Monday, May 8, 2017

Greece Passes New Austerity for New Loans — Sharmini Peries interviews Michael Hudson

Michael Hudson: ​I wouldn't call it a negotiation. Greece is simply being dictated to. There is no negotiation at all. It's been told that its economy has shrunk so far by 20%. It has to shrink another 5% making it even worse than the depression. It's wages have fallen and must be cut by another 10%. Its pensions have to be cut back. Probably five to 10% of its population of working age will have to immigrate. The intention is to cut the domestic tax revenues because labor won't be paying taxes and businesses are going out of business. The intention is to lower the government's revenues by so much that Greece will have to sell off even more of it's public domain to foreign creditors. Basically it's a smash and grab exercise and the role of Tsipras is not to represent the Greeks because the TROIKA have said, "The election doesn't matter, it doesn't matter what the people vote for. Either you do what we say or we will smash your banking systems." Tsipras's job is to say, "Yes I will do whatever you want. I want to stay in power rather than falling in election."
Neoliberalism, neo-imperialism, neocolonialism.
Michael Hudson:​ It's being held an example for the same reason the United States went into Libya and bombed Syria. It's to show that we can destroy you if you don't do what we say. If Spain or Italy or Portugal seeks not to pay its debts, it will be ... Its banking system will be destroyed, its currency system will be destroyed and basically the principle is that finance is the new form of warfare. You can now destroy a country's economy not by invading it. You don't even have to bomb it as you've done in the near east. All you have to do is withdraw all credit in the banking system, isolate it economically from making payments to foreign countries so that you essentially put sanctions on it. You'll treat Greece like they've treated Iran or other countries.
​We have life and death power over you. The demonstration effect is not only to stop Greece but to stop countries from doing what Marine Le Pen is trying to do in France: withdraw from this Euro Zone, which is basically: the class war back in business. The class war finance against labor, imposing austerity, imposing shrinking living standards, and lowering wages, and cutting back social spending. It's demonstrating who's the winner in this economic warfare that's taking place.
The hidden agenda of neoliberalism that distinguishes it from economic liberalism is the assumption, based on history, that democracy has never existed and that oligarchy has been the rule.  Therefore, classical liberalism is pie-in-sky, but it can be used to fool the masses into accepting oligarchical rule under the guise of "freedom and democracy." Liberalism can able to used as a subterfuge for carrying out a policy of global domination by the capitalist oligarchy of the West enforced by the military and intelligence services.

Students of contemporary history and international relations know this, but most people have no idea about what is actually happening and are beguiled by the narrative that the oligarchs feed them in the media they control.

A big problem is that the left is internationalist and falls into the trap of supporting the neoliberal globalist power grab without realizing it. This leaves the nationalist right to oppose the power grab and the nationalist right is rising in power.

TRRN
Greece Passes New Austerity for New Loans
Sharmini Peries interviews Michael Hudson

18 comments:

blissex said...

It is very sad to read news about Greece, from Michael Hudson or the even sillier Bill Mitchell, because they seem to me very misleading and just stupid propaganda: Greece is a rich country, has a GDP per person 4 times that of Bulgaria or Romania, or another 4 or 5 EU member countries, and is doing quite well; GDP per worker has increased substantially over the years.
Expending so much pointless verbiage on Greece distracts from much bigger issues like indeed Bulgaria and Romania, for which Bill Hudson and other snobbish propagandists spend very little attention, despite lots of their citizens emigrating in desperation, to Greece for example.

Greece had a 25% GDP surge between 2004 and 2008 based entirely on an equivalent surge in borrowing by a right wing government that distributed the loot to right wing clienteles who spent most of the loot on imports. The only way that Greek GDP is going back to the level of 2008 is via fiscal transfers of hard currency of around 25% of GDP per year, around $35-50 billion.

The USA and the UK both refused to provide those fiscal transfers. Is the refusal to provide fiscal transfers of 25% of GDP per year to a rich country such a crime?

The EU gives net fiscal transfers of around 4% of GDP per year to Greece, and the eurozone countries have bought at par greek debts worth perhaps 10% on the market, and are rolling them over at an interest rate that is perhaps 20% of the market rate, providing a 40-60% discount on that debt and another 3-5% of fiscal transfer to Greece, solely to save the greek economy and government from the consequences of a formal default.

That is very generous, but should they also completely forgive the debts they are rolling over? That's hundreds of billions. Why make such a large gift to Greece and not to much poorer Bulgaria and Romania? Because Varoufakis is urbane and photogenic while bulgarians and romanians are gross? I hope not...

blissex said...

«has a GDP per person 4 times that of Bulgaria or Romania, or another 4 or 5 EU member countries»

I meant "or [bigger than that of] another"

Ignacio said...

blissex, it's not an "either/or" situation were you have to pick one.

The EMU as it exists is unsustainable, and that's the real issue at hand. Rolling over the debt making even more loans is basically a Ponzi scheme by now sustained because the status quo (banks et al.) prefer to keep the appearance that "everything is awesome", until it blows up because it's unsustainable (could be a long time as long as the world economy keeps growing). It will never be "paid back", at least not in the current situation with the current arrangement.

Let's stop pretending that it will be paid back and maybe confront reality for a change, rolling over debt is not helpful.

André said...

blissex, you cannot be serious. Greek GDP was USD 355 bi in 2008 and shrunk to USD 195 bi today.

GDP per capita was USD 32 k in 2008 and shrunk to USD 18 k today.

Unemployment rate was 7,5% in 2008 and now is 23%, and even larger for young people.

How is it going quite well? It's not because we have even worse countries around the world that makes Greece situation ok

GLH said...

Michael Hudson understands the events of the day more than anyone else I know.

blissex said...

«How is it going quite well?»

As I wrote, greek GDP per person even at PPP is higher than another 6-7 EU countries, and 4 times that of Bulgaria or Romania. Plenty of Bulgarians and Romanians emigrate to Greece. I have yet to read an article by M Hudson or B Mitchell or M Norman on the desperate poverty of Bulgaria and Romania.

Also greek GDP per person at PPP is the same as in 2001, when the greek economy was considered successful and doing quite well. How comes the same level in 2001 is considered a catastrophe, and the Bulgarian and Romanian level at 1/4 is not considered a catastrophe?

Unemployment figures in Greece are very unreliable, and if there has been an increase with respect to 2001 it is only because of internal redistribution.

Anyhow, regardless of that, if anybody has a plan to get greek GDP back to the level of 2008 *without* fiscal transfers of 25% of GDP, write immediately to Tsipras, he will be very grateful; and if someone has a plan to get greek GDP back to the level of 2008 with transfers of 25% of GDP, start making them today, the greek government can't wait to pass them on to their clients.

blissex said...

«it's not an "either/or" situation were you have to pick one.»

Well the argument that there are no priorities is very "progressive" indeed.

Its consequences are however interesting: if greek GDP per person being only 4 times bulgarian GDP per person is a humanitarian catastrophe, requiring fiscal transfers forever of 25% of greek GDP to bring it back to 5 times bulgarian GDP per person, shouldn't Bulgaria be entitled also to the same level of GDP per person, and thus fiscal transfers of 400% of its current GDP? After all «it's not an "either/or" situation»...

blissex said...

«Rolling over the debt making even more loans is basically a Ponzi scheme»

But rolling over and expanding the debt when the interest rates are low is the #1 prescription by economists like M Hudson and B Mitchell for the USA and UK to finance keynesian-style spending: they claim that it is not a Ponzi scheme, that right-wing economists are wrong to say that any given level of government debt reduces growth, and that the only thing that matters is the cost of rolling over the debt.

Why does the level of debt matter for Greece?


«keep the appearance that "everything is awesome"»

The reason why the greek debt cannot be written down is that very generously most of it has been bought and rolled over the eurozone governments via eurozone institutions, making the very big gift to Greece of avoiding a formal default and reducing the cost of rolling it over.
Those eurozone institutions are like IMF not allowed to write off debts without a corresponding increase in their capital, and the governments of the eurozone countries with a lower GDP per capita than Greece have vetoed that, because they would not be able to explain to their citizens why they would be taxed more to make fiscal transfers to Greece.

«It will never be "paid back"»

Everybody knows that. That's not part of the issue. Indeed the eurozone institutions that have bought the greek debt have made a 40-60% discount on it to Greece, by reducing the interest rate to near zero levels despite Greece being bankrupt and extending the duration of the debt to many decades. A very big generous gift that the UK, USA, IMF have not made to the greek government.

Currently repayments on that debt take around 3-4% of greek GDP, a very small amount, that is covered by the 3-4% of GDP of net direct fiscal transfers that Greece receives from the EU. So effectively the burden on the greek economy of the debt is zero.

The question is really why the greek government should be entitled to fiscal transfers of 25% of GDP forever, and who should make those fiscal transfers.

André said...

"if anybody has a plan to get greek GDP back to the level of 2008 *without* fiscal transfers of 25% of GDP, write immediately to Tsipras"

Well there is, and the MMT community has written a lot about it. The solution is "Grexit". Greece should leave the monetary union. That would be a win-win situation for everyone involved. Why isn't Tsipras and greek people considering it? I don't have an answer.

And I don't know how you got that 25% GDP transfers number. You probably have a good database and have put a lot of academic work to assess the situation and possible financial solutions to Greece. Please share with us.

"I have yet to read an article by M Hudson or B Mitchell or M Norman on the desperate poverty of Bulgaria and Romania."

That's an entire different problem. MMTers give a lot of focus to the US, western Europe, and rarely a few developing countries. And here in Mike Norman people love Russia. So Bulgaria and Romania and a lot of other countries are indeed unrepresented. That doesn't mean that Greece is quite well.

If you don't believe in Greece's unemployment rate statistics you should take a visit there. You will be surprised. You may actually get the impression that the unemployment is even bigger than what they say.

Ralph Musgrave said...

"Probably five to 10% of its population of working age will have to emigrate." I don't have figures to hand, but I believe a high proportion of Greece's population has been steadily emigrating for the last century compared to other European countries.

Ignacio said...

blissex, the EMU monetary system cannot be compared to the USA because nations do not have monetary sovereignty, Bill Mitchell has even written one book about it. The only way the whole thing hasn't imploded yet is abusing the TARGET-2 system, there is no other way the system wouldn't have collapsed already.

You cannot make the same arguments for Greece, or any EMU nation really, than for USA or the UK, as it currently stands.

Ignacio said...

making the very big gift to Greece of avoiding a formal default and reducing the cost of rolling it over

The gift was done to German and Austrian banks mostly (were most of those transfers ended), to prevent collapse.

The question is really why the greek government should be entitled to fiscal transfers of 25% of GDP forever, and who should make those fiscal transfers.

Indeed, that's the question. And the answer is really simple: as long as there is no political will for a fiscal union (and to have some sort of fiscal transfers like happens in any country with fiscal and monetary unions) the way to proceed is to exit the euro, return to a national currency, and try to work the process the "best" way possible, with a "de facto" default in everything that name probably.

As for nations which are not in the EMU but are in a poor situation (there are plenty in the world not just Romania or Bulgaria) in Europe, pegging to the euro is pretty much the same as being in the Euro. It's a terrible idea, just like it's a terrible idea following neoliberal economic policies, but that's not just happening in Rumania, or Greece, it just happens that countries like those are in a more vulnerable position to suffer. The answer to that is political, not something technocrats have to figure out, as long as the politics don't change nothing will change, is not a question of fiscal engineering.

Kaivey said...

There is no democracy and there are no ' free markets '. What 'free markets' really means is opening up a country's businesses and public utilities to be bought up be the western ruling elite. Their banks can create money out of nothing and buy the world. As they grow richer, by buying the world, they can then afford do buy even more of it. They would love to own most of China and Russia too. They wouldn't be so pro free market' if it meant that china got to own most of America and Europe siphoning off all its wealth.

blissex said...

«"if anybody has a plan to get greek GDP back to the level of 2008 *without* fiscal transfers of 25% of GDP, write immediately to Tsipras"

Well there is, and the MMT community has written a lot about it. The solution is "Grexit". Greece should leave the monetary union.»

In 2001-2008 greek GDP (per person at PPP) increased by 25% solely thanks to borrowing from abroad rising to 25% of GDP, and in 2008-2015 it fell back to the 2001 level as borrowing fell back from 25% of GDP.

How can "Grexit" replace the boost of 25% of GDP that came from borrowing from abroad? That is a big question, and just saying "Grexit"/MMT is handwaving... Suppose that "Grexit"/MMT allowed the greek government to do one of these things:

* Going back to borrowing 25% of GDP from foreign creditors: who would lend to the greek government? If it was not sustainable in 2008, how it will be sustainable again?

* Borrowing 25% of GDP from domestic creditors: greek citizens have been exporting their savings from Greece as fast as possible, why would they lend them instead to the greek government?

* Borrowing 25% of GDP from the greek central bank ("printing money"): how would this increase physical production in Greece by 25% given that 25% of GDP borrowed in 2008 did not increase greek production?

blissex said...

«And the answer is really simple: as long as there is no political will for a fiscal union (and to have some sort of fiscal transfers like happens in any country with fiscal and monetary unions)»

The EU does fiscal transfers worth 3-4% of GDP to Greece, even if Greece is a rich country. The question is who should do an extra 25% of fiscal transfers and why to Greece instead of Bulgaria and Romania.

If the argument is that greek citizens are entitled to fiscal transfers to bring their income from the level they had in 2001 and 2015 to the level they had in 2008, aren't bulgarian and romanian and all citizens of the EU also entitled to that level of income?

And if the answer is obviously "yes", what are the chances that the EU budget should be increased many times to ensure that regional aid payments guarantee a minimum income for everybody across the EU equal to that of the greek average income in 2008?

«the way to proceed is to exit the euro, return to a national currency»

How is this going to quickly boost greek GDP (per head at PPP) by 25% given that the only way to boost greek GDP by 25% quickly in the past few decades seems to have been borrowing from abroad of 25% of GDP per year?

Also, Bulgaria and Romania are outside the eurozone, yet their GDP per person at PPP is only 1/4 of the greek one. Why?

Ignacio said...

Blissex, it`s not an inmediate gain, short term would be painful. That`s why Greeks and greek politicians don`t want to do it, they are useless. But it`s a necessary condition for improvement, not this unsustainable arrangement they have now.

Eastern european countries are holding effectively a currency peg and following neolib policies, how would you expect any different outcome?

André said...

"In 2001-2008 greek GDP (per person at PPP) increased by 25% solely thanks to borrowing from abroad rising to 25% of GDP"

Even if there is enough evidence that this is true (which I think it doesn't), that's not the single way a country has to solve its problems.

It could spend more to invest more in itself. A country doesn't need to borrow to achieve anything. Bill Mitchell have written a lot about it.

Again, Greek is not doing well.

I mean, I could say that Bulgaria and Romania are quite well because in Syria the situation is much worse - they have a bloody civil war there. What would tji

André said...

"
Also, Bulgaria and Romania are outside the eurozone, yet their GDP per person at PPP is only 1/4 of the greek one. Why?"

That's a good point.

And the answer is that Grexit and monetary sovereingty are necessary but not sufficient conditions for economic/social wellbeing.

It would not change a thing in Greece if they could exit the monetary union but still behave as if they were in one.

You still have a lot of political and social issues that are not solved by monetary means.