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Here's a story from January 13 that just came my way today thanks to a
reader wootendw who posted a link as a comment to one of my articles.
The background to this story is SYRIZA leader Alexis
Tsipras' "Open Letter" to German Citizens, published on Jan.13
in Handelsblatt, a leading German language business newspaper.
Alexis Tsipras, now prime minister of Greece, sent this letter to
Handelsblatt:
Most of you, dear Handesblatt readers, will have formed a
preconception of what this article is about before you actually read it. I am
imploring you not to succumb to such preconceptions. Prejudice was never a
good guide, especially during periods when an economic crisis reinforces
stereotypes and breeds bigotry, nationalism, even violence.
In 2010, the Greek state ceased to be able to service its debt.
Unfortunately, European officials decided to pretend that this problem could
be overcome by means of the largest loan in history on condition of
fiscal austerity that would, with mathematical precision, shrink the national
income from which both new and old loans must be paid. An insolvency
problem was thus dealt with as if it were a case of illiquidity.
In other words, Europe adopted the tactics of the least reputable bankers who
refuse to acknowledge bad loans, preferring to grant new ones to the
insolvent entity so as to pretend that the original loan is performing while
extending the bankruptcy into the future. Nothing more than common sense
was required to see that the application of the 'extend and pretend' tactic
would lead my country to a tragic state. That instead of Greece's
stabilization, Europe was creating the circumstances for a self-reinforcing
crisis that undermines the foundations of Europe itself.
My party, and I personally, disagreed fiercely with the May 2010 loan
agreement not because you, the citizens of Germany, did not give us enough
money but because you gave us much, much more than you should have and our
government accepted far, far more than it had a right to. Money that would,
in any case, neither help the people of Greece (as it was being thrown into
the black hole of an unsustainable debt) nor prevent the ballooning of Greek
government debt, at great expense to the Greek and German taxpayer.
Indeed, even before a full year had gone by, from 2011 onwards, our
predictions were confirmed. The combination of gigantic new loans and
stringent government spending cuts that depressed incomes not only failed to
rein the debt in but, also, punished the weakest of citizens turning people
who had hitherto been living a measured, modest life into paupers and
beggars, denying them above all else their dignity. The collapse of
incomes pushed thousands of firms into bankruptcy boosting the oligopolistic
power of surviving large firms. Thus, prices have been falling but more
slowly than wages and salaries, pushing down overall demand for goods and
services and crushing nominal incomes while debts continue their inexorable
rise. In this setting, the deficit of hope accelerated uncontrollably and,
before we knew it, the 'serpent's egg' hatched – the result being neo-Nazis
patrolling our neighbourhoods, spreading their message of hatred.
Despite the evident failure of the 'extend and pretend' logic, it is still
being implemented to this day. The second Greek 'bailout', enacted in the
Spring of 2012, added another huge loan on the weakened shoulders of the
Greek taxpayers, "haircut" our social security funds, and financed
a ruthless new cleptocracy.
Respected commentators have been referring of recent to Greece's
stabilization, even of signs of growth. Alas, 'Greek-recovery' is but a
mirage which we must put to rest as soon as possible. The recent modest rise
of real GDP, to the tune of 0.7%, signals not the end of recession (as has
been proclaimed) but, rather, its continuation. Think about it: The same
official sources report, for the same quarter, an inflation rate of -1.80%,
i.e. deflation. Which means that the 0.7% rise in real GDP was due to a
negative growth rate of nominal GDP! In other words, all that happened is
that prices declined faster than nominal national income. Not exactly a cause
for proclaiming the end of six years of recession!
Allow me to submit to you that this sorry attempt to recruit a new version of
'Greek statistics', in order to declare the ongoing Greek crisis over, is an
insult to all Europeans who, at long last, deserve the truth about Greece and
about Europe. So, let me be frank: Greece's debt is currently
unsustainable and will never be serviced, especially while Greece is being
subjected to continuous fiscal waterboarding. The insistence in these
dead-end policies, and in the denial of simple arithmetic, costs the German
taxpayer dearly while, at once, condemning to a proud European nation to
permanent indignity. What is even worse: In this manner, before long the
Germans turn against the Greeks, the Greeks against the Germans and,
unsurprisingly, the European Ideal suffers catastrophic losses.
Germany, and in particular the hard-working German workers, have nothing to
fear from a SYRIZA victory. The opposite holds. Our task is not to confront
our partners. It is not to secure larger loans or, equivalently, the right to
higher deficits. Our target is, rather, the country's stabilization, balanced
budgets and, of course, the end of the grand squeeze of the weaker Greek
taxpayers in the context of a loan agreement that is simply unenforceable. We
are committed to end 'extend and pretend' logic not against German citizens
but with a view to the mutual advantages for all Europeans.
Dear readers, I understand that, behind your 'demand' that our government
fulfills all of its 'contractual obligations' hides the fear that, if you let
us Greeks some breathing space, we shall return to our bad, old ways. I
acknowledge this anxiety. However, let me say that it was not SYRIZA that
incubated the cleptocracy which today pretends to strive for 'reforms', as
long as these 'reforms' do not affect their ill-gotten privileges. We are
ready and willing to introduce major reforms for which we are now seeking a
mandate to implement from the Greek electorate, naturally in collaboration
with our European partners.
Our task is to bring about a European New Deal within which our people can
breathe, create and live in dignity.
A great opportunity for Europe is about to be born in Greece on 25th January.
An opportunity Europe can ill afford to miss.
Emphasis in italics is mine.
Interest Rate Math
Regardless of how one views his other policies, that particular letter is not
the work of an economic madman. Tsipras' position is entirely accurate. And
although I disagree with many SYRIZA economic views, there is not a single
thing in the "open letter" that I can find fault with.
A simple economic truism is that what cannot be paid back, won't be paid
back. I posted the math recently in Greek Payback Math at 0% Interest.
Unfortunately, Greece has to convince 17 other Eurozone countries to renegotiate
the terms. Germany and Finland have both said no. Eurozone rules are
such that every country must agree.
Sanction Math
Interest rate math is not the only problem for Greece. Other clashes
have developed.
I discussed that development in Clash Over Sanctions: Syriza Opposes Sanctions on Russia,
Calls Them "Neocolonial Bulimia"; Negotiation Rules.
Greece opposes sanction on Russia, a position I fundamentally agree with.
Sanctions inevitably harm both sides.
However, as with eurozone rules, EU sanction rules require unanimous
agreement. With sanctions, 1 vote out of 28 (more countries in EU than
eurozone) can kill the deal.
That's a lot of leverage, especially when 27 on the other side want something
from you. What are they willing to offer in return?
Will these situations resolve via common sense or wreckage?
If there were two parties in the room, those parties might easily come to
terms. Can 19 or 28 parties in Europe all agree to do the right thing?
Color me skeptical.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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