This morning’s meeting between Greece and Europe’s finance ministers seems to have broken up without any substantial agreements being reached, beyond a bit of bridging finance for Greece until next week’s meetings. The crucial date remains February 28, when the bailout package effectively expires. Lets not forget how damaging the last few years have been for Greece:
Since the financial crisis began, its economy has shrunk by more than any other rich country’s. Between 2008 and 2014 nominal GDP, a rough proxy for an economy’s capacity to repay debts, fell by 22%, much more than any other European invalid. The pain at an individual level has been just as sharp. House prices are down by around 40% since 2008. Median incomes fell by 22% between 2008 and 2013; for 18- to 24-year-old Greeks they were down by 38%. The economic collapse is comparable to one on the other side of the Mediterranean, in war-torn Libya.
As the Economist also explains, the bailout package has merely shifted Greece’s debt problems – a product of the GFC and its role as a destination for Germany’s exports – from the private sector to the public sector. Greece’s new creditors are the IMF, ECB and other European governments. One of the telling numbers is that back when the private sector held Greece’s debt, this was at a level of 127% of GDP. Thanks to the austerity measures that have since shrunk the Greek economy, that debt is now 175% of GDP. Yet if the new Syriza government caved in and embraced the next blast of austerity measures being demanded by the Eurozone for a bailout extension – ie massive privatisations, further civil servant layoffs and cuts to the minimum wage – Greece would, if it was lucky, have gone through all of its pain to date ( and with five more years of worse to come ) merely to get back to where it started – with debt at 120% of GDP by 2020. No wonder Syriza is baulking at a plan. The whole thing is an exercise in sadism.
By contrast, what Syriza has put on the table sounds quite reasonable:
Athens wants a cut in the target for Greece’s primary budget surplus to 1.5pc of GDP over the next two years, instead of the current target of 3pc in 2015 and 4.5pc in 2016 imposed by the EU-IMF Troika. This would avert further fiscal tightening and allow Syriza to carry out plans to boost welfare spending.
[Greece’s Finance Minister] Varoufakis will propose a debt swap to replace €195bn of loans from EMU governments and rescue funds. These will be so-called `Bisque Bonds’ that link payment to GDP growth, and therefore entail large potential losses for EMU creditors if growth falters. The scheme amounts to debt relief but averts a formal write-off. This means that Chancellor Angela Merkel and other leaders would not have recognize losses in a line-item budget presented to their national parliaments. It spares them a political storm at home.
One of Syriza’s key demands is that debt repayment should be linked to growth. Fair enough. Instead of allowing the Eurozone to impose this pain on Greece on the ‘cross fingers and hope’ that this will eventually generate economic growth….Syriza is saying ‘What about taking some responsibility for that outcome, and allow us to pay you back as the growth that you promise will eventuate, does eventuate ?’ Naturally, Germany is rejecting doing any such thing.
Simon Tilford, from the Centre for European Reform, said Syriza… is right in its fundamental critique of Europe’s debt-deflation errors. “What the Greeks are saying makes a lot of sense and has the support of economists across the world. The real problem is Germany. They seem impervious to evidence and are intellectually isolated. What is shocking is how insular the German debate has become,” he said.
“Germany’s leaders have created a rod for their own backs by failing to explain honestly to their own people what the origins of the Eurozone crisis really were. That is why it is going to be so difficult to reach a deal,” he said.
Greece is not the only country to have learned the hard way to reject the snake oil of austerity. Three years ago, US Ivy League professor Mark Blyth wrote a terrific article about the politics of austerity and its role in the neoliberal programme to shrink the state. You can read Blyth’s original article here.
It bears some relevance to New Zealand as well. Here, we are still being lectured about the bracing moral and economic benefits of cost cutting and belt-tightening, even as our debt mounts and our economy flirts with deflation in its productive sectors. (Deflation in any sectors in fact, outside of the construction industry.) This morning’s manufacturing data looks like an early warning sign that the phantom ‘recovery’ – you know, the one that allegedly occurred in 2014 without doing a thing for wage rates or job security – could already be running out of steam.
It is not as if the countries in the firing line had lavished social spending on the people now being targeted for pain. As Blyth points out in an interview with Salon this week, Spain and Ireland didn’t get into trouble because they showered their citizens with welfare-state goodies that they now have to pay for:
That’s another of what I like to call “information-free comments.”….. Simply be lazy enough to crawl over to your keyboard, tap in stats.oecd.org or the vastly complex tradingeconomics.org, and just look at the public debt profiles of, for example, Spain and Ireland. Both of those countries cut their debts in half from 2000 to 2007, and yet those debts exploded, beginning in 2008.
Why? because when they got hit with the financial crisis there were certain stops in the capital flows that these guys were living off of, not public debt sales. Because of that, their economies imploded, their deficits exploded, and they end up with huge amounts of debt. Then came the austerity move, either formally, through the troika [IMF, European Commission, and ECB] or informally, through peer pressure in the European Central Bank (ECB) — and both of these countries have seen their debts explode while they’ve been cutting.
Conversely, the major economy that has cut the least and that has carried out the most systematic round of central government spending – namely, the US under Barack Obama – is now in far better shape than the austerity-blighted Eurozone. Blyth has just updated and re-published a book he wrote in 2013 on the origin myths for austerity beliefs called Austerity : The History Of A Dangerous Idea. Last week’s interview with him in Salon is worth reading, and not only because of this final paragraph:
…Remember all those banks that got bailed [out]? In order to get bailed out you need to have assets, and my liabilities are the bank’s assets. The bank doesn’t give a damn about my condo because they’ve got an income stream coming from the mortgage. The assets and liabilities of the bank and the private sector sum up to zero, so when you bail that out, what you’re doing is you’re bailing out the private sector’s assets, which basically means the top 20 percent — if not about the top 10 percent, the top 1 percent — of the income distribution.
How do you pay for those bailouts? You pay for those bailouts with cuts. And who are the people that use government services? Well, it’s not the top 20 percent or above of the income distribution, it’s the bottom 70 percent and below. That’s what I mean by a class-specific put option. The people at the top get their assets bailed; the government says,’Oh my God, look at all that spending! It’s out of control! We need to cut policemen and fire brigades and healthcare and various public services.’
But what does one have to do with the other? Well, the people at the top who get their assets bailed, you’re not going to tax them…..So what do you have to do? You have to take it from those who have very little already. I find this personally offensive because, although I’m an Ivy League professor today with a named chair and all the rest of it, the only reason I’m here is because of the British welfare state. I grew up in a single-parent home with my paternal grandmother on basically no money at all, and if it wasn’t for free schooling and free university… I don’t know where I’d be, but I wouldn’t be an Ivy League professor. So what you’re doing is you’re bailing out the assets of me today, so that a younger version of me down the income distribution doesn’t get to go to college like I did. That’s total bullshit.
Remember that last paragraph next time you hear how John Key climbed his way up the ladder of success from a state house in Christchurch, or Paula Bennett’s time on the benefit or any other boomer generation rags-to- riches story. Time and again, these hero myths were made possible by welfare state provisions that such people now seem determined will never be available to anyone else.
Father John Misty, Darkly
Drummers steeping into the spotlight….it happened to that guy from Nirvana, and it seems about to happen again to Father John Misty aka Josh Tillman, the drummer from Fleet Foxes. Misty’s new album I Love You Honeybear is going to be one of the biggest albums of 2015, and the title conveys the schtick. In the guise of Father John Misty, Tillman manages to seriously warp the whole concept of being a sensitive Bearded Guy With a Guitar And A Story to Tell. An early example of the routine is Father John’s appearance on Letterman in 2012 – in his rendition of ” Only Son of The Ladiesman” he not only embodies but ridicules his swoony rock god status : “I’m a leading brand/I’m a one night stand..”
And here’s an early, live incarnation from 2013 of the album’s title track. Love the couplet: “ Unless we’re naked getting high on the mattress/while the global market crashes…” Everything is doomed, but I love you honeybear. Sure thing, sweetcakes.
Be warned: despite the prettiness of this music, the Father John persona also displays a misogynist rage that comes close occasionally to American Psycho territory. On “The Night Josh Tillman Came To Our Apartment” the singer’s sheer hatred of his dumb girlfriend – among other things, she misuses the word ‘literally’ – culminates in this final line, of their activity during sex : “ I obliged later on when you begged me to choke ya”…. Literally. Make of this what you will. Father John Misty is like some bastard union of MOR rock and early Eminem.