Following the No vote in yesterday’s Greek referendum, the battle lines are being drawn around Europe. The Greek crisis is forcing the eurozone to face up to the existential question which it has dodged since the crisis hit – whether to integrate further or whether to adjust its membership. However, not unexpectedly, a number of countries have different reactions to this question and the splits are already emerging.
One thing all sides agree on is the need for more talks – they do love a good emergency summit in Europe. Of course, it would be nearly impossible to reject new talks out of hand, as it would seem as if eurozone leaders were rejecting the democratic vote in Greece, which would play into Greek Prime Minister Alexis Tsipras’ game of blaming the creditors for all of Greece’s woes.
The substance of the talks is an entirely different matter though. A German government spokesman drove this home saying the “preconditions have not been met” for a new bail-out deal for Greece and debt restructuring is not on the table. France’s Finance Minister Michel Sapin went a bit easier saying there is “nothing automatic” with regards to Grexit, adding that there is “a basis for” negotiation. The Baltics and the Dutch unsurprisingly rallied around the German hard line, while Italian Prime Minister has tempered his initially tough tone somewhat.
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The fault lines and divisions across Europe have once again been exposed by the crisis. The difference this time is that papering them over will prove much harder. There is little wiggle room in these current talks. Tsipras has made it clear he believes Greece needs some kind of debt relief and is unlikely to budge after being emboldened by the strong No. Given that 76 per cent of Greek debt is held by taxpayer-backed institutions this would inevitably involve some kind of transfer, which will have to be explained to taxpayers across the eurozone. It is clear there is no consensus around such a prospect and pushing it through would be democratically and legally impossible.
Beyond the longer term implications for the eurozone, which are at the forefront of German minds, there are also domestic implications which weigh heavily on other European states. Spain does not want to feed the rise of Podemos. Other governments which have implemented tough austerity simply do not want to look as if they took such a hard path for no reason.
The customary response to such divisions is for Europe to seek a fudge. But there is not an obvious one on the table this time. With Greek banks now shut and capital controls in place it will be impossible for them to reopen without further ECB support. This is hard to imagine without a new deal, which is itself a huge ask. So where does this leave us? Well, with an eventual Grexit. The negotiations may rumble on for a bit but the gaps between Greece and creditors as well as within the creditors look too large to bridge. Ultimately, if Greece ever wants to reopen its banks it will have to start printing its own currency, marking an important step towards full Grexit.
Timeline: What next for Greece after 'No' vote?
Key events in the next 48 hours and beyond for the Greek crisis
Today (Mon 6 July)
EU institution talks
Jean-Claude Juncker, the head of the European Commission, Donald Tusk, the president of the European Council of member states, and Jeroen Dijsselbloem, the chair of the Eurogroup of single currency users, and Mario Draghi, the chair of the European Central Bank, will hold a morning conference call
ECB decision on emergency liquidity
The European Central Bank Governing Council, comprised of member states, will meet. They will discuss whether emergency liquidity - kept in place for the referendum - can legally and politically be maintained.
Hollande and Merkel meeting
Angela Merkel, the German Chancellor, and Francois Hollande, the French president, will meet for dinner at the Elysee Palace in Paris. Europe's founding fathers are split. France is Greece's last defender, and believes a deal can still be done. More broadly, it believes that the euro must be more democratic, less coercive if a series of Greek-style rebellions are to be avoided. Germany, Greece's sternest critic, believes the country should serve as a lesson: stick with the reforms programmes, enforce fiscal discipline from the centre, or chaos will ensue.
Tuesday 7 July
European Parliament address
Mr Tusk and Mr Juncker are expected to address Europe's elected representatives at the Parliament in Strasbourg. Nigel Farage is lined up to speak. Expect oratorical fireworks.
Eurozone heads summit
The Eurozone heads of government will meet in Brussels. They last convened last Saturday, the morning after Alexis Tsipras tore up a Euro 1.5 billion bailout deal by calling a referendum.
Looming deadlines
Any day this week
With or without emergency liquidity, Greek banks are likely to run dry.
July 13
Greece must find another Euro 465 million currently owed to the IMF. It is already in default.
July 20
Most crucially, on July 20 it must find Euro 3.5 billion to pay the European Central Bank. Default on this will force the withdrawal of those emergency bank loans. Financial collapse and Grexit follows.
Greece is the latest battleground in the financial elite’s war on democracy
reece may be financially bankrupt, but the troika is politically bankrupt. Those who persecute this nation wield illegitimate, undemocratic powers, powers of the kind now afflicting us all. Consider the International Monetary Fund. The distribution of power here was perfectly stitched up: IMF decisions require an 85% majority, and the US holds 17% of the votes.
The IMF is controlled by the rich, and governs the poor on their behalf. It’s now doing to Greece what it has done to one poor nation after another, from Argentina to Zambia. Its structural adjustment programmes have forced scores of elected governments to dismantle public spending, destroying health, education and all the means by which the wretched of the earth might improve their lives.
The euro will be stuck with austerity unless it learns to embrace democracy
The same programme is imposed regardless of circumstance: every country the IMF colonises must place the control of inflation ahead of other economic objectives; immediately remove barriers to trade and the flow of capital; liberalise its banking system; reduce government spending on everything bar debt repayments; and privatise assets that can be sold to foreign investors.
Using the threat of its self-fulfilling prophecy (it warns the financial markets that countries that don’t submit to its demands are doomed), it has forced governments to abandon progressive policies. Almost single-handedly, it engineered the 1997 Asian financial crisis: by forcing governments to remove capital controls, it opened currencies to attack by financial speculators. Only countries such as Malaysia and China, which refused to cave in, escaped.
Consider the European Central Bank. Like most other central banks, it enjoys “political independence”. This does not mean that it is free from politics, only that it is free from democracy. It is ruled instead by the financial sector, whose interests it is constitutionally obliged to champion through its inflation target of around 2%. Ever mindful of where power lies, it has exceeded this mandate, inflicting deflation and epic unemployment on poorer members of the eurozone.
The Maastricht treaty, establishing the European Union and the euro, was built on a lethal delusion: a belief that the ECB could provide the only common economic governance that monetary union required. It arose from an extreme version of market fundamentalism: if inflation were kept low, its authors imagined, the magic of the markets would resolve all other social and economic problems, making politics redundant. Those sober, suited, serious people, who now pronounce themselves the only adults in the room, turn out to be demented utopian fantasists, votaries of a fanatical economic cult.
All this is but a recent chapter in the long tradition of subordinating human welfare to financial power. The brutal austerity imposed on Greece is mild compared with earlier versions. Take the 19th century Irish and Indian famines, both exacerbated (in the second case caused) by the doctrine of laissez-faire, which we now know as market fundamentalism or neoliberalism.
In Ireland’s case, one eighth of the population was killed – one could almost say murdered– in the late 1840s, partly by the British refusal to distribute food, to prohibit the export of grain or provide effective poor relief. Such policies offended the holy doctrine of laissez-faire economics that nothing should stay the market’s invisible hand.
When drought struck India in 1877 and 1878, the British imperial government insisted on exporting record amounts of grain, precipitating a famine that killed millions. The Anti-Charitable Contributions Act of 1877 prohibited “at the pain of imprisonment private relief donations that potentially interfered with the market fixing of grain prices”. The only relief permitted was forced work in labour camps, in which less food was provided than to the inmates of Buchenwald. Monthly mortality in these camps in 1877 was equivalent to an annual rate of 94%.
As Karl Polanyi argued in The Great Transformation, the gold standard – the self-regulating system at the heart of laissez-faire economics – prevented governments in the 19th and early 20th centuries from raising public spending or stimulating employment. It obliged them to keep the majority poor while the rich enjoyed a gilded age. Few means of containing public discontent were available, other than sucking wealth from the colonies and promoting aggressive nationalism. This was one of the factors that contributed to the first world war. The resumption of the gold standard by many nations after the war exacerbated the Great Depression, preventing central banks from increasing the money supply and funding deficits. You might have hoped that European governments would remember the results.
Today equivalents to the gold standard – inflexible commitments to austerity – abound. In December 2011 the European Council agreed a new fiscal compact, imposing on all members of the eurozone a rule that “government budgets shall be balanced or in surplus”. This rule, which had to be transcribed into national law, would “contain an automatic correction mechanism that shall be triggered in the event of deviation.” This helps to explain the seigneurial horror with which the troika’s unelected technocrats have greeted the resurgence of democracy in Greece. Hadn’t they ensured that choice was illegal? Such diktats mean the only possible democratic outcome in Europe is now the collapse of the euro: like it or not, all else is slow-burning tyranny.
It is hard for those of us on the left to admit, but Margaret Thatcher saved the UK from this despotism. European monetary union, she predicted, would ensure that the poorer countries must not be bailed out, “which would devastate their inefficient economies.”
But only, it seems, for her party to supplant it with a homegrown tyranny. George Osborne’s proposed legal commitment to a budgetary surplus exceeds that of the eurozone rule. Labour’s promised budget responsibility lock, though milder, had a similar intent. In all cases governments deny themselves the possibility of change. In other words, they pledge to thwart democracy. So it has been for the past two centuries, with the exception of the 30-year Keynesian respite.
The crushing of political choice is not a side-effect of this utopian belief system but a necessary component. Neoliberalism is inherently incompatible with democracy, as people will always rebel against the austerity and fiscal tyranny it prescribes. Something has to give, and it must be the people. This is the true road to serfdom: disinventing democracy on behalf of the elite.
It started with coal and steel.
After the horrors of 1914 gave way to the even greater ones of 1939, France and West Germany tried to tie their economies so close together in 1951 that the continent could never turn into a slaughterhouse again. So along with Italy, Belgium, Luxembourg, and the Netherlands, they set up the European Coal and Steel Community to create a common market for those strategically-vital resources and head off any renewed rivalry. Six years later, that was expanded into a common market for everything else with the European Economic Community, and that in turn was expanded to include more and more countries before it became a part of the then-new European Union in 1993. The common currency came next in 1999, which has, yes, been expanded since, with Lithuania becoming its latest member just this year.
But now, for the first time in 60 years, this process of ever closer union might be reversing itself, at least a little. Greece really might be forced out of the euro if it doesn't come to terms with Europe by Sunday—that's the new and final deadline—and from there, who knows. It's possible this could actually make it easier for the rest of the euro zone to come even closer together, or it could be the beginning of the end of the dream of a United States of Europe. But in either case, the continent's political future is at stake.
Now, the idea has always been that closer economic ties would lead to closer political ones. After all, you can't share a currency without also sharing a treasury. Why? Well, having the same currency means having the same monetary policy, but different countries need different monetary policies. France, for example, could use lower interest rates than Germany, and Greece could use a lower exchange rate than either of them. So to make up for the fact that money can't help but be too tight for some countries, the ones that are doing well need to send checks every year to the ones that aren't. That's what automatically happens in a well-functioning currency union like the dollar zone—aka the U.S.—where struggling states are able to pay less in federal taxes than they receive in federal benefits because strong states do the opposite.
The euro, in other words, was doomed to fail as it was constructed, but that failure was part of the plan. First you create a common currency that people want, and then, when the inevitable crisis comes, you have no choice but to create a common government that people don't—right? Well, no. The only thing less popular than a bailout is a bailout that never ends, which is what a fiscal union really is. Indeed, the Germans don't want to keep giving money to the Greeks, and the Greeks don't want to keep being told what to do by the Germans. So the irony is that the euro has made a single government more important than ever at the same time that it's made the idea more hated than ever.
This was so predictable that Milton Friedman predicted it back in 1997. The euro "would exacerbate political tensions," he said, "by converting divergent shocks that could have readily accommodated by exchange rate changes into divisive political issues." In other words, instead of being able to devalue your way out of trouble, you'd have to fight with your neighbors about how high interest rates should be or how much they should bail you out. But it's not just the politics between nations that turns nasty. It's the politics within nations, too. Keeping a country in a 1930s-style depression, like Greece has been, creates 1930s-style politics, complete with Nazis, communists, and fellow travelers of various stripes. And even the countries that are doing relatively better—which, in Finland's case, still means its longest recession in living memory—have seen bailout rage morph into rage against all outsiders, including immigrants.
It's reached the point that the euro might force Greece out of "Europe." Now the real problem, as many economists have pointed out, is that Greece likely never should have been part of the common currency to begin with, and has now been pushed into never-ending austerity that doesn't give it a chance to grow. But the more immediate one is that Greece's government has managed to lose friends and alienate people with its confrontational style—it's never a good idea to tell Germany they owe you World War II reparations at the same time you're asking them for a bailout—and Europe hasn't been willing to budge anything even resembling an inch for a government it doesn't trust. And that's why Greece might get all but kicked out of the euro.
So what happens if Greece does leave the euro? Well, it wouldn't be the kind of Lehman moment it might have been five years ago. The European Central Bank has seen to that by creating a financial firewall that should mean what happens in Greece, stays in Greece. And there's at least a chance that it could make it easier for the rest of the euro zone to agree to some kind of fiscal union. Greece really was sui generis in that its government's irresponsibility was what got it into trouble. That not only made it a convenient scapegoat, but also a convenient excuse not to do more to help the crisis countries.
But the more likely outcome is that nothing changes at first. The economics of the euro would still push countries towards a single government, and the politics of the euro would still push them away. Even if they're not Greek, all it takes to make someone seem undeserving of your money is to actually give it to them. So a fiscal union wouldn't be any more politically feasible than before. The bigger problem, though, is that Greece might show them there's a better life without the common currency.
Now let's be clear: the first year or two after leaving the euro would be complete hell. Unemployment would spike, inflation would too, bankruptcies would spread, and oil might need to be rationed. But that pain would pass, and when it did Greece would be left with a cheaper currency that would make its exports and tourism more competitive. Recovery would follow, and it could follow fast. That would be a reminder that even though devaluation is disparaged as the easy way out, its underrated virtue is that it is, in fact, a way out. Europe's been looking for one of those for years, so the next time an anti-austerity party won power, it might decide to do the same—until the euro zone was more like a northern euro zone, if that.
The euro's original sin is that it tries to force countries into a single government when the people in those countries don't want one. That not only makes them want one even less, but also makes them fight when they had no reason to before. But as long as nobody leaves, everybody is too afraid to do so even though they might want to. That's why whether Greece remains in or is removed from the common currency matters so much for the future of Europe. If it stays, then there's at least a chance that they could muddle through and, over the next few decades, forge a United States of Europe. But if it leaves, then more might too, and the euro might become the Esperanto of currencies: something that was supposed to bring people together, but didn't.
Courtesy : telegraph , the Guardian, Washington post.
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