The Greek crisis shows Europe’s 1% winning, just like their cousins in America

Summary: Previous posts reported economists’ explaining the roots of the Greek crisis, so unlike the simple morality play in the newspapers. This post looks at its politics, a narrative of victory by Europe’s 1%, a milestone on their 2-centuries-long quest to destroy the Left. Progress requires sacrifices, so examples have to be made — such as the people of Greece. Nike, goddess of victory

Contents

  1. Devastated Europe
  2. What’s the cause?
  3. The Right triumphant
  4. What happens next?
  5. For More Information

Image of Nike, goddess of victory. By Emanuel Lakozas. She no longer favors Greece.

(1)  Devastated Europe

The crisis is one of Europe, not just Greece. As Paul Krugman shows, the people of Europe are paying a high price for their leaders’ policies. Due to its long-standing weakness and incompetent leadership, Greece is merely the worst affected.

GDP change in Europe 2007-14
From Krugman, New York Times, 29 May 2015.

Krugman explains the cause of these dismal results:

… what’s striking at this point is how much the origin stories of European crises differ. Yes, the Greek government borrowed too much. But the Spanish government didn’t — Spain’s story is all about private lending and a housing bubble. And Finland’s story doesn’t involve debt at all. It is, instead, about weak demand for forest products, still a major national export, and the stumbles of Finnish manufacturing, in particular of its erstwhile national champion Nokia.

What all of these economies have in common, however, is that by joining the eurozone they put themselves into an economic straitjacket. Finland had a very severe economic crisis at the end of the 1980s — much worse, at the beginning, than what it’s going through now. But it was able to engineer a fairly quick recovery in large part by sharply devaluing its currency, making its exports more competitive. This time, unfortunately, it had no currency to devalue. And the same goes for Europe’s other trouble spots.

(2)  What’s the cause?

The cause is often described as stupidity by Europe’s leaders. Journalist Ryan Cooper gives this hyperbolic assessment: “The eurozone has become a murder-suicide pact“.

Unity, prosperity, and democracy have been struck off the European monument. In its place are division, economic collapse, and an aristocracy of well-credentialed idiots.

The always-interesting Steve Randy Waldman at Interfluidity gives an even more passionate analysis.

Creditors have had five years to mismanage Greece and they’ve done a startlingly effective job. … Europe’s creditors are behaving exactly as one might naively predict private creditors would behave, seeking to get as much blood from the stone as quickly as possible, indifferent to the cost in longer-term growth. And that, in fact, is a puzzle! Greece’s creditors are not nervous lenders panicked over their own financial situation, but public sector institutions representing primarily governments that are in no financial distress at all. They really shouldn’t be behaving like this.

I think the explanation is quite simple, though. Having recast a crisis caused by a combustible mix of regulatory failure and elite venality into a morality play about profligate Greeks who must be punished, Eurocrats are now engaged in what might be described as “loan-shark theater”. They are putting on a show for the electorates they inflamed in order to preserve their own prestige. The show must go on. Throughout the crisis, European elites have faced a simple choice: Acknowledge and explain to electorates their own mistakes, which do not line up along national borders of virtue and vice, or revert to a much older playbook and manufacture scapegoats.

(3)  The Right triumphant

Assuming elites are stupid is a reliable sign of a wrong analysis, usually resulting from belief that their goals are our goals (much like the “stupid” bankers who made millions before the crash — and millions afterwards). To guess at their intent, look at the results of their actions. The Right has gained near-total control of Europe’s governmental machinery and crushed the Left. The “Troika” of the European Commission, the ECB, and IMF are a 21st C version of the 19th C Holy Alliance of Russia, Prussia, and  Austria — kings working to fight democracy and secularism.

This is the European version of the same forces pushing America’s Democratic and Republican parties to the right — with the GOP openly adopting the goal of rolling back the New Deal’s social safety net and regulation of corporations, shifting the tax burden from the rich to the middle class, and breaking the few remaining mechanisms for social mobility.

This is merely the current round in a centuries-long struggle for control of western states, and ownership of the wealth created by modern technology. Elites in the US and Europe were alarmed by the threat of the Soviet Union and communism (loosely allied State and ideological challenges), and so adopted policies to broaden their support. Now those threats are gone (and memories fading of their previous experiment with the Right), they unleash their appetites for more power and wealth. Examples must be made to show the consequences of dissent. Small, weak, peripheral Greece makes an ideal candidate. Ruins

(4)  How this plays out

  1. I suspect the Troika (the EU, ECB, and IMF) have detailed and long-standing plans to contain this crisis, even should it become Grexit (exit of Greece from the euro).
  2. I believe the Greek government has done little preparation (perhaps not even planning) for this crisis, and even less for Grexit.
  3. This will end badly or very badly for Greece. The EU will provide humanitarian assistance, but its leaders will consider this a cheap lesson for the other members about the consequences of adopting even mildly Leftist policies.
  4. I suspect that the Troika will successfully contain the crisis. However, as we saw in 2008, sometimes these fires burn out of control.

Greece faces hard times if it remains in the eurozone — or if it leaves (it’s not the easy solution some believe). Its 25% drop in GDP since 2008 is among the worst in the developed world since 1870 (excluding those caused by war), similar to that of the US in 1929-1933. That was the nadir for the US; imagine if the decline had continued with no recovery in sight. Even nations reach the breaking point. It might collapse, becoming a failed state. Most such predictions are mindlessly linear extrapolations of current problems (my favorite is by The Guardian in 2009: “Will California become America’s first failed state?“).

Greece’s history since independence in 1830 has been one of sequential crises; this might tip it over the edge. As for the larger processes at work, so far the Right is triumphant, with no resistance visible. We’re in the pursuit phase of the contest between the 1% and the 99%. With their opponents scattered, the 1% consolidates their gains. We can only guess as the next phase of their plans, but we know there will be a next phase.

See the follow-up look at the politics of the Greek crisis: Germany’s treatment of Greece shows what the Right wants us to become.

(5)  For More Information

To understand the how Europe fell into this hole I recommend “Greece, The Euro and Gunboat Diplomacy” by Karl Whelan (Prof Economics, University College, Dublin). “The original decision to provide a bailout is the source of the current crisis. Time for Europe to share the blame and financial consequences.”

For a deeper look see “Greek crisis: How Greece became Europe’s fault line” by economist George Magnus.  Magnus recommends Modern Greece: What Everyone Needs to Know by Stathis Kalyvas (Prof of Political Science, Yale), which explains “the structural features and characteristics of the Greek state that have coloured the behaviour of its governments and people to this day. His book invites us to take a front row seat to observe the geo-politics of Europe that work, up to a point, to keep Greece in the euro area, and the politics in Europe that are driving Greece out of it.”

If you liked this post, like us on Facebook and follow us on Twitter. See all posts about Greece, the European Monetary Union, and especially these about the perilous state of the European Union…

Skipping ahead to the present…

Advertisements

8 thoughts on “The Greek crisis shows Europe’s 1% winning, just like their cousins in America

  1. While I agree with much of your analysis, I have some considerable differences that I’d like to share.

    “I suspect the Troika (the EU, ECB, and IMF) have detailed and long-standing plans to contain this crisis, even should it become Grexit (exit of Greece from the euro)”

    They sure aren’t showing any signs of it right now. The IMF has written off the project as foolish, the EU constitution does not contain a way for countries to exit the EU or the Euro, and the ECB gives every impression of making this up as they go.

    “I believe the Greek government has done little preparation (perhaps not even planning) for this crisis, and even less for Grexit.”

    Strongly agree, but considering the fact that the current government has only been in power for 5 months and has spent most of it in close conference with the Troika trying to get debt relief, I’d be surprised if they had spent 10 minutes on this. Every public statement shows that the Greek government expects to stay in the Eurozone, which I think is unlikely at this moment but I could be wrong.

    “This will end badly or very badly for Greece”

    True but Greece was screwed regardless of the outcome of this election. At least they got a chance to choose their fate.

    “The EU will provide humanitarian assistance”

    I hope you are right, but I doubt it. The leaders of the EU, Germany in particular, are looking for blood to placate their own electorate and starving Greeks might suit their immediate needs.

    “but its leaders will consider this a cheap lesson for the other members about the consequences of adopting even mildly Leftist policies”

    This situation has the potential, in the long-run, to backfire on the leaders of the EU rather spectacularly. Yes, Greece is going to suffer mightily for this (but, as noted above, they would have suffered either way), the EU is going to treat them very badly, likely kicking them out of the Eurozone, which would be stupid because the reissued Drachma would solve most of Greece’s issues and Greece will eventually start rising again. Then we will see what the Italians, the Irish, the Spaniards (especially the Catalans), the Portuguese, and a lot of the other countries of Europe start thinking about being in the Eurozone. As you noted in your article, surprisingly few countries have benefited from the Euro strait jacket.

    “I suspect that the Troika will successfully contain the crisis”

    So do I, but we have both been wrong before.

    Meanwhile the Chinese are having some *very* interesting problems with their stock market and the US stock market is showing some signs that the recovery has run out of steam. Warning: interesting times are ahead.

    Liked by 1 person

    1. Pluto,

      “They sure aren’t showing any signs of it right now. The IMF has written off the project as foolish … and the ECB gives every impression of making this up as they go.”
      Neither of those things are correct, imo.

      “but considering the fact that the current government has only been in power for 5 months”
      Five weeks would be more than sufficient to prepare plans for multiple contingencies.

      “has spent most of it in close conference with the Troika trying to get debt relief”
      Planing and negotiating are not exclusive actions for a government.

      “True but Greece was screwed regardless of the outcome of this election.”
      What election? If you meant 5 months ago, I disagree. Much could have been boldly done in the first 100 days.

      “The leaders of the EU, Germany in particular, are looking for blood to placate their own electorate and starving Greeks might suit their immediate needs.”
      That’s ridiculous, IMO.

      “This situation has the potential …”
      Yes, there are many possible outcomes. I suggest regarding predictions as just wild guesses.

      “So do I, but we have both been wrong before.”
      I am careful when making predictions (which is why I have a good record). When I say “I suspect” it means the lowest confidence of prediction.

      “Meanwhile the Chinese are having some *very* interesting problems with their stock market”
      They don’t share our obsession with stock prices, and equity markets are a microscopic element of their economy.

      “the US stock market is showing some signs that the recovery has run out of steam.”
      The stock market is useless as an indicator of the US economy. There are no substantial signs that the US recovery has “run out of steam” (some sectors are weakening, some strengthening -as usual). Rather its stability in “slow” mode is remarkable.

      Like

    2. FM, I fear that you’ve been a bit out of touch on the events in Europe. This is the first time I would ever have suggested such a thing.

      You will have to show me proof that the IMF has not written off the negotiations. Everything I’ve read says that they have come to the conclusion that the EU governing body and the Greek government are suffering from irreconcilable differences and refuse to take part in any further negotiations.

      “Much could have been boldly done in the first 100 days.”
      I have to disagree again. Everything I’ve read says that the Troika was totally focused on getting the Greeks to agree to absolutely everything they wanted. There was nothing resembling a willingness to actually hear what the Greeks were saying. The Troika could have had everything they wanted if they had given Greece any sign that they were willing to forgive any amount of the debt but that was never on the table.

      Every Greek effort to be “bold” was rebuffed as them being crazy and wasting time. Admittedly, the Greek efforts to be bold were not well done.

      The Ukrainians have been taking advantage of the Greek situation to communicate clearly with their debtors that there will be no further discussions without debt forgiveness. It would not be possible for the newspapers to even report this if the Greek situation had not happened already.

      Pluto: “regardless of the outcome of this election”
      Sorry, I this was a typo, I meant referendum, not election.

      Pluto: “The leaders of the EU, Germany in particular, are looking for blood to placate their own electorate and starving Greeks might suit their immediate needs.”
      FM: “That’s ridiculous, IMO.”
      I wish it were. A friend in Germany reports that the German people, after being fed a non-stop barrage of extremely one-sided stories, are in a murderous mood over the fact that the Greeks are resisting at all. Merkel’s government is in danger. At the minimum she’s going to have to eject her feckless Finance Minister. The person she selects to replace him will tell a lot about what happens next. My friend believes she will select the person based exclusively on loyalty to the party line instead of the capacity for original thought.

      Pluto: “Meanwhile the Chinese are having some *very* interesting problems with their stock market”
      FM: “They don’t share our obsession with stock prices, and equity markets are a microscopic element of their economy.”
      Historically you are very right, but I’m not sure that you are currently right and I am wondering if the Chinese stock market is saying interesting things about the rest of the economy that we should be looking at while the Greek tragedy continues.

      Liked by 1 person

    3. Pluto,

      (1) Much could have been done in the first 100 days.

      You misunderstood my answer. I said nothing about making the negotiations run better. The Greek govt could have laid plans — and taken preparatory steps — for exiting the Euro. They should have prepared done that in 2010. Only fools jump without backup parachutes, or enter a crisis without a Plan B.

      (2) “Starving Greeks might suit their needs”

      That’s still nuts. Nothing your friend says in any way supports such a statement.

      (3) China’s stock market “is saying interesting things”

      First, China’s economy has near-zero predictive “power” for the broad economy. Second, Shanghai is up 17.7% YTD and 87% YoY. So you believe the market is saying “China is great!”?

      Like

    4. Pluto,

      As I suspected, the EU has prepared contingency plans for Greece’s exit from the euro — including humanitarian aid. From the NY Times:

      European Commission President Jean-Claude Juncker says authorities are prepared for all eventualities in Brussels’ drawn-out negotiations with Greece about its financial crisis — including a scenario in which debt-laden Greece leaves the euro single currency or the European Union itself. “The commission is prepared for everything. We have a Grexit scenario, prepared in detail,” Juncker said after an emergency eurozone summit wrapped up with leaders giving Greece until Thursday to submit detailed reform proposals that could form the basis of a new bailout. Juncker did not elaborate on what exactly he meant by the term Grexit.

      He says the commission also has plans in case Greece needs humanitarian aid and, what Juncker called his favorite option, “a scenario how to deal with the problem now keeping Greece as a member of the euro area.”

      Like

Leave a comment & share your thoughts...

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s