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OpEdNews Op Eds    H1'ed 7/8/15

The New York Times Urges the Troika to "Make an Example of Greece"

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The NYT then concedes that domestic German politics, not rational economics drive all the EU politician's decisions about inflicting self-destructive economic policies on Greece.

German leaders genuinely believe that a new deal along those lines would be bad economic policy for Greece. Many economists at the International Monetary Fund and American officials would argue it is entirely sensible. The fact is that the time for those debates is over for now; we're in a realm of power politics, not substantive economic policy debates.

The choice for leaders of Germany, France and the rest of Europe will look something like this:

If they tolerate the Greek government's demands, they will be setting a bad example for every other country that might wish to challenge the strictures of the European Union, telling voters in Portugal and Spain and Italy that if they make enough fuss, and elect extremist parties, they too will get a much sweeter deal. It would send the signal that a country can borrow all it likes, walk away from those debts and make the rest of Europe pay the bill, as long as it is intransigent enough.

If they refuse the Greek government's demands and cut off funds, the Greek banking system will collapse and the country will no longer be part of the eurozone, sending a signal that the European Union is deeply fragile. Greece would sidle closer to a hostile Russia. A modern European democracy -- indeed, the original democracy -- could well collapse into something chaotic and unstable. Oh, and all this may end up costing the rest of Europe more money than even the most generous of bailouts, as Greece would default on its obligations outright rather than merely restructure them.

The author, of course, has no way of knowing what "German leaders genuinely believe." The author does know:

  • That economists overwhelmingly believe on the basis of theory and experience that austerity in response to a Great Recession constitutes economic malpractice akin to bleeding a patient until it restores him to health.
  • That austerity has caused, as predicted, a human catastrophe in Greece
  • That austerity and the oxymoronic "labor reforms," by reducing wages and the safety net throughout the eurozone, the bailout of German banks, and the sale of Greek infrastructure and islands to wealthy Germans at fire sale prices are very much in the interests of the elite German corporate and banking CEOs that dominate domestic German politics, the Germany economy, and the troika
  • That when a debtor has unsustainable debts, the normal and desirable response is to negotiate a troubled debt restructuring (TDR) to reduce the debt to a level that can be repaid. Even the IMF, the mother of monstrous austerity, admits that the Greek debt is unsustainable.
  • That a TDR was done for German, which was essential to its economic recovery. (I hope I am not perceived as being "undiplomatic" for pointing out this German history of hypocrisy.
  • Oh, and all of this is being done in the name of "ever closer union." Can anyone say that phrase without cringing?

Note that the author says we must disregard economic reality and assume conclusively that if Syriza's proposed policies -- no more increases in austerity and negotiating a TDR -- would constitute "a bad example for every other nation." But it is insane to disregard economic reality and to define what would be a superb example as a "bad example." The NYT author thinks that it would show an impossible degree of "tolerance" by the German elites if the EU were to adopt rational economic policies that would speed recovery and vastly reduce suffering. I fear he thinks I am being un-"diplomatic" when I note that it should not be difficult for Germans to "tolerate" a policy that was extended to Germany and which was essential to their economic recovery.

German and other leaders such as Spain's are demanding that the troika "make an example of Greece" and destroy the Greek economy precisely because they fear that the policies will work as economists predict and serve as a superb example for speeding the recovery of the entire eurozone. That would put the lie to the ideology of austerity and remove the mask and reveal the troika's radical program to run the eurozone through and for the CEOs of elite German corporations and banks.

Austerity in response to a Great Recession only seems to be wahnsinnig (senseless) if one comes from a conventional economic perspective. But the CEOs of the elite German corporations and banks are not economically illiterate. They have knowingly crafted a "race to the bottom" of wages, worker protections, and the safety net throughout the eurozone. They done this not simply through specialized austerity regimes for Greece and using the troika as their economic "hit men," but also through the EU's oxymoronic "Stability and Growth Pact." That pact inflicts a "rule" mandating the economic malpractice of austerity. As a result, it is the leading source of "instability" and the leading barrier to "growth" for the EU and the eurozone. So, most discourse becomes -- you are violating the "rule" -- which is treated as intolerable. The rule, however, is the problem because it mandates pointlessly inhumane economic malpractice while "violations" of the rule are the solution.

The German business elites have knowingly crafted a program to force other nations to sell them their crown jewels (airports, telecommunications, key infrastructure, even entire islands). Better yet, they have shaped the troika as a weapon of extortion to ensure that those sales are at fire sale prices. The financial stakes for these foreign CEOs in these "privatization" programs are stupendous. The "Washington Consensus" was the infamous test bed for fire sale privatizations that the German CEOs have now optimized. Few Americans have ever heard of Carlos Slim. He is, depending on the day, the wealthiest or second-wealthiest person in the world -- because of the privatization of the Mexican telephone systems pursuant to the dictates of the Washington Consensus. The German CEOs who, behind the scenes, crafted and wield the troika as a weapon of extortion to produce privatization in Greece at fire sale prices drool at the prospect of becoming the next Carlos Slim.

Indeed, the troika's real rage is at what it views as the "slow pace" of Greek privatization. Even before the election of Syriza, the Greek government officials have been so shocked and enraged at the fire sale prices offered by wealthy foreigners trying to acquire Greece's "crown jewels" that they have refused to betray the nation by accepting the offers. The troika is enraged that Greek officials of the prior, deeply conservative, Greek government said "no" to fire sale prices. They are demanding rapid sales of vast amounts of Greek assets. As anyone who owns a home knows, that is a sales strategy sure to result in a terrible result for the seller. Again, "revealed preferences" show us what the elite German CEOs that run the troika believe -- far better than a naïve reporter accepting on faith that what a politician tells him in an interview represents what the politicians "genuinely believe." The CEOs use the troika to place Greece in a position where it is constantly extorted to sell its assets at fire sale prices.

In the case of Greece, the CEOs of the elite French and German bank saw an additional opportunity. They used their political power to cause the troika to knowingly craft a program to use the eurozone taxpayers' money to bail out their reckless and/or criminal lending to Greek banks -- and to blame this on the Greek government and people. As I explained above, this bailout has been immensely successful for the CEOs of the primarily French and German banks. Many of these elite French and German banks would have had to report that they were insolvent or severely under-capitalized but for this eurozone taxpayer bailout.

The dishonesty of one the paragraphs I quoted above is so total and so deliberately crafted that it requires repetition and extended discussion.

If they tolerate the Greek government's demands, they will be setting a bad example for every other country that might wish to challenge the strictures of the European Union, telling voters in Portugal and Spain and Italy that if they make enough fuss, and elect extremist parties, they too will get a much sweeter deal. It would send the signal that a country can borrow all it likes, walk away from those debts and make the rest of Europe pay the bill, as long as it is intransigent enough.

Recall that the NYT author admits that economists overwhelmingly support Syriza's twin economic policies that are at issue here. (Further, if he would violate the NYT rule for its reporters who write about the EU and read Paul Krugman he would know that the small group of economists that oppose fiscal stimulus in response to a Great Recession has proven consistently wrong in its predictions about the United States. But why would NYT reporters read a Nobel Laureate in economics with the relevant expertise in macroeconomics? Knowledge would get in the way of treating as reality the Brussels BS that the NYT relentlessly regurgitates.)

The first Greek demand is an end to inflicting increasing austerity on the Greek people and economy. That Greek demand would benefit Greece and the entire eurozone (but not the CEOs of the elite German banks and corporations). Austerity is a self-destructive response to a Great Recession, as the eurozone has once again proved. At best, it causes immense, pointless human suffering and slows the economic recovery. At worst, as in Greece, Italy, Spain, and Portugal it can cause Great Depression levels of unemployment that persist for many years.

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William K Black , J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House (more...)
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