Gwynne Dyer: Greece loses, European Union wins

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      The first round of the battle for the euro is over, and Germany has won. The whole European Union won, really, but the Germans set the strategy. Technically, everybody just kicked the can down the road four months by extending the existing bail-out arrangements for Greece, but what was really revealed in the past week is that the Greeks can’t win. Not now, not later.

      The left-wing Syriza Party stormed to power in Greece last month promising to ditch the austerity that has plunge a third of the population below the poverty line and to renegotiate the country’s massive $270 billion bail-out with the EU and the International Monetary Fund. Exhausted Greek voters just wanted an end to six years of pain and privation, and Syriza offered them hope. But it has been in retreat ever since.

      In the election campaign, Syriza promised 300,000 new jobs and a big boost in the monthly minimum wage (from $658 to $853). After last week’s talks with the EU and the IMF, all that’s left is a promise to expand an existing programme that provides temporary work for the unemployed, and an “ambition” to raise the minimum wage “over time”.

      Its promise to provide free electricity and subsidised food for families without incomes remains in place, but Prime Minister Alexis Tsipras’s government has promised the EU and the IMF that its “fight against the humanitarian crisis [will have] no negative fiscal effect.” In other words, it won’t spend extra money on these projects unless it makes equal cuts somewhere else.

      Above all, its promise not to extend the bail-out programme had to be dropped. Instead, it got a four-month “bridging loan” that came with effectively the same harsh restrictions on Greek government spending (although Syriza was allowed to rewrite them in its own words). And that loan will expire at the end of June, just before Greece has to redeem $7 billion in bonds.

      So there will be four months of attritional warfare and then another crisis—which Greece will once again lose. It will lose partly because it hasn’t actually got a very good case for special treatment, and partly because the European Union doesn’t really believe it will pull out of the euro common currency.

      Greece’s debt burden is staggering—about $30,000 per capita. It can never be repaid, and some of it will eventually have to be cancelled or “rescheduled” into the indefinite future. But not now, when other euro members like Spain, Portugal, and Ireland are struggling with some success to pay down their heavy but smaller debts. If Greece got such a sweet deal, everybody else would demand debt relief too.

      The cause of the debt was the same in every case: the euro was a stable, low-interest currency that banks were happy to lend in, even to relatively low-income European countries that were in the midst of clearly unsustainable, debt-fuelled booms. So all the southern European EU members (and Ireland) piled in—but nobody else did it on the same scale as the Greeks.

      The boom lasted for the best part of a decade after the euro currency launched in 1999. Ordinary Greeks happily bought imported German cars, French wines, Italian luxury goods, and much else, while the rich and politically well connected raked off far larger sums and paid as little tax as possible. Greek governments ended up lying about the size of the country’s debts.

      No less an authority than Syriza’s finance minister, Yanis Varoufakis, described the atmosphere of the time like this: “The average Greek had convinced herself that Greece was superb. A cut above the rest....Due to our exceptional ‘cunning’, Greece was managing to combine fun, sun, xenychti [late nights] and the highest GDP growth in Europe.”

      Then the roof fell in after the 2008 crash, and “self-immolation followed self-congratulation, but left self-importance in the driving seat,” as Varoufakis put it.

      That is why the sympathy for Greece’s plight in other EU members is limited. Moreover, the EU, and especially the Germans, have managed to convince themselves that “grexit” (Greek exit from the euro) would not be a limitless disaster.

      The other PIGS (Portugal, Ireland, and Spain) are in much better shape financially, and Brussels no longer fears that the Greek “contagion” will spread irresistibly to them as well. Neither does it think that a Greek departure from the euro would bring the whole edifice of the single currency tumbling down. And it knows that the vast majority of Greeks don’t want to leave either the euro or the EU—so it’s playing hardball.

      When the interim deal was made public on Tuesday, Prime Minister Alexis Tsipras put the best possible face on it, saying that Greece had “won a battle, but not the war.” In fact he lost the first battle, as he was bound to. It will take him longer to lose the whole war, but that will probably happen too.

      Comments

      10 Comments

      I Chandler

      Feb 25, 2015 at 12:21pm

      DYER: "Greek governments ended up lying about the size of the country’s debts."

      We are reminded by Eric Margolis that "those miscreants at Goldman Sachs falsified the financials..."
      http://ericmargolis.com/2012/05/more-debt-wont-solve-europes-problems/

      Maybe Merkel could be more generous if the Fed would give back her Gold.
      Maybe Europe is tiring of its role of being the plaything-mistress for the macho Americans:
      http://www.informationclearinghouse.info/article41062.htm

      " It's an age-old, tragic relationship. The mistress and her gadfly, selfish male-benefactor, who is really not a benefactor, but instead is more like her jealous, despotic jailer. Oh yeah, sure, he festoons her with cute presents now and again, chocolates, stockings, perfumes and the like. He also professes ardent devotion and vows to protect her. In return she gratifies his basic needs. But when it gets down to it, the mistress is dispensable, a plaything that is brutally discarded when he is done. "

      P.Peto

      Feb 26, 2015 at 9:56am

      I.Chandler just squeezed in his comment before the comment mechanism went AWOL.
      I had submitted a thoughtful bashing of German financial hegemony within the European Union by claiming German ascendancy over much of Europe without this time having to resort to war. Greece is just another case where the European financial class [bankers] in conjunction with a corrupt Greek political and financial oligarchy has left the Greek taxpayers [Hoi polio] bankrupted. "Bail out" money to Greece has gone directly into foreign banks. The people have gone into debt peonage through austerity programs imposed on them instead of the profligate tax evading Greek elites. The Greek people are suffering through a 7 year depression and are now desperate enough to vote in "leftist" and extreme right wing parties to remedy their suffering. Meanwhile the Greek moneyed class has moved some $80 billion, in capital flight, has left the country for foreign banks. European bankers are intent on making an example of Greece, no debt forgiveness or accommodation [no quarter] will be given. Syriza must be shown to be toothless, the example is there will be no redemption by left wing parties in Europe. Germany and the wealthy class rules with an Iron Fist but in so doing jeopardises the whole European Union experiment.

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      History doesn't matter

      Feb 26, 2015 at 12:08pm

      You'd think that a civilization with that much history would know how to run a country by this point. I guess we just never learn.

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      50 shades of Greece

      Feb 27, 2015 at 1:38pm

      @P.Peto

      The bailout money goes into foreign banks because it makes sense. Bailout money comes at 0 to 0.5% interest, and maturity dates ranging from 5 to 20 years for the EFSF/EFSM. A rather small part of the bailout loans come at 3% interest from the IMF. Together, they are replacing costly free market (bank) loans with loans that basically are free or low of interest and devalue as time goes by because of the EU QE. This alone amounts to a hidden debt cut.

      One could argue that the austerity attached to this program is a bad thing. However, the Greek government is not asked to run a budget surplus of 3.5% including interest payments, rather it is asked to run a budget surplus excluding interest payments. That means, 3.5% of the GDP are for servicing and paying back debt.

      Now, Yanis Varoufakis wanted to have a GDP driven payback mechanism, well its already in place, because 3.5% of GDP means the pay back rate is GDP driven.

      Admittedly, 3.5% of GDP is a very unrealistic number by european standards. But the EU was offering Greece conditional flexibility there. If Syriza can introduce a working tax system in Greece, then negotiating successfully a downward adjustment of the relative surplus margin, becomes quite realistic.

      Cutting Greece's debts right now, would not eliminate the root cause of the problem. Until now, previous Greek governments did little to reform Greece's economy. It remains to be seen, if Syriza has the power and ideas to transform the economy into a sustainable one. Once the Greek government is able to reach a vague fiscal balance, the EU will certainly relieve pressure on Greece. If things do not change, than Greece remains enslaved by debt with or without cutting current debt.

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      Jezza

      Mar 1, 2015 at 2:21am

      Back on top Gwynne Dyer. Keep 'em coming.

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      McRocket

      Mar 1, 2015 at 10:32am

      Were I Greece, I would leave the EU.

      If they stay, they just get more debt piled onto more debt...sucking up more and more of their GDP to try and maintain payments.
      And what happens if/when interest rates go back up? Their debt payments could skyrocket eventually - even more then they are.

      I say leave the EU, go back to the drachma and take your chances with it. Sure, their currency will be worth squat at first. And sure, they will have a much harder time getting loans. Good. It will force some fiscal discipline on them...force them to live within their means for once. But those crushing debt repayments will be gone. And, as Dyer says himself, they will never repay the loans...so why bother keeping the charade up?
      Yes, it would be tough. But it is tough now and does not look to be getting better. When you are out of credit and cannot afford to make the payments, increasing your credit level does nothing but buy a little time and make the whole situation worse.

      and, were I Greek, I think I would rAther have my economic fate decided from my own country rather then Brussels.

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      NS Archetype

      Mar 3, 2015 at 3:51pm

      McRocket, your proposal sounds remarkably similar to some of the proposals Golden Dawn has been making!

      Oh but yeah I know, it's just so terrible to say or think that!

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      McRocket

      Mar 9, 2015 at 12:35am

      NS Archetype, so what is your point?

      That every idea that Golden Dawn has should instantly be ignored because they are a ridiculous, far right wing party? Even idiots come up with good ideas sometimes.

      What a childish post you made...you sound like a troll to me.

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      NS Archetype

      Mar 9, 2015 at 10:44pm

      @ McRocket

      Now that Syriza has sold out, Golden Dawn may very well be the party to step up to the plate, as they are the only pro-Greek and anti austerity party left in the running. According to you they may just be a ridiculous far right wing party. However, the establishment is obviously terrified off them as they have resorted to using every dirty trick in the book to stop them, from ballot manipulation to unfair TV broadcasting time, to forming last minute "far right" parties in an attempt to sap away their votes, and if all else fails outright murder. And all have failed to deter them!

      I have already been correct in my prediction that Syriza would sell out. We'll see who has the last laugh, McRocket.

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      McRocket

      Mar 19, 2015 at 3:21pm

      @NS Archetype

      Lol

      I said nothing about Golden Dawn winning an election...I neither know nor care if they win.

      I just said they are a 'ridiculous, far right wing party'...and they are.

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