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OpEdNews Op Eds    H3'ed 10/4/16

The Poisoned Chalice: From Eurozone to Dead Zone

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Galbraith's month-by-month narrative describes how the IMF and ECB overrode Greek democracy on behalf of creditors and privatizers. They sought to undermine the Syriza government from the outset, making Greece an object lesson to deter thoughts by Podemos in Spain and similar parties in Portugal and Italy that they could resist the creditor grab to extract payment by a privatization grab and at the cost of pension funds and social spending. By contrast, conciliatory favoritism has been shown to right-wing European parties in order to keep them in power against the left.

On the surface, the troika's "solution" -- paying creditors by bleeding the economy -- seems obviously self-defeating. But this seeming failure appears to be their actual aim: foreclosure on the assets of the indebted economy's public sector under the banner of its version of R2P: Responsibility to Privatize. For Greece this means its ports, islands and tourist centers, electricity and other public utilities.

The ECB and IMF accelerated Greece's economic collapse by demanding a rise in the VAT from 23 percent, making tourism in the islands more expensive. "The plain object of the creditors' program is therefore not reform," Galbraith points out. Instead of helping the economy compete, "Pension cuts, wage cuts, tax increases, and fire sales are offered up on the magical thought that the economy will recover despite the burden of higher taxes, lower purchasing power, and external repatriation of profits from privatization." Privatized public utilities are turned into "cash cows" to enable buyers to extract monopoly rents, increasing the economy's cost of living and doing business.

The European Union's pro-creditor policies are "written into every European treaty from Rome to Maastricht," overriding "the vision of 'sustainable growth' and 'social inclusion'" to which they pay lip service. Reinforcing the ECB's monetary austerity is the German constitution, imposing fiscal austerity by blocking funding of other countries' budget deficits (except for quantitative easing to save bankers).

The financial warfare being waged by the ECB and IMF

This is not how the EU was supposed to end up. Its ideal was to put an end to the millennium of internecine European military conflict. That was fairly easy, because warfare based on armed infantry occupation was already a thing of the past by the time the EU was formed. No industrial economy today is politically able to mount the military invasion needed to occupy another country -- not Germany or France, Italy or Russia. Even in the United States, the Vietnam War protests ended the military draft. Warfare in today's world can bomb and destroy -- from a distance -- but cannot occupy an adversary.

The second argument for joining the EU was that it would administer social democracy against corruption and any repeat of right-wing dictatorships. But that has not happened. Just the opposite: Although the European Union treaties pay lip service to democracy, they negate monetary sovereignty. The IMF, ECB and EU bureaucracy have acted together to collect the bad debt left over from their reckless 2010 bailout of French, German, Dutch and other bondholders. In behavior reminiscent of Allied demands for unpayably high German reparations in the 1920s, their demands for payment are based on predatory junk economic theory claiming that foreign debt of any magnitude can be paid by imposing deep enough austerity and privatization sell-offs.

So the arena of conflict and rivalry has shifted from the military to the financial battlefield. Along with the IMF and ECB, central banks across the world are notorious for opposing democratic authority to tax and regulate economies. The financial sector's policy of leaving money and credit allocation to banks and bondholders calls for blocking public money creation. This leaves the financial sector as the economy's central planner.

The euro's creation can best be viewed as a legalistic coup d'e'tat to replace national parliaments with a coterie of financial managers acting on behalf of creditors, drawn largely from the ranks of investment bankers. Tax policy, regulatory and pension policies are assigned to these unelected central planners. Empowered to override sovereign self-determination and national referendums on economic and social policy, their policy prescription is to impose austerity and force privatization selloffs that are basically foreclosures on indebted economies. Galbraith rightly calls this financial colonialism.

The asset grab promoted by the IMF and ECB is incompatible with reviving Greece or other southern European economies (not to speak of the Baltics and Ukraine). The theory is unchanged from that imposed on Germany after World War I -- the theories of Jacques Rueff, Bertil Ohlin and the Austrians, controverted by Keynes, Harold Moulton and others at the time. [1] Their victorious role in this debate has been expurgated from today's public discourse and even from academia. What passes for economic orthodoxy today is an unreformed (and incorrigible) austerity economics of the 1920s, pretending that an economy's debts can all be paid simply by lowering wage levels, taxing consumers more, making workers (and ultimately, businesses and government) poorer, and selling off the public domain (mainly to foreigners from the creditor nations).

Galbraith contrasts economists to doctors, whose professional motto is "Do no harm." Economists cannot avoid harming economies when their priority is to save bankers and bondholders from losses -- by bleeding economies to pay creditors. What the IMF calls "stabilization programs" impose a downward spiral of debt deflation and widening fiscal deficits. This forces countries to sell off their land and mineral rights, public buildings, electric utilities, phone and communications systems, roads and highways at distress prices.

At first glance the repeated "failure" of austerity prescriptions to "help economies recover" seems to be insanity -- defined as doing the same thing again and again, hoping that the result may be different. But what if the financial planners are not insane? What if they simply seek professional success by rationalizing politics favored by the vested interests that employ them, headed by the IMF, central bankers and the policy think tanks and business schools they sponsor? The effects of pro-creditor policies have become so constant over so many decades that it now must be seen as deliberate, not a mistake that can be fixed by pointing out a more realistic body of economics (which already was available in the 1920s).

Given the eurozone's mindset, Galbraith asks whether Greece may be better off going it alone, away from the IMF/ECB "hospice" and its financial quack doctors. Saving the economy requires rejecting the body of creditor demands for austerity by central planners at the IMF, ECB and other international institutions.

Any sovereign nation has the right to avoid being impoverished by creditors who have lent sums far in excess of the amount that can be paid without being forced to engage in privatization selloffs at distress prices. Such demands are akin to military attack, having a similar objective: seizure of the indebted economy's land, natural resources and public infrastructure, and control over its government.

These demands are at odds with parliamentary democracy and national self-determination. Yet they are written into the way the eurozone is constructed. That is why withdrawal from the current financial regime is a precondition for recovery of economic sovereignty. It must start with control over the money supply and the tax system, followed by control over public infrastructure and the pricing of its services.

The future of Europe's Left

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Prof. Hudson has written the introductory chapter in "China in the Next 30 Years" and its sequel. His "Super Imperialism: The Economic Strategy of American Empire," "America's Protectionist Takeoff" and "Trade, Development and Foreign (more...)
 
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