July 7th, 2015
in Op Ed
by William K. Black, New Economic Perspectives
The people of Greece have just shown great courage, and even greater common sense, in voting "No" in overwhelming numbers against the troika's war on the Greek people and labor throughout the EU. In recent days we have seen the spectacle of the major media shamelessly lying globally about the referendum and the Greek government - cheered on by the troika.
The troika openly sought to depose a second Greek head of state for the high crime of favoring a democratic vote on the troika's economic malpractice and effort to extort the Greek people by threatening to destroy their economy. The tone and content of the propaganda were extraordinary - and reversed reality.
If you read the media very closely, you can see how hard it would have been to craft this propaganda if it was supposed to have any basis in reality. First, the IMF now admits that its long suppressed studies show that it has known for years that the Greek debt is unsustainable. That confirmed the position of the Greek government (and what every financial specialist has known since 2009). The logical answer in the commercial sphere is (routinely) to write-down part of the debt in what is known as a troubled debt restructuring (TDR). TDRs are treated as having no moral content - they're just smart business. In Greece's case, however, the media is suffused with fake morality and is enraged that Greece is seeking a TDR. TDRs are less common for nation states, but they have been done hundreds of times in the modern era - including for Germany after World War II. Germany's TDR was essential to its economic recovery. Note that there was a vastly stronger moral argument against Germany's TDR than Greece's request, but the major media overwhelmingly avoided these facts.
Second, austerity as a response to a Great Recession is economic malpractice akin to the medical malpractice practiced for centuries of bleeding patients. (I am delighted to note that Paul Krugman has just adopted this metaphor for malpractice that I have been promoting for years in a column celebrating the Greek "No" vote.) Economists have understood this for at least 75 years. The troika's insistence on self-destructive austerity has gratuitously forced Spain, Italy, and Greece into worse than Great Depression levels of unemployment that persist seven years after the acute phase of the global financial crisis. The IMF - the mother of austerity demands - has admitted that fiscal stimulus policies not only proved (as theory and experience have long shown) far more effective than austerity - but that economists had greatly understated the predicted effects of fiscal stimulus.
So, the new Greek government was right on both of its key policies - as even the troika's historic "deficit hawk" (the IMF) now admits it has known for years. That means that the troika has knowingly insisted on economically illiterate and self-destructive policies and caused immense human misery for no (desirable) reason. What is going on? The answer is the troika's oxymoronic definition of "reforms." When the troika uses the word the "reforms" it means three anti-reforms - reduced wages and rights for workers, destroying the safety net, and selling public assets to private buyers. The troika is deliberately, with the aid of the major media, generating a "race to the bottom" throughout the EU. The New York Times provided a reprehensible example of how the media aids and abets this assault on workers and those who need the safety net in a June 29, 2015 article entitled "Greece's Troubles Attract Little Sympathy From Poorer Neighbors."
While the media cannot refer to Greece's government without the label "left-wing," an ultra-right wing politician and vitriolic opponent of the Greek government is simply referred to as "the president of Bulgaria." (The NYT article above promptly referred to "The left-leaning Syriza Party.") Given Plevneliev's anti-worker ideology, he was delighted to inflict "reforms" harming labor. His fear is that Greece will not be destroyed by the troika and that Bulgarian labor will rise up in political opposition to his party. He is, of course, a virulent opponent of the Greek government.
But what of the meme at the heart of the story - that we should only have sympathy for the Greeks once the troika has succeeded in forcing its wages and safety net to fall to such depths that 100% of its pensioners are in poverty - instead of a mere 45 percent of Greek pensioners? The troika's strategy is to force EU workers to compete with each other and the third world to reduce wages in what I call the "Road to Bangladesh" program. The article notes that Bulgaria's pensions are far lower, but ignores the purpose of the safety net and the fact that Bulgaria's pensions leave virtually every poor recipient in grinding poverty. Greece is supposed to aspire to the Bulgarian standard for a "safety net" that will lift none of the elderly poor out of poverty. The NYT cheered a Bulgarian standard for a "safety net" that provided no net and no safety to the elderly poor.
I particularly appreciated the carbon copy articles in the BBC and the NYT by different authors repeating the same propaganda being fed them by the troika's flacks in an unsuccessful attempt to influence voting in the Greek referendum. The NYT article, dated June 5, 2015, is entitled "Day of Reckoning for Greek Banks and Eurozone's Central Banker."
If Greeks vote yes - agreeing to accept unpopular dictates from other eurozone nations and international creditors in return for more aid - the central bank would have a much easier time justifying emergency loans and other steps to keep the banks from failing. No economy can function properly without banks; if they topple, so will the economy.
Actually, the role of the Central Bank (the ECB in this case) is to provide liquidity to banks. The ECB refused to fulfill this function in order to try to extort the Greek people to vote "Yes" in the referendum.
The second sentence of the quotation is a joy on multiple levels (none recognized by the hapless authors). First, it follows logically that if they believe what they wrote they just confirmed the ECB's extortionate terms - vote "Yes" or we will "topple [your] economy." Later in the article the authors admit that the ECB's actions in cutting off liquidity to the Greek banks because the Greeks dared to vote on whether to accede to the troika's extortion, will "thrust untold hardship upon ordinary Greeks." Second, the authors fail to note that the troika has long since "toppled" the Greek economy through its self-destructive austerity demands that have forced its economy into worse-than-Great Depression levels of unemployment. Third, it isn't true that bank failures have to cause long-term damage to the economy.
In any event, the authors sought to convince Greek voters that they had no real choice. Unless they voted "Yes" the ECB would destroy their economy. The Greeks showed enormous courage and common sense in rejecting this extortion.
As embarrassing as this NYT propaganda piece was, the BBC's "Economics editor's" analog is even worse. The title of Robert Peston's June 4, 2015 column was blatant "A referendum that will sink or rescue the Greek economy." Obviously, the Greek people had only one rational choice - to "rescue the Greek economy" by voting "Yes" rather than "sink[ing]" it by voting "No." Gosh, the Greek people must be suicidal. To "rescue" the Greek economy the troika would have to (1) write down much of the debt in a TDR and (2) end the self-destructive austerity. Voting "Yes" would have produced the opposite result, for the troika refused to take either step. By "rescue" the BBC means the opposite of that word's actual definition. It is the troika's insistence on austerity and the refusal to negotiate a TDR that "sank" the Greek economy into a worse-than-Great Depression.
The BBC article makes the same basic unintentional admission as the NYT article - the ECB is extorting the Greek voters in the referendum by destroying their economy through ending liquidity support to the Greek banks because the Greeks dared vote on the issue of giving in to the troika's extortion.
Everyone in Athens is nervous about the outcome of Sunday's referendum on the creditors' proffered (and semi-retracted) bailout terms.
One group more tense than most are those running the banks - because they know more than most that the outcome is life-or-death for their institutions, and therefore for Greek prosperity.
Like the NYT piece, the BBC asserts that given the extortion the only rational vote is "Yes." If the Greeks vote "No," the ECB is promising that it will "cripple" the Greek economy.
Greek banks would go from their current frozen state to totally and utterly crippled. Which would dash any chance of them providing the fuel to re-start the Greek economy.
And that would create a vicious cycle of more of the loans they've made to businesses and households going bad. Which in turn would wreak further damage on the banks.
So there is a heavy responsibility both on Greek voters and then the European Central Bank over the next 48 hours. They will decide whether the Greek financial system and Greek economy stands or falls.
But, of course, Peston cannot even conceive that the troika would act in an economically rational manner that would actually aid the Greek, and overall eurozone recovery. His idea of "heavy responsibility" is that the Greeks learn to grovel and get used to a permanent Great Depression. He never mentions that the troika actually provided liquidity to Greek banks in order to protect those banks' foreign European creditors from losses - not to help the Greek people whose economy the troika was "crippling" via austerity and its refusal to negotiate a TDR.
After the Greeks overwhelmingly voted "No," the NYT updated its rage to warn that by daring to refuse to capitulate to the troika's extortion the Greeks have done a terrible thing that will damage the entire eurozone. Naturally, the only way they can convey this rage is to ignore economics and continue to serve as the troika's crudest propaganda mouthpiece. The post-election column, also dated July 5, 2015, is entitled "With 'No' Greek Vote, Tsipras Wins a Victory That Could Carry a Steep Price."
Prime Minister Alexis Tsipras may have won a victory at home on Sunday as the Greek people dealt a resounding "no" to European austerity policies.
But Greece risks paying a high price for that decision. While the vote sharply consolidated Mr. Tsipras's popularity, that could fade quickly if he leads the country deeper into bankruptcy and financial chaos, creating a new round of instability with consequences for Greece and the broader European project.
If anything, Mr. Tsipras is likely to find it harder, rather than easier, to strike a new financing deal quickly with European creditors, heightening the risk that Greece will careen out of the eurozone unless Europe decides to give Mr. Tsipras and his defiant nation another chance.
The fact that Prime Minister Tsipras is correct about austerity and about the need for a TDR - and that even the IMF admits he is right - is ignored. The merits of how to take the Greek people out of their Great Depression through the policies he rightly supports are ignored. Instead, the authors tell us that the troika will react to democracy by attempting to harm the Greek people. After all, it will not be Tsipras "lead[ing] the country deeper into bankruptcy and financial chaos" - it will be the troika continuing to do exactly that. Indeed, if the authors are correct, the troika will retaliate for the "No" vote by adopting policies designed to "lead the country deeper into bankruptcy and financial chaos."
Tsipras' policies would do the opposite, for they are economically literate. That is why the troika is desperate to make him fail. As the authors admit, the troika is determined to insist on Greece repaying a debt they know cannot be repaid. The troika knows their debt and austerity demands on Greece have, and will, "lead the country deeper into bankruptcy and financial chaos." That continuous economic trauma is what maximizes the troika's leverage for its war on labor, the safety net, and progressive leaders and its effort to force the sale of state assets at fire sale prices to wealthy foreigners. We can expect the troika to renew and intensify its efforts to punish the Greeks. This makes the bizarre claim by the proponents of a "Yes" vote in the referendum - we want to "remain part of Europe" (as if Tsipras wanted something different) all the more ironic. It is the troika that demeans the Greek people and wishes to punish them for daring to have a backbone (and active minds that understand economics).
This is the authors' unintentionally revealing pretense at fairness.
At the same time, analysts said, other European leaders share some of the blame for bringing the confrontation with Athens to a head, by insisting on a rigid adherence to institutional rules for Greece, even after showing flexibility for larger countries like France in the past.
And while the no vote left many European officials dumbfounded on Sunday, it may also offer them an opening to climb back from their insistence on rigid austerity terms and to acknowledge that those policies are not a panacea for Europe's long-running debt crisis.
It isn't that austerity is "not a panacea for Europe's long-running debt crisis." Austerity is the problem. "Europe" does not have a "long-running debt crisis." That phrase is nonsense presented as if it were indisputable fact. Greece is a very special case in which its debts are unsustainable, as the IMF has long known but covered up. A TDR is essential in such circumstances. The authors simply ignore the unsustainable debt.
Conclusion: The German Social Democrats Double Down on their Betrayal of Workers
The article also contains a wonderfully unintentional hilarious and revealing admission by what passes for a "left" party in Germany.
By contrast, in Germany, where the Greek vote has also polarized the public, Sigmar Gabriel, the leader of the Social Democrats, the center-left partners in Chancellor Angela Merkel's governing coalition, said after the vote that Mr. Tsipras and his government "are leading the Greek people down a path of bitter sacrifice and hopelessness."
Germany, of course, utterly dominates the EU and the troika. It has forced on the Greek people "a path of bitter sacrifice and hopelessness" that forced it into a gratuitous worse-than-Great Depression that continues seven years after Lehman's failure. Tsipras is the one leading the Greek people on a different path that is economically literate and humane. The German Social Democrats are not only demanding that the troika block the path but are also leading the raging, bigoted denunciation of the Greek people and Tsipras for daring to oppose the troika's demands for pointless human sacrifices by the Greek people that only harm the economy. What the SDs fear is that Tsipras offers the path of honor, humaneness, and economic literacy available to all the citizens of the eurozone of it.
The success of Tsipras' policies would expose the reality of the Social Democrats' and New Labour's cowardice, economic malpractice, and betrayal of the workers whose interests they pretend to represent. The SD's greatest nightmare is that Tsipras will succeed, so they are doing everything within their power to punish the Greek people for daring to elect Tsipras. They were confident that their extortion of the Greek people would succeed and produce a "Yes" vote that would lead Tsipras to resign. The NYT aptly describes the SD's reaction to the "No" vote - "dumbfounded." The next stage of the SD reaction will be to double down on extortion.