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The Greek Debt Crisis and Crashing Markets

By MICHAEL HUDSON | CounterPunch | June 29, 2015

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, mh@michael-hudson.com

June 29, 2015 Posted by | Economics | , , , , , | 1 Comment

The Podemos Phenomenon: Spain’s Best Hope for Democracy

By William Hawes | Global Research | June 4, 2015

The captivating rise of Spain’s new left-leaning party Podemos has captured the world’s attention by emphasizing participative democracy. The formerly fractured Spanish left, in the past marred by petty infighting in Spain, coalesced from grassroots protests over austerity measures and gained steam in 2011. Working with the Anti-Capitalist Left activist base, Podemos began in 2014 by starting local public meetings, called citizen circles, to organize; using the web to organize, poll, and debate issues; and heavily promoting anti-austerity measures and poverty reduction. Young adults especially have been swept up in the Podemos’ rise, as unemployment for youths stands at anywhere from 30-50% by region.

Last month, anti-poverty activist Ada Colau gained the most seats to become Barcelona’s mayor with backing from Podemos. Podemos-backed Manuela Carmena came in a strong second in Madrid’s mayoral election as well. A coalition with Spain’s Socialist Party (PSOE) may secure both ladies’ spots. Now all eyes turn to the general election slated for December. At center stage as leader of Podemos is Pablo Iglesias, former college professor and TV host.

The ideology of Podemos was incubated during the May 2011 protests in Madrid centered on the skyrocketing unemployment and austerity measures employed by the Zapatero-led government. Spain’s protests erupted nationwide and were centered in the Puerta del Sol square in Madrid, led by social networks and citizen assemblies. Protesters were dubbed Indignados (“the outraged”, or “the angry ones”), for their rejection of Spain’s increasingly corrupt two-party system and the “austericide” measures strangling the economy and vitality of the nation. Spreading throughout the country, it is estimated that about 6.5-8 million participated. Protests have continued under the Rajoy regime. (1)

After the protests, Podemos formed from a coterie of radical professors from Madrid’s Complutense University. The most notable are Iglesias, political theorist and the face of the movement; Jesús Montero, former communist and political organizer, and Iñigo Errejón, university lecturer and campaign strategist. Beginning to channel citizens’ hopes, despair, and anger over poor economic conditions, Iglesias’ TV programs, La Tuerka and also Fort Apache, became hits and launched him into the national spotlight.

Debating conservatives on national broadcasts pushed Iglesias into the stratosphere in Spain, with bona-fide rock-star status, which he backs up: Iglesias accepts only quarter of his salary as a member of the European parliament. He flies coach on all his trips. He routinely rips Rajoy and his cadre of corrupt officials. He lives in a graffitied neighborhood in Madrid, has credentials as a respected academic, and visits with famous theorist Chantal Mouffe.

Iglesias and Podemos certainly have their critics and detractors, however. Prime Minister Mariano Rajoy has blasted the party recently, calling them “incompetent populists”. Some have questioned Iglesias’ decision to run Fort Apache, as it was produced by an Iranian state-run TV company. Others frown upon members’ past consulting work with the Venezuelan government. And co-founding member Juan Carlos Monedero has recently quit the party, commenting that Podemos needs to “go back to its origins”. (2)

Despite the backlash, there is no doubt that Podemos represents the best hope for the future in Spain. Monedero still claims they are “the most decent force in Spanish politics”. Iglesias has shown citizens who the ruling People’s Party (PP) and the rival Socialists’ Workers Party (PSOE) really are: la casta (the caste), the establishment, corrupt leaders and officials who do nothing as nearly 6 million people are out of work and 2 million households have no net income. (3) The party is also aware of their limitations in an integrated EU economy: this is why they have called on the help of friends like Greece’s Syriza to fight the EU technocracy, ECB, and IMF. No doubt, Podemos would be wise to send feelers to Italy’s PM Matteo Renzi and Ireland’s Sinn Fein party to ally the periphery, mainly southern Europe, against the unjust policies of Brussels.

Iglesias has shown moderation and fairness in nearly every aspect of Podemos’ agenda. He supports Spain’s membership in the EU, but only under fair laws and loan agreements. He wants benefits and social programs expanded, but he is not calling for nationalization of entire industries. Podemos supports sharing more power with the autonomous regions of the Basque Country, Catalonia, and Galicia, and even states that the party would allow a Catalonian referendum, which the PP and PSOE oppose. (4)

Podemos is more than a vehicle to bring to life the hopes and dreams of Spaniards alone. As political theorists, leaders of Podemos cannot be accused of intellectual laziness. By employing a narrative of anti-elite rhetoric within a framework of social justice, they have created a message appealing to citizens of the whole nation. By linking digital democracy, through social media, with participative elements, such as meetings to combat poverty, lobby for public health initiatives, the arts, and more, Podemos has provided a contemporary deliberative democratic blueprint for the world.

The party has helped lay ground for democracy with revolutionary potential, but not within a traditional, left/right framework. Though favoring a moderate social democracy, Iglesias and the leadership deny that they are partisans. Iglesias explained the left/right divide succinctly at a rally in Barcelona: “Power doesn’t fear the left, only the people”. (5) At its core, Podemos is attempting to challenge the power structure, and deliver democracy to the masses, even if it means deviating from its anti-capitalist, leftist origins.

By moving towards the center, and consolidating power mostly between Iglesias and Errejón, Podemos risked alienating its activist base. These are undoubtedly the reasons for Monedero’s resignation from the party. Charisma and charm will only take you so far, and pandering towards the middle will only work up to a point. Besides, the populist, new center-right party Ciudadanos is also mining the center for votes with this strategy.

Podemos should continue to act as a movement led by activists, and evade the traps of capitulation and compromise that mainstream parties fall into. Breaking the two-party stranglehold of the PP and PSOE has been impressive. By concentrating on poverty reduction, debt restructuring, ending austerity, and listening to its citizen circles, Podemos and Iglesias can win wider support, unity, and solidarity. If focus can be kept on their grassroots campaigns, Spain will begin to see what a true, albeit messy, participative democracy looks like.

William Hawes is a writer specializing in politics and environmental issues. You can reach him at wilhawes@gmail.com.

Notes:

1) http://www.rtve.es/noticias/20110806/mas-seis-millones-espanoles-han-participado-movimiento-15m/452598.shtml

2) http://elpais.com/elpais/2015/04/30/inenglish/1430403454_148415.html

3) http://www.newsweek.com/2014/10/31/podemosradical-party-turning-spanish-politics-head-279018.html

4) https://www.opendemocracy.net/can-europe-make-it/kate-shea-baird/podemos-cat-among-pigeons-in-catalonia

5) http://elpais.com/elpais/2015/02/02/inenglish/1422900233_612344.html

June 4, 2015 Posted by | Economics, Solidarity and Activism | , | Leave a comment

Hundreds of thousands join Madrid anti-austerity rally

Wake Up From Your Slumber | January 31, 2015

At least 100,000 people poured into the streets of Madrid on Saturday in a huge show of support for Spain’s new anti-austerity party Podemos, riding a wave of popularity after the election success of its Greek hard-left ally Syriza.

A sea of demonstrators chanted “Yes we can!” and carried signs reading “The change is now” as they made their way from Madrid city hall to the central Puerta del Sol square in the first major march called by Podemos, which has surged ahead in opinion polls in a crucial election year.

Many in the crowd also waved Greek flags and the red and white flags of Syriza, an equally radical party whose stunning win at the polls last week has buoyed Podemos and its anti-establishment message.

“The wind of change is starting to blow in Europe,” Podemos leader Pablo Iglesias, a pony-tailed former university professor, said in Greek and Spanish as he addressed supporters at the so-called “March for Change”. “We dream but we take our dream seriously. More has been done in Greece in six days than many governments did in years,” the 36-year-old said.

Syriza beat mainstream Greek parties with vows to end painful austerity measures and corruption and Podemos hopes to emulate its success with a similar message in Spain’s general election due in November.

Organisers put the turnout in Madrid at 300,000 while police said some 100,000 people had massed in the Spanish capital.

February 1, 2015 Posted by | Economics, Solidarity and Activism | , | Leave a comment