Monday, June 29, 2015

The Vote on the Greek Referendum

[ed. And in other news, the Shanghai Composite Index has lost more than 20 percent since June 12, and Puerto Rico is defaulting on its debt. Batten down the hatches.]

[ed. Addendum: See also: Trillions Spent, but Crises Like Greece’s Persist. I especially like this comment: 

If you have ten trillion but use it only to swap private debt into public debt with even more progressively draconian terms, if you use some of these billions to guarantee a lifeline to corporations and oligopolies that are otherwise illiquid and insolvent in order to arrest the creative destruction of capitalism, the status quo will limp along but otherwise there will be no burst of growth or even of investment. In fact, everything will remain more or less morosely frozen into place.

But, if those $10 trillion had actually been spent in *people* in the mode of subsidies for education, in creating entire new industries such as solar or space, in bringing healthcare and child care to folks otherwise unable to work without it, in paying the unemployed to start new businesses and educate our youth, and in actually funding main street and everyday folks with an entrepreneurial spirit, what a world this would be!

The rising crescendo of bickering and acrimony within Europe might seem to outsiders to be the inevitable result of the bitter endgame playing out between Greece and its creditors. In fact, European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics.

Of course, the economics behind the programme that the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5% of GDP by 2018.

Economists around the world have condemned that target as punitive, because aiming for it will inevitably result in a deeper downturn. Indeed, even if Greece’s debt is restructured beyond anything imaginable, the country will remain in depression if voters there commit to the troika’s target in the snap referendum to be held this weekend.

In terms of transforming a large primary deficit into a surplus, few countries have accomplished anything like what the Greeks have achieved in the last five years. And, though the cost in terms of human suffering has been extremely high, the Greek government’s recent proposals went a long way toward meeting its creditors’ demands.

We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems. The IMF and the other “official” creditors do not need the money that is being demanded. Under a business-as-usual scenario, the money received would most likely just be lent out again to Greece.

But, again, it’s not about the money. It’s about using “deadlines” to force Greece to knuckle under, and to accept the unacceptable – not only austerity measures, but other regressive and punitive policies.

But why would Europe do this? Why are European Union leaders resisting the referendum and refusing even to extend by a few days the June 30 deadline for Greece’s next payment to the IMF? Isn’t Europe all about democracy?

by Joe Stiglitz, The Guardian |  Read more:
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