back!
Actually, the process of globalization began over two millennia ago in the West with the rise of the Roman Empire. That process is proceeding apace but the West and the rest of the world, too, is still deeply embedded in tribalism. Nationalism grew out of tribalism. Just as a tribe is a collection of clans and clans, of families, a nation, "people" or "folk," was until quite recently a collection of tribes loosely related by blood, geography, and history.
It takes a long, long time to move beyond those collective impressions that run deep in many places, less deep but still significant in others, like America, the melting pot. But even in America we see divisiveness of origin, especially race now instead of ethnicity.
Internationalism is a great idea whose time is coming but slowly and rushing it will lead to conflicts. The European project was premature and it is indeed leading to the very sort of divisiveness that it was designed to move beyond.
There is individual and collective consciousness. Each person is a conscious subject that is autonomous. But individuals are born into families and extended families (clans), as well as "tribes" and "nations" although not necessarily related by kinship. From the family up to the entire human race, different levels of collective consciousness are manifested based on the individual consciousnesses that make up the element of the macro systems, as well as the meso institutions and affiliations in between.
This generates a potential at any point in time that determines what is possible and what is not possible, as well as levels of practicality along the range between the extremes.
Getting the adjustment right to take advantage of as much potential as possible without creating conflicts that result in blockages and even setback is politics as the art of the possible.
To the degree that limited interests intervene, the adjustment is more difficult to make and maintain, and the result is dysfunction and even conflict. Statesmen are those that have a grasp of the art of the possible, and they are few and far between. Most of the participants are politicians representing narrower interests.
Tom,
Being tribal thereby leading to quasi nationalistic impulses yet demonstrating a cooperative spirit with the world's other tribal communities/nations is not some pathology that needs the all encompassing cure called internationalism, as that's merely a utopian impossibility. Nations have always possessed a degree of parochial behaviors inculcating and promoting self interested acts distinct to those inhabitants within. That's as normative as the air we breath and will be into perpetuity. The realities and manifestations of relatedness will never go away as history has shown us clearly. Relatedness has been and will continue to be modified vis'a'vis intermarriage and or immigration, but then a new manifestation of relatedness is spawned, yet it is no less tribal in the end. America is a melting pot, but tribal still. Just watch sporting events at any level as just one example and you'll get what I'm driving at.
Blood is thicker than water. Even thinned out blood, which over time thickens again. Has been and will always be. Much of politics and all proximate individual life is local, the latter being necessarily so. As society progresses, ties that bind aren't going away, neither is the ethos that charity begins (doesn't end, however) at home.
But none of this rules out global cooperation. As relatedness fans out beyond one's local surroundings, so naturally do the ties that bind weaken, yet the spirit of cooperation and mutually beneficial acts can still be manifest as witnessed countless times around the globe. Man would not have existed very long had he not been a cooperative being in the first place. Cooperation is embedded in our DNA, wars notwithstanding.
There has always been a tension between local, national, and international interests, but the latter two exist to serve the former, and there can really be no good life absent some degree of cooperation with the larger whole. Still, the world as a whole, the internationalist mindset, is still an abstraction when viewed in aggregate. The whole serves the parts not the other way around. Tom, if that;s your view of internationalism then I'm on board.
if that;s your view of internationalism then I'm on board.
My motto is, "Live unity, celebrate diversity."
Internationalism as an idea (social construct) and ideal (goal) to be striven for is based on appreciation of the unity of human nature and the interdependence of all beings through increasing increasing species awareness and ecological knowledge. This involves developing a level of collective consciousness globally, both institutionally and culturally, and matches the idea and ideal.
This is an ongoing process. It has been going on in the West since Roman times at least. It is also fundamental in the Islamic world in the the concept of the community of the faithful (umma). It is also found in the Maha Upanishad 6.71, "The world is my family" (vasudhaiva kutumbakam). America (and Canada) are in the forefront of this development as "the new world."
But as we see historically down to the present, this has often involved conflict and opposition, if only the assertion of one group in contrast to others.
Every idea is partial and calls for its opposite. Internationalism is a reaction to excessive nationalism, and it in turn provokes a nationalistic reaction. Within this dialect of ideas, there are may related ideas operative that engender their own conflicts within the overall context of history.
When I studied history in school, it was chiefly Western civilization. When I studied intellectual history it was almost exclusively Western intellectual history. Now that is beginning to shift toward global history and global intellectual history. The culture is change, but now without many objecting that studying anything but the West is a waste of time arising from a misguided attempt to be politically correct.
This is the working out of the historical dialect between unity and diversity that takes a great deal of time and many moments to transcend from widespread diversity —"tribalism" to unity in diversity.
Will human ever transcend the need for the nation state? That is impossible to tell in a complex adaptive system, but whatever happens diversity will almost certainly be reflected for a long time to come. I envision globalization taking hundreds of years. Trying to either rush it or impose a path on it is both foolish and futile. This is what I see America and the West attempting to do.
The way forward is through multipolarity rather than unipolarity. Moreover, the assumption that neoliberal capitalism and the American approach to democracy represent "the end of history" is based on belief in an ideology. It is an increasingly dangerous belief.
Attempting to suppress diversity is a fool's errand that will end badly for those attempting to do it. This type of internationalism is a form of insanity in my view, and it is a smokescreen for transnational neoliberal corporatism as the driver of globalization. This is just another form of feudalism.
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