Back in January upon coming into office, Syriza probably could not have won a referendum on whether to pay or not to pay. It didn’t have a full parliamentary majority, and had to rely on a nationalist party for Tsipras to become prime minister. (That party balked at cutting back Greek military spending, which was 3% of GDP, and which the troika had helpfully urged to be cut back in order to balance the government’s budget.)
Seeing how unyielding the opposition was, Syriza’s stance was: “We would like to pay. But there’s no money.”
This kept throwing the ball back into the troika’s court. The Institutions were so unyielding that Syriza’s approval rating in the polls rose by 13% by June. Greek voters became increasingly incensed at the Troika’s demand for further pension cuts and privatizations.
Tsipras and Varoufakis were willing to pay the IMF with the IMF’s own funds, in what V. called “extend and pretend.” But their only interest in keeping current on debt was to obtain additional funding that could be used to pay domestic pensions and other basic government budgetary expenditures.
The basic tactic in such tensions between creditors and debtors is clear: once debt repayments exceed new loans, stop paying.
So when The Institutions made it clear that no more credit would be forthcoming without Syriza adopting the old Pasok/New Democracy capitulation to Troika demands, Tsipras and Varoufakis decided it was time to call a referendum eight days hence, on Sunday, July 5.
Late Friday night and into the early Saturday morning hours, Greeks ran to the ATM machines to convert their checking and savings deposits into euro notes, expecting that the end game would involve a likely 30% depreciation of the drachma – and that indeed, the ECB would stop lending to support Greek banks (the only role the ECB wanted to play).
Syriza had no love for the banks. They were the vehicles through which the oligarchs controlled the Greek economy, after all. For a month, they had been discussing how to separate the banks into “good bank” and “bad bank,” either nationalizing them (wiping out stockholders) or creating a Public Option alternative.
Most important, once out of the eurozone, Greece could create its own Treasury to monetize its spending. The Institutions called this “scrip,” but the Greeks could establish it as their national currency. They would escape from euro-austerity – except, of course, to the extent that the ECB waged economic war on Greece by imposing its own capital controls.
By going through the sham negotiations with The Institutions, Syriza gave Greeks enough time to protect what savings and cash they had – by converting these bank deposits into euro notes, automobiles and “hard assets” (even boats).
Businesses borrowed from local banks where they could, and moved their money into eurozone banks or even better, into dollar and sterling assets. Their intention is to pay back the banks in depreciated drachma, pocketing a 30% capital gain.
What commentators miss is that Syriza (at least its left) wants to be transformative. It wants to free Greece from the post-military oligarchy that evades taxes and monopolizes the economy. And it wants to transform Europe, away from ECB austerity to create a real central bank. In the process, it demands a clean slate of past bad debts. It wants to reject the IMF’s austerity philosophy and refusal to take responsibility for its bad 2010-12 bailout.
This larger, transformative picture is at the center of Syriza-left plans.
I’m in Germany now (on my way to Brussels), and have heard from Germans that the Greeks are lazy and don’t pay taxes. There is little recognition that what they call “the Greeks” are really the oligarchs. They have gained control of the old coalition Pasok/New Democracy parties, avoided paying taxes, avoided being prosecuted (New Democracy refused to act on the “Lagarde List” of tax evaders with nearly 50 billion euros in Swiss bank accounts), orchestrated insider dealings to privatize infrastructure at corrupt prices, and used their banks as vehicles for capital flight and insider lending.
This has turned the banks into vehicles for the oligarchy. They are not public institutions serving the economy, but have starved Greek business for credit.
So one casualty apart from the credibility of the eurozone, the ECB and the IMF will be these banks. Syriza is positioning itself to provide a public option – public banks that will promote the economy, and a national Treasury that will spend government money INTO the economy, not drain it to pay the Troika for having bailed out French and other banks back in 2010-1.
The European popular press is as bad as the U.S. press in describing matters. It warns of “hyperinflation” if a central bank monetizes as much as one euro of government spending in the way that the U.S. Fed does, or the bank of England or any other real central bank. The reality is that nearly all hyperinflations stem from a collapse of foreign exchange as a result of having to pay debt service. That was what caused Germany’s hyperinflation in the 1920s, not domestic German spending. It is what caused the Argentinean and other Latin American hyperinflations in the 1980s, and Chile’s hyperinflation earlier.
But once Greece frees itself from the odious debts forced upon it at financial gunpoint in 2010-12, its balance of payments will be roughly in balance (subject to some depreciation of the drachma; 30% is a number I heard bandied about in Athens last week).
To mimic Margaret Thatcher, “There is No Alternative” to withdrawing from the eurozone. The terms dictated for remaining in it was to sell off all of what remained in Greece’s public sector to European and U.S. buyers, at insider prices – but not to Russian buyers, even for the gas pipeline that was to have been sold.
Evidently the eurozone financial strategists thought that Tsipras and Varoufakis would simply surrender, and be promptly voted out of power, thereby crushing their socialist policy agenda. They miscalculated – and are now hoping to create as much anarchy as possible to punish the Greek people. The punishment is for not continuing to support their client oligarchy, which has moved most of its assets out of reach of the government.
But instead of Syriza losing credibility, it is the ECB – which refuses to create money to finance economic recovery, but only to pay the oligarchs’ banks so that they can continue to control the government. This control is now being weakened precisely because their banks are being weakened.
Greece’s Parliament last week released its Debt Truth Commission report explaining why Greece’s debts to the IMF and ECB are odious, and were taken on without a popular referendum approving these loans. Indeed, Mrs. Merkel and Mr. Sarkozy obeyed Mr. Obama and Geithner when the latter insisted at a G8 meeting that the ECB ignore the IMF economists’ analysis that Greece could not pay its debts, and bail out the banks. Geithner and Obama explained that U.S. banks had placed big financial bets that Greece would pay its private bondholders, so the ECB and IMF had to lend the government the funds to pay – but had to overthrow the country’s Prime Minister Papandreou who had urged a referendum on whether Greek people really wanted to commit economic and political suicide.
Financial technocrats were put in place to serve the domestic oligarchy and foreign bondholders. Greece was under financial attack just as deadly as a military attack. Finance is war. That is this week’s lesson.
And for the first time, debtor countries are realizing that they are in a state of war.
This is why markets are crashing on Monday, June 29.
* * *
Eurozone financial strategists made it clear that they wanted to make an example of Syriza as a warning to Spain’s Podemos party, and anti-euro parties in Italy and France. The message was supposed to have been, “Avoid our austerity and we will cause chaos. Look at Greece.”
But the rest of Europe is interpreting the message in just the opposite way: “Remain in the eurozone and we will only create money to strengthen the financial oligarchy, the 1%. We will insist on budget surpluses (or at least, no deficits) so as to starve the economy of money and credit, forcing it to rely on commercial banks at interest.”
Greece has indeed become an example. But it is an example of the horror that the eurozone’s monetarists seek to impose on one economy after another, using debt as a lever to force privatization sell offs at distress prices.
In short, finance has shown itself to be the new mode of warfare. Resisting debt leverage and financial conquest is as legal as is resisting military invasion.
Michael Hudson’s book summarizing his economic theories, “The Bubble and Beyond,” is now available in a new edition with two bonus chapters on Amazon. His latest book is Finance Capitalism and Its Discontents. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, published by AK Press. He can be reached via his website, firstname.lastname@example.org
Greek Defense Minister Panos Kammenos said that the United States attempted to encourage Greece to support a new round of Russian sanctions but Athens still enjoys sharing religious and economic bonds with its “friend” and “ally,” Moscow.
After his meeting with US Under Secretary of Defense for Policy (USDP) Christine Wormuth on Wednesday, Kammenos told reporters: “I was asked to extend the sanctions, particularly in connection with Crimea. I explained [to Wormuth] that the Ukrainian issue was very sensitive for Greece as some 300,000 Greeks live in Mariupol and its neighborhood, and these people feel safe near the [Russian] Orthodox Church.” He, also, added that Greece has already lost more than €4 billion due to the Russian sanctions.
Greece’s Defense Minister has often stated in the near past that his country continues to preserve strong ties with Russia, mainly in the sector of defense contacts. In April, Kammenos revealed to Russian news agency Sputnik that Greece plans to continue military-technical collaboration with Russia while he shared Greece’s desire to settle new agreements, if the EU sanctions against Russia end soon.
Greek Reporter, May 20, 2015
Greek Defense Minister Panos Kammenos was snubbed by his U.S. counterpart, Ashton Carter, and Deputy Secretary of Defense Robert Work on his visit to the United States. The U.S. Defense Secretary cancelled the meeting over the weekend, claiming he has a busy schedule.
Kammenos will go to the Pentagon to meet with Under Secretary of Defense for Policy Christine Wormuth. He will also meet with Victoria Nuland, Assistant Secretary of State for European and Eurasian Affairs at the United States Department of State. Reportedly, Greek diplomats made efforts to upgrade the Greek Defense Minister’s contacts without success.
Kammenos will also have lunch with members of the U.S. House of Representatives, and meet with the Chairman of the House’s Armed Services Committee Mac Thornberry as well as Representative Frank Pallone and Senator Jack Reed.
Finally, the Greek Defense Minister will visit Lockheed Martin to discuss a 500 million dollar contract to upgrade five military aircraft.
According to analysts, the U.S. government is displeased with Greece’s new law that theoretically releases convicted terrorist Savvas Xeros. The U.S. Ambassador to Greece, David Pearce, had stated that if Xeros — who is responsible for the assassination of U.S. diplomats — is released from prison, that would be an unfriendly act toward the U.S.
Furthermore, Greece’s flirt with Russia — initiated partly by Kammenos — and certain statements made by the Defense Minister regarding Greece joining the BRICS bank have irked U.S. officials.
Analysts say that Greek-U.S. relations are at the worst point in recent years. Especially at a time when Greece is in the middle of harsh negotiations over its debt and needs all the support it can get.
Greece has been invited by Russia to become the sixth member of the BRICS New Development Bank (NDB). The $100 billion NDB is expected to compete with Western dominance and become one of the key lending institutions.
The invitation was made by Russian Deputy Finance Minister Sergey Storchak on Monday during a phone conversation with Greek Prime Minister Alexis Tsipras, according to a statement on Greece’s Syriza party website. Tsipras thanked Storchak, who’s currently a representative of the BRICS Bank for the invitation, and said Greece was interested in the offer.
“The Prime Minister thanked Storchak and said he was pleasantly surprised by the invitation for Greece to be the sixth member of the BRICS Development Bank. Tsipras said Greece is interested in the offer, and promised to thoroughly examine it. He will have a chance to discuss the invitation with the other BRICS leaders during the 2015 International Economic Forum in St. Petersburg,” the statement said.
During the 6th BRICS summit in Fortaleza in June 2014 the members agreed to forge ahead with the $100 billion NDB, as well as a reserve currency pool worth over another $100 billion. In March this year, Russian President Vladimir Putin ratified the NDB.
The new bank is expected to challenge the two major Western-led institutions, the World Bank and the International Monetary Fund. It will finance infrastructure projects in the BRICS countries and across other developing countries and is expected to start functioning by the end of 2015, with the headquarters in Shanghai.
Russia and Greece have been strengthening economic cooperation, as both countries have their own issues. While Russia is stuck in a so-called ‘sanctions war’ with the EU and the US, Greece is struggling to repay its multibillion euro debt to the troika of international lenders – the IMF, the ECB and the European Commission.
Greece is trying to find a compromise with its international creditors to have a further €7.2 billion bailout unlocked. So far Athens has been settling its IMF repayments on time. The country started repaying €750 million in debt interest Monday, but Finance Minister Yanis Varoufakis warned Greece’s finances are “a terribly urgent issue,” and the country could default by next month if no proper measures are taken.
Greece’s government has agreed a number of strategic deals with Russia during Prime Minister Alexis Tsipras’ visit to Moscow in April, including participation in the Turkish Stream project that’ll deliver Russian gas to Europe via Greece.
It was rumored Russia was ready to help Athens, but President Putin said Greece hasn’t formally asked Moscow for help. Instead of direct financial assistance Russia could help out by buying Greek state assets in privatization sales, or in other investment projects, the President said in April.
Russia has drafted a number of proposals that could end the embargo on food products from Greece, Russia’s Economic Development Minister Aleksey Ulyukayev said at a meeting with Greek Prime Minister Alexis Tsipras on Wednesday.
“We’ll be discussing in detail this issue during the meeting of the Russian Prime Minister and his Greek counterpart tomorrow,” Ulyukayev told reporters, as quoted by TASS.
“We’ve prepared a number of proposals regarding the embargo issue for discussion,” the Economy Minister said.
Russia is also considering rescinding food sanctions against Cyprus and Hungary, according to Aleksey Pushkov, head of the Duma Foreign Affairs Committee.
Greece has been hit especially hard by the ban, as more than 40 percent of Greek exports are to Russia. In 2013, more than €178 million in fruits and conserves were exported to Russia, according to the Greek fruit export association, Incofruit-Hellas.
On March 3, Greece sent a letter to the Russian food watchdog Roselkhoznadzor requesting the temporary restrictions on agricultural products such as strawberries, kiwis, peaches, and seafood is lifted.
Up until the ban, Russia had been Greece’s biggest single trading partner worth $12.5 billion (€9.3 billion) by 2013, more than double the 2009 figure.
Russia’s agricultural food ban applies to EU countries and is not due to expire until August 2015, a year after the restrictions were imposed in response to Western sanctions.
Alexis Tsipras, the newly elected PM of Greece,is in Moscow for a two-day visit and meets Russian President Vladimir Putin on Wednesday afternoon. Distancing itself from its other EU members, Athens hopes to strike a chord of cooperation with Moscow.
“Your visit could not have come at a better time, as we must analyze what we could do together to restore the former rate of growth,” Putin said ahead of his meeting with Tsipras.
Tsipras has taken a hard-line stance against EU policies towards Russia,calling the sanctions a ”road to nowhere.”
Greek Finance Minister Yanis Varoufakis has unveiled his plan on reviving the Greek economy by both meeting the IMF requirements and circuiting the austerity measures. A preliminary agreement over proposal is expected on April 24.
Greece expects to reach a preliminary agreement with creditor countries on financing the economy and the external debt at a meeting of eurozone finance ministers on April 24, Varoufakis said in an interview to Naftemporiki newspaper published Monday.
“Preliminary results will be achieved at the meeting of the Eurogroup on April 24,” he said adding that Greece expects to negotiate the unblocking of the last tranche of €7.2 billion from the EU loan program, and to negotiate restructuring of external debt of €324 billion, or 178 percent of GDP, by June.
The Greek authorities have also said they would pay a $450 million tranche of the IMF on April 9 and start a dialogue on economic issues, said the head of the IMF, Christine Lagarde Sunday after a meeting with Greek Finance Minister Yanis Varoufakis in Washington. Varoufakis, in turn, said the country intends to fulfill “all the obligations with respect to all the creditors.”
Both Lagarde and Varoufakis agreed that the uncertainty about Greece’s ability to repay debts is not in the interest of Athens. Earlier, there were fears that Greece wouldn’t be able to meet the next $450 million repayment of the IMF loan.
Greece and its international lenders have been at a dead end negotiating about Athens’ debt. The Troika of creditors insists that Greece sticks to the austerity measures in order to meet all its commitments.
Varoufakis says the austerity policy contravenes the election pledge of the newly elected government and demands the international creditors made concessions in restructuring the Greek debt.
In February, the Troika agreed to extend the bailout program until June.
Five points of Varoufakis’s plan
“Negotiations [with international lenders – Ed.] will be completed when we come to a decent agreement that will give a real prospect of stabilization and further substantial growth to the Greek economy,” said Varoufakis, noting that his Cabinet won’t agree to carry out measures leading to a recession.
Greece requires a new agreement with Europe to make its debt sustainable, said Varoufakis pointing out five terms on which the plan is expected to work out.
First, it is a reasonable level of primary budget surplus about 1.5 percent of GDP instead of 4.5 percent agreed by the previous government which has led to a severe recession.
Secondly, it is a reasonable debt restructuring that will link payments with the growth rate of nominal GDP.
In addition, Greece needs an investment package from the European Investment Bank and the European Investment Fund, which should be placed mainly in the private sector in accordance with the new, non-bureaucratic procedures.
Fourth, Greece should pass on effective restructuring of troubled loans by allocating them to a ‘Bad Bank’ unlike other resources of the Fund for financial stability.
The fifth thing is significant reforms that will give support to creative people and businesses that produce tradable goods, with export prospects, he added.
Athens is currently trying to negotiate a new bailout deal with its Troika of creditors, but if that falls ‘Plan B’ could reportedly involve getting rid of the euro and cutting off its banking system from the European Central Bank.
Greece’s government is getting ready to nationalize the country’s banks and return to the the drachma, the Telegraph reported citing sources.
“We are a left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,” a senior official told The Daily Telegraph.
“We will shut down the banks and nationalise them, and then issue IOUs if we have to, and we all know what this means. What we will not do is become a protectorate of the EU,” according to another source.
The drachma was Greece’s currency from 1832 until 2002, when it switched to the euro. At the time, 1 euro equaled about 340 drachma.
When the financial crisis hit Iceland in 2008, the government decided to let the banks fail and default on $85 billion, and the country’s three main banks were nationalized. The transition was painful- the stock market plummeted 90 percent, unemployment jumped to 10 percent, and inflation ballooned to 18 percent. Though the economy still struggles with an unstable currency, a slow and steady recovery has occurred. GDP is finally back at pre-crisis levels, unemployment has improved to 5 percent, and inflation is below 2.5 percent.
Crunch day April 9
The Greek government has €463.1 million of IMF loans to be repaid by April 9 and another €768 million falling due in May.
After Greece does this, and the EU approves the reform proposals by Finance Minister Yanis Varoufakis, the Troika of lenders- the IMF, the European Central Bank, and the European Commission, is expected to release the next €7.2 billion tranche to Athens.
According to senior official, Syriza and Prime Minister Alexis Tsipras have the power to decide not to make the upcoming payments.
“We may have to go into a silent arrears process with the IMF. This will cause a furor in the markets and means that the clock will start to tick much faster,” the source told The Telegraph.
On Friday the Finance Ministry denied rumors they wouldn’t pay the €460 million sum on April 9.
Countries in the past that have defaulted in their IMF loans include Sudan, Peru, Liberia, the Congo, Somalia, Zambia, Guyana, Yugoslavia, Vietnam, Zimbabwe, and Iraq.
With its massive €316 billion debt, a collapse of the Greek economy has the potential to shake the rest of Europe. The reason the EU came to Athens’ rescue with two bailouts totaling 240 billion euro was to protect the euro currency, which at the time was shared by 18 separate countries, Greece included.
In the case that lending is cut off, Greek banks will overnight become insolvent and Athens would have to start printing its own currency to replace the euro.
In February, deposits in Greek banks declined by around €7.6 billon to a 10-year low of €140.5 billion, as customers started pulling out their money over growing concerns the country may leave the eurozone.
Options on table
Alexis Tsipras came to power in January on the promise of no more austerity from the EU, but has had to compromise many of his big ideals in order to receive more funds.
The four month extension agreed in February will expire at the end of June. In anticipation, Greek and EU officials will hash out a more permanent solution, which could include a third bailout package, or if Greece has its way, debt forgiveness.
Greece needs to receive about €17 billion in order to meet its payments for the rest of 2015.
Another option Greece has is to turn its back on its European creditors and look eastward, either to China or Russia, for a loan with less strings attached. The Greek PM is scheduled to visit Moscow and meet with President Vladimir Putin on April 9.
Former Greek Prime Minister Antonis Samaras has returned to the political arena to try and build a coalition to make sure Greece stays in the eurozone.
The Greek Finance Ministry has put together a 26-page list of policy reforms, which calls for €19 billion in funds this year. The reforms also plan to tackle tax evasion, and propose a €1.5 billion privatization plan.
Greece’s international creditors- the European Commission, International Monetary Fund, and European Central Bank- must OK the detailed reform plan before Greece can unlock its next €7.2 billion in bailout funds and avoid going bankrupt. The Greek government is still hesitant to push through the reforms, as they don’t align with hardline promises made back in January.
Greek Finance Minister Yanis Varoufakis intended to submit the plan to parliament, but it was leaked and released early.
The Financial Times obtained and uploaded the document in its entirety.
The plan reaffirms that Greece has no plan to exit the euro currency or the European Union.
“The Hellenic Republic considers itself to be a proud and indefeasible member of the European Union and an irrevocable member of the eurozone,” the document said.
Greece believes it is “urgent” to close the chapter on twin bailout packages from the EU totaling over €240 billion, and to start a fresh deal with less strings attached. The IMF, European Central Bank, and European Commission only lent money to Greece under the condition of severe austerity measures. These budget tightening measures have stifled growth in Greece, which has been in recession for the last six years, and has created a rift between the Syriza party and the country’s creditors. Several reports have sparked it may be looking elsewhere for support, perhaps to Russia.
The Finance Ministry predicts 1.4 percent growth in the real economy in 2015, and unemployment to drop to 22.5 percent on the assumption there are no policy changes.
Tying up the loose ends that allow individuals and businesses to evade taxes remains a priority for the new Syriza government, as does privatization of state assets, which the current government believes has “failed spectacularly” in the past. In 2015, Greece hopes to raise a total of €1.5 billion in privatization revenues, after coming nowhere close to raising the previously proposed €50 billion between 2011 and 2016, of which only €2.6 billion was realized between 2011-2013.
The new, revised plan of the Syriza government is to raise €22.3 billion in revenues by 2020.
Other parts of the plan propose more luxury taxes and a gradual hike in the minimum wage.
The list is still a “very long way from being a basis (for a deal),” a eurozone official said, as quoted by Reuters.
Neither side has signaled that they are close to a new deal. Ministers from the EU and Greece hope to reach a breakthrough in negotiations at their next meeting on April 24.
The European Central Bank has been used as leverage against Greece, by only raising the emergency liquidity for Greek banks by miniscule amounts. The total emergency liquidity assistance now stands at €71.8 billion, which Greece believes is too small.
Greece has told its creditors that it will run out of cash by April 9, and may not be able to pay its €450 million repayment to the International Monetary Fund (IMF) if it didn’t receive a cash injection.
With its massive €316 billion debt, a collapse of the Greek economy has the potential to shake the rest of Europe.
Why the European Central Bank’s Trillion Euro Plan will Only Help Keep the Banks Afloat
SHARMINI PERIES: In an effort to relieve some pressure on the struggling European economies, Mario Draghi, president of the European Central Bank, announced a 1 trillion euro quantitative easing package on Monday. Quantitative easing is an unconventional form of monetary policy where a central bank creates new money electronically to buy financial assets like government bonds. And this process aims to directly increase private-sector spending in the economy and return inflation to target.
Well, what does that mean and what might be wrong with it is our next topic with Michael Hudson. Michael Hudson is a distinguished research professor of economics at the University of Missouri-Kansas City. His two newest books are The Bubble and Beyond and Finance Capitalism and Its Discontents. His upcoming book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.
Michael, the Fed and some economists will argue that this is what got the U.S. out of its 2008 financial crisis. In fact, they put several QE measures into place. So what’s wrong with quantitative easing?
MICHAEL HUDSON: Well, the cover story is that it’s supposed to help employment. The pretense is an old model that used to be taught in textbooks a hundred years ago: that banks lend money to companies to invest and build equipment and hire people.
But that’s not what banks do. Banks lend money mainly to transfer ownership of real estate. They also lend money to corporate raiders. They lend money to buy assets. But they don’t lend money for companies to invest in equipment and hire more workers. Just the opposite. When they lend money to corporate raiders to take over companies, the new buyers outsource labor, downsize the work force, and try to squeeze out more work. They also try to grab the pensions.
The Fed was pretty open in what quantitative easing is supposed to do since 2008. It’s supposed to lower the interest rates, which raises bond prices and inflates the stock market. Since 2008 they’ve had the largest monetary inflation history – $4 trillion of quantitative easing by the Fed. But it’s gone via the banks into the stock and bond market.
What has this done for the economy as a whole? For starters, it’s obviously helped stock and bond holders get richer. And who are they? They’re the 1 percent and the 10 percent.
People are wringing their hands and saying, why isn’t the economy getting richer? Why is it that since 2008, economic inequality and the distribution of wealth have worsened instead of gotten closer together? Well, it’s largely because of quantitative easing. It’s because quantitative easing has increased the value of the stocks and the bonds that are held mainly by the 1 percent or the 10 percent hold. This hasn’t helped the economy because the Fed is really concerned with its constituency, which are the banks.
Quantitative easing hasn’t helped one class of investors in particular: pension funds. It’s done just the opposite. Pension funds made the assumption a few years ago that in order to break even with the rate of contributions that corporations, states and municipalities are paying, they have to make eight percent or eight and a half percent a year as a rate of return. But quantitative easing lowers the interest rate.
Today’s lower interest rates have made pension funds desperate. The risk-free rate of return is less than 1 percent on short-term Treasury bills. If you buy longer-term treasuries you can make 2 percent, but then if the interest rates ever go up, you’re going to take a loss as the bond price declines. So pension funds have said, “We’re desperate; what are we going to do?”
They’ve turned their money over to Wall Street money managers and hedge funds. The hedge funds take a huge rake off of fees to begin with. But even worse, when hedge funds and the big banks – Goldman Sachs, Citibank – see a pension fund manager coming through the door, they think, “How can I take what’s in his pocket and put it in mine?” So they rip them off. That is why there are so many big lawsuits against Wall Street for mismanaging pension fund money.
To summarize, the effect of the quantitative easing has been to make pension funds desperate, and to support real estate prices, as if higher costs to obtain housing will help recovery. It doesn’t help recovery, because to the extent that quantitative easing supports a re-inflation of housing prices, new homeowners have to pay even more of their income to the banks as mortgage interest. That means they have less money to pay for goods and services, so markets for goods and services continue to shrink.
What the quantitative easing has not been used for is what was promised in 2008. Before President Obama won the election and took office, Congress said that the TARP bailout and TALF were supposed to go for debt reduction. Some was to write down mortgages, so that people could afford to stay in their homes rather than the millions of home owners that have been foreclosed on and thrown out. But even before Obama came into office, Hank Paulson, the Secretary of the Treasury, told Democrats in Congress, yes, we’re willing to write down debts. But as Barney Frank explained in exasperation, Obama said no, he’s not going to do that. Obama ended up supporting the banks. So almost none of the TARP bailout money has been used for debt write-downs.
The same phenomenon is happening in Europe.
PERIES: So, Michael, what’s wrong with what the ECB has announced in terms of a trillion euros worth of quantitative easing for Europe?
HUDSON: They head of the European Central Bank, Mario Draghi, has said that he’ll do whatever it takes to keep banks afloat. He doesn’t say that he’ll do whatever it takes to help economic recovery, or to help labor more. The ECB’s job is to help banks make more money.
Draghi was vice chairman of Goldman Sachs during 2002 to 2005. His view is that of Wall Street. It’s not a vantage point helping labor or helping economies grow. So it’s not surprising that the trillion euros of new money that the eurozone’s central bank is creating hasn’t gone to help Greece, for instance, survive. It hasn’t gone to help Greece, Spain, Italy, or Portugal get out of depression by fueling government spending. It’s simply been given away to the banks to buy bonds and stocks, including buying American stocks and bonds.
Behind this policy is the trickle-down theory that if you can make the financial sector richer, if you can make the one percent and the 10 percent richer, it’s all going to trickle down. This is the view of Paul Krugman, and it’s the view of the advisers that Obama has had. But instead of trickling down, the stock and bond price gains by the 1% and 10% drive a wedge in the economy, by increasing the value of stocks and bonds and real estate and wealth against labor. So quantitative easing is largely behind the fact that the distribution of wealth has become worse rather than better since 2008.
PERIES: One of the things that has happened in Europe that you wrote to me actually in an email was the disappearing central banks’ role in stimulating economies. Why is this an issue?
HUDSON: Central banks originally were designed to monetize government deficits. Governments are supposed to spend money into the economy, because that helps economies grow. But in Europe the Lisbon agreements say governments can’t run a deficit more than 3 percent of national income.
Furthermore, the role of the European Central Bank is not to give a penny to governments. They say that if you give a penny to government, you’ll have hyperinflation like you had in Weimar. So the central bank can only give money to banks – to invest in stocks and bonds. But the ECB won’t buy fresh bonds to finance new government spending. The result of this policy of not funding government deficits is that if the economy is to grow, it has to be entirely dependent on commercial banks for credit.
We had this situation in the United States in the last few years of the Clinton administration when the United States actually ran a budget surplus instead of a deficit. Now, how do you think the United States could grow when there’s a budget surplus sucking money out of the economy?
The answer is that commercial banks and bondholders have to supply the money. But the banks only supplied money in the form of junk mortgages and other forms of an economic bubble, such as takeover loans and a stock market bubble.
The interest of banks is not to help economies grow; it’s to extract interest from the economy. The financial sector uses part of its rising wealth to lobby for privatization sell-offs. The problem with this is that when you privatize a public utility, you give away a monopoly – and if you deregulate the economy, you let the monopoly set up tollbooths over the economy, for toll roads, communications or whatever is being privatized.
The ECB is telling Greece to privatize to raise the money to pay its bondholders, the ECB and IMF. So you have quantitative easing going hand-in-hand with the insistence on privatization. The result is debt deflation as the economy is forced to depend more and more on banks for the money to grow, instead of on government spending into the economy. You’re having the governments not being able to spend on infrastructure, letting it fall apart, as is happening with bridges and tunnels in the United States.
The next step is for the government to say, “I’m sorry, the central bank doesn’t have enough money to help us build new infrastructure. So we’ve got to sell it off to private investors who do have the money.” The next thing you know, you have the economy ending up looking like Chicago. That city sold off its sidewalks and its parking meters to Goldman Sachs and to other Wall Street firms. All of a sudden the prices of parking, driving, and living in Chicago went way, way up instead of lowering the costs as privatization promised.
You have the same phenomenon here that England suffered under Margaret Thatcher: costs for hitherto public services go up. Transportation costs go way up. Road costs go up. Communications, internet costs, telephone costs, everything that is privatized goes way up. Financialization leads to a rent-extractive, almost neo-feudal economy.
In that sense, quantitative easing and the refusal of central banks to fund governments (except to pay bondholders and bail out commercial banks) is a new kind of class war. It’s not the old kind of class war, which was between employers and their workforce over what wages will be. It’s by the financial sector trying to take over the economy, and especially to take over the public sector, to take over the public domain, to take over public utilities and whatever assets a government has. If governments cannot borrow from central banks, they have to begin selling off property.
PERIES: Michael, this is exactly what’s happening in Greece right now. The SYRIZA government is somewhat forced to continue privatization as a part of the agreement of the loans that they have been given by European banks. What could they do in this situation?
HUDSON: This is really a scandal, because most privatizations are corrupt insider dealings. The SYRIZA Party came in and said, wait a minute, the privatizations that have been done are by governmental officials to their own cronies at a giveaway price. How can we balance the budget if we’re giving away the public utilities instead of getting a fair price for them?
The European Central Bank said, no, you have to give away privatization to cronies at pennies on the dollar just like Russia did under Yeltsin, just like the United States did with the railroad giveaways of the 19th century.
Remember, the American privatization to the railroad barons and their financial backers created essentially the ruling class of the 20th century. It created the American stock market. The same thing is happening in Greece. It’s being told to continue the former politicians’ drive to endow a new oligarchy, a new kind of a feudal monopoly lord, by these privatization giveaways. The ECB says that if you don’t do that, we’re going to bankrupt the banking system.
Yanis Varoufakis went back to the party congress in Parliament and asked whether they would approve this. The left wing in Greece has said, no, we won’t approve the giveaways.
The pretense is that privatization is to make money, but the European Central Bank is saying, no, you can’t make money; you have to give it away to our cronies. It’s all one happy financial family. This is escalating financial warfare.
I can assure you that neither Varoufakis nor SYRIZA has any interest in this kind of privatization giveaway. It’s trying to figure out some way of perhaps prosecuting the cronies for bribery, for internal connections, or figuring out some way of legally stopping the rotten policies that they’re told to follow by the European Central Bank – which isn’t giving a single euro to help Greece get over the economic depression that debt deflation has brought on. The euros are only given to the financial sector, basically to help declare war on the Greek government, the Spanish government, the Italian government.
This financial warfare is trying to achieve the same thing that military warfare did in the past. It’s aim is to grab the land, to grab control of the public infrastructure, to grab control of governments themselves. But it’s doing it financially rather than militarily.
PERIES: Right. The SYRIZA Party last week did agree to the conditions of privatization, that they would not roll back on the existing agreements that had been made by previous government. They agreed to not roll back on ones that are underway, and that they’re actually not even averse to privatization as a statement by Yanis Varoufakis. What does all this mean for Greece?
HUDSON: The financial gun was put to their head. If they wouldn’t have said that, there would have been a total breakdown, and the European Central Bank would have tried to bankrupt the Greek banks. So he didn’t have much of a choice. Everything that Varoufakis has written, and all that the political leader of SYRIZA has said, has been exactly the opposite. But they had to give lip service to what they were told to do, and any agreement that’s made has to be ratified by Parliament. So, what they’ve said is, okay, we’re going to play good cop, bad cop. We’ll be the good cops with you, and let Parliament and our left wing be the bad cops and say that we’re not going to stand for this.
Russian President Vladimir Putin will “launch a campaign of undercover attacks to destabilise the Baltic states on Nato’s eastern flank”, the Telegraph reports today – along with all other mainstream news media.
How do we know this? Because the UK’s Defence Secretary Michael Fallon has said so. Lithuania, Estonia and Latvia watch out – the Russian peril is fast coming your way.
“There are lots of worries”, Fallon told the newspaper. “I’m worried about Putin. There’s no effective control of the border, I’m worried about his pressure on the Baltics, the way he is testing NATO, the submarines and aircraft … They are modernising their conventional forces, they are modernising their nuclear forces and they are testing NATO, so we need to respond.”
Covert attack by Russia on the Baltic states is “a very real and present danger”, Fallon insisted. Now where did we hear that before? Ah yes. On 16th December 1998 President Bill Clinton said that that Iraqi President Saddam Hussein presented “a clear and present danger” to the stability of the Persian Gulf and the safety of people everywhere.
We all know where that led: the Iraq war followed a few years later. We also know that the claim was a monstrous untruth: Saddam had no chemical, biological or nuclear weapons. So why should we believe Fallon now? Where is his evidence? He has none. When you already know the truth, who needs evidence?
Fallon – and NATO – should keep their eyes on the ball
But while Fallon’s attention is focused on the imaginary threat to the Baltic states, there is another country that really could be ‘at risk’ – and not because of cyber-attack, invasion by ‘green men’ or a campaign of destabilisation emanating from the Kremlin.
No, the EU, the European Central Bank, the IMF and European finance ministers have already been doing all the destabilisation that’s needed – forcing Greece into a deep programme of austerity that has seen the economy shrink by 25% over five years, the closure of vital public services, mass unemployment and the forced sell-off of public assets.
And now the Greeks – and their newly elected Syriza government – have had enough. This week the Greek prime minister Alexis Tsipras flatly refused to renew the €240 billion ‘bailout’ package, which comes with all the austerity strings, and he today advanced proposals for a ‘six-month assistance package’ free of harsh conditions to give Greece time to renegotiate its debt.
The standoff continues, and will be decided tomorrow by EU finance ministers. It’s not looking good: Germany has already stated that the Greek proposal “does not meet the conditions”. But if the finance minsters don’t agree, then what?
You guessed it: Tsipras will turn to Russia. Earlier this month Tsipras and Putin agreed on a range of bilateral ties, including the construction of a pipeline that would carry Russian natural gas from the Turkish border across Greece to the other countries of southern Europe.
This follows the re-routing of the ‘South Stream’ pipeline, which had been due to cross Bulgaria but was effectively blocked by the EU’s retrospective application of energy market rules, under heavy pressure from the USA. Last November and December Putin negotiated the pipeline’s realignment across Turkey with Turkish President Erdogan – right up to the Greek border.
Following the agreement between Putin and Tsipras, which came complete with an invitation to Moscow on Victory over the Nazis day, 9th May, the pipeline link to the major countries of southern Europe is now complete, at least on paper. And once it’s built, Greece will effectively control – and profit from – that gas supply, and take a strategic position in Europe’s energy landscape.
But Greece is a NATO member!
Greece’s increasingly warm relationship with Russia is already causing concern among other EU and NATO countries. German Defense Minister Ursula von Der Leyen has said that Greece was “putting at risk its position in the NATO alliance with its approach to Russia.”
This provoked a fierce retort from Greek Defense Minister Panos Kammenos who branded the attack as “unacceptable and extortionate” – noting that “Greece was always on the side of the Allies when they pushed back German occupation troops.”
“Statements that replace the EU and NATO’s institutional bodies are unacceptable as blackmailing”, he added. “They undermine the European institutions except if Germany’s aim is to dissolve the European Union and the NATO.”
So if Tsipras’s refinancing proposal is refused tomorrow will Greece quit NATO and the EU, to join the Eurasian Union? Not if Mr Putin gets his way: Greece is worth much more to Russia as an ally within the EU and NATO than outside – where it can veto more trade sanctions against Russia, block the TTIP and CETA trade deals with the USA and Canada, and oppose NATO’s increasing belligerence from within.
But we could see Greece simply renouncing its manifestly unpayable and unjust €320 billion national debt, and quitting the Eurozone straitjacket – while receiving an emergency liquidity package from Russia to support the launch of the New Drachma.
In fact, we could see a re-run of important elements of the Ukraine play of December 2013, when Russia offered a support package under which it would buy $15 billion in bonds from Ukraine, supporting its collapsing currency, and supply it with deeply discounted gas – £268 per cubic metre rather than the maarket price of $400.
A $15 billion purchase of New Drachma denominated Greek bonds would be a superb launch for Greece’s new currency, and would firmly cement Greece’s long term alliance with Russia, providing it with a valuable long term bridgehead into both the EU and NATO.
This move would also give inspiration and confidence to progressive political movements across Europe that take inspiration from Syriza’s fight for economic justice – in Spain, Portugal, Ireland, Italy, the UK and beyond – and bear the powerful message: there is an alternative.
And while NATO, the EU, the USA and their loyal servants, among them the UK’s Michael Fallon, deliberately whip up a fictitious threat in the Baltic, ignoring the real danger they face to the south, the masterly Mr Putin would once again make fools of them all.
At an anti-TTIP demonstration in Berlin last month. (Photo: Uwe Hiksch/flickr/cc)
The newly-elected government in Athens has always been suspicious of the Transatlantic Trade and Investment Partnership (TTIP) and will use its Parliament majority to sink the EU-US trade pact, claims a former Syriza MEP now turned minister.
After making its voice heard in the debate over sanctions on Russia, the new government in Athens is now making its opposition known to the EU-US trade deal, TTIP.
Georgios Katrougkalos, a former influential Syriza MEP who quit his European Parliament seat to become deputy minister for administrative reform in the leftist Greek government, said the new leadership in Athens will use its veto to kill the proposed trade pact – at least in its current form.
Just before the January elections, he told EurActiv Greece that a Syriza-dominated Greek parliament would never ratify the EU-USA trade deal.
Asked by EurActiv Greece whether the promise still holds now Syriza is in power, Katrougkalos replied:
“I can ensure you that a Parliament where Syriza holds the majority will never ratify the deal. And this will be a big gift not only to the Greek people but to all the European people”.
Double veto power
The leftist Syriza party may not have an absolute majority in Parliament but its junior coalition partner seems to share the same views on the EU-US trade pact.
Syriza, which won a stunning victory at snap elections a week ago (25 January) formed a coalition with the right-wing anti-austerity Independent Greeks party, which is intent on opposing laws seen as too favourable to big business.
The coalition agreement gives the new Greek leadership an effective veto power over TTIP and other deals submitted to Parliament ratification.
Indeed, once the pact is negotiated – a process which may still take over a year –, it will be submitted for a unanimous vote in the European Council, where each of the 28 EU national governments are represented.
This means that one country can use its veto power to influence the negotiations or block the trade deal as a whole, an opportunity Syriza will no doubt use.
And even if the pact makes it past this first stage, it will then be submitted to ratification by all parliaments of the 28 EU Member States, offering opponents a second opportunity to wield a veto.
Welfare state under threat
Like many other leftists and social democrats in Europe, Katrougkalos raised serious concerns about the Investor State Dispute Settlement mechanism, or ISDS, contained in the pact.
The mechanism is designed to protect companies’ foreign investments against harmful or illegal rulings in the countries where they operate. It gives them the chance to take legal action against a state whose legislation negatively impacts their economic activity.
Katrougkalos underlined the uncertainty surrounding the ISDS negotiations, saying the European Commission’s precise mandate was unclear.
“An undemocratic practice of lack of transparency has prevailed from the very beginning of the negotiations,” he claimed.
The newly-appointed minister understands that TTIP’s objective was not to reduce tariffs, which are already “very low” but to make an adjustment to the rules governing other sectors. “It contributes to the elimination of some bureaucratic procedures on exports, helping this way the economic efficiency,” he said.
But he made clear that the danger lies in the fact that in most economic fields the regulatory rules are different in the EU and the US. For him, multinational companies stand to benefit the most from lower regulatory barriers, citing banks and brokerage firms, which are subject to weaker supervision in America than in Europe.
“For example we [the EU] don’t permit GMOs, data protection is significantly more important as well as the protection of national health systems,” he said, adding that any consolidation in these rules “will undermine the way the welfare state is organised in the EU.”
Independent Greeks take the same line
Meanwhile, Syriza’s coalition partner, the right-wing anti-austerity Independent Greeks party, takes a similar stance against TTIP.
In a statement issued on 4 November 2014, the then-opposition party said the deal will not live up to its promise of relaunching economic activity.
“It is supposed to be an agreement that will boost the real economy, but its main supporters are international bankers and lobbies,” emphasised Marina Chrysoveloni, a spokesperson for Independent Greeks.
“In simple words, the speculative capital will have even more freedom to move […] in a huge single market with eight hundred million people,” she concluded.
On Syriza’s side, Katrougkalos admitted there was uncertainty about how the talks will conclude but said he was confident that the trade pact “will be approved by the European Parliament”.
“The social democrats have objections on ISDS [investor-state dispute settlement] mechanism but it seems they accept the trade deal’s logic,” Katrougkalos said. In his view, the centre-right European People’s Party and the Liberal ALDE “have a safe majority in Parliament”.
Anti-Russian sanctions are imposed as a hard neo-conservative lobby in America puts pressure on some European countries to go along with these sanctions, and to persuade other countries to do the same, journalist Neil Clark, told RT.
RT: The EU has extended individual sanctions but refrained from new economic restrictions. Why haven’t they gone further do you think?
Neil Clark: Well, it’s interesting, isn’t it? I think this reveals to us the split that there is within the EU. Because what we’ve got really, we’ve got the hard-line countries led unfortunately by Britain, countries like Poland, Lithuania and some others who really want an extension of sanctions. And then we’ve got the more realistic members, the countries that actually want to see these sanctions lifted. Of course, we remember just three weeks ago Francois Hollande, the French President, said that the EU hoped that sanctions would soon be lifted. And of course that would have caused a lot of horror among the anti-Russian camp. So I think what we saw [on Thursday] is the evidence of a real split. We haven’t had these measures that some people wanted, for example some of the more anti-Russian elements have been calling for Russia to be banned from the SWIFT banking system. And what we’ve seen is an extension of the existing sanctions so I think that this reflects the split within the EU at the moment.
RT: Russia’s been under American and European sanctions since last March. How much has it helped resolve the Ukrainian crisis?
NC: Well I think it’s very important to realize…Ukraine is really a pretext for these sanctions. What we’ve got is an anti-Russian lobby, a neo-conservative lobby in America which has for years wanted to sanction Russia. You go back to 2003 and you got neocons calling for Russia to be sanctioned. …This campaign for Russia to be sanctioned stepped up after the events in Syria in 2013 when Russia blocked a war against Syria…And then the Ukrainian situation kicked off as it were.
So I think it’s very important to realize it really that it has really nothing to do with the situation in Ukraine. These sanctions are being imposed, I’m afraid, because of a hard anti-Russian lobby in America and pressure’s been put on certain European countries that are very close to America to go along with these sanctions and to persuade other countries to go along with these sanctions.
It’s interesting, isn’t it, that when we talk about Ukraine the offenses launched by the Ukrainian government forces coincided with visits of high-ranking US officials. And I think that there would have been quite a lot of concern among this anti-Russian lobby in Washington when Francois Hollande did say three weeks ago that he would like to see sanctions lifted.And then what happens? American officials go to Ukraine and we get another offensive against the people in the East. Then the fighting there is used as a pretext for continuing on with the sanctions.
RT: There have been calls for the West to arm the Ukrainian army. Is that on the cards?
NC: It all really depends on what happens in Europe. It is actually crucial at the moment. We saw last night that vote at the Council of Europe – just how divided it was: 35 to 34. So I think there are certain countries in Europe… Poland has been called the 51st state of America, Poland is following the American line, and Britain unfortunately is. But there are other countries, Austria for example, who don’t really want to go down this road, who want to have a return to proper working relations with Russia, because Europe needs Russia. Europe needs a good working economic relationship with Russia. So it’s all a battle going on within the European Union now as to which fraction will actually prevail… So I think the hawks would love to see hard weaponry going to Ukraine, would love to see this conflict continue. But the more sensible countries in Europe want to see an end to it and get back to normal relations with Russia which is in Europe’s interest.
RT: On Wednesday two Russian bombers were detected flying over the Channel which provoked an outcry in the British media as they supposedly ‘disrupted UK aviation’, though these bombers didn’t violate other countries’ borders. What do you think about this situation?
NC: Well I think it’s very interesting, isn’t it, that this big news story happened when the EU was discussing the issue of sanctions with Russia. And I think it happened before, when we had…this debate about whether to extent or deepen sanctions, increase sanctions on Russia…And headlines that come up, you know “Russian bombers over the Channel”, but then we found out that it wasn’t exactly as it was first reported. So I think that in this anti-Russian climate we‘ve got to be careful when we look at the news headlines. There is an agenda going on, there is anti-Russian lobby in the West unfortunately which wants to keep this going and to keep more excuses and pretexts for the sanctions on Russia. So I think we have got to keep cool heads and you know look at bigger context of the stories and it seems quite interesting that every time we are getting these discussions about sanctions on Russia, that this sort of incidents seem to occur.
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The new Greek government has spoken out against the EU partners over the statement that lays the blame for Saturday’s fatal attack on the Ukrainian city of Mariupol on Russia. Hungary, Slovakia, and Austria voiced similar objections earlier.
The government, headed by Prime Minister Alexis Tripras, said in a press release on Tuesday that “the aforementioned statement was released without the prescribed procedure to obtain consent by the member states, and particularly without ensuring the consent of Greece.”
“In this context, it is underlined that Greece does not consent to this statement,” Tsipras added.
He voiced his “discontent” in a phone call to EU foreign relations chief Federica Mogherini.
The EU statement was published on Tuesday morning, saying that all 28 EU leaders had agreed that Russia bears “responsibility” for a rocket attack on the city of Mariupol that left 30 people dead on Saturday.
Brussels objected that the Greek government had been informed about the statement on Russia and Ukraine, but no one had contradicted it until Tuesday.
European Council President Donald Tusk initiated the EU statement, and claimed he had called Tsipras and the “sherpas” – top officials taking care of EU issues in each leader’s office.
One EU diplomat reportedly said that Greece had attempted to remove the line blaming Russia for the Mariupol killing. Also, Austria, Hungary, and Slovakia tried, and failed, to “water down” the communiqué, the EU Observer website stated.
It’s the first time that such a situation – a retroactive abjuration of an EU line – has happened, EU Council official stressed.
Foreign affairs analyst Serja Trifkovich told RT that other countries might follow suit and oppose Brussels’ policies on the Ukrainian crisis.
“It’s very difficult in the EU to break the ranks. Now that Greece has made a move, I confidently expect that the Hungarians in particular, but perhaps also Slovakia and Cyprus, will [find] the courage to say no to the dictate from Brussels.”
The EU statement on Russia and Ukraine also urged for more sanctions, for considering “any appropriate action” against Moscow.
One of the measures being mulled is to block Russia from the global interbank SWIFT payment system.
Economist Max Fraad Wolff told RT that this would be a drastic measure.
“Let’s be fair and honest here: if you’re cut off from SWIFT, your ability to have any kind of normal business flow with the global commerce community is hampered.”
However, what he envisages is that “cooler heads will prevail” and that “we won’t see Russia cut off from the SWIFT system,” as it is “in very few parties’ long-term interests.”