Skip to content

Why the battle between Athens and Brussels matters to all of you

June 4, 2015
20150604-173141.jpg

Athens is a war zone. (AFP Photo / Louisa Gouliamaki)

There is a lot being written about the current negotiations between the Syriza government in Greece and the EU/IMF. The distance of most journalists from the Greek reality and atmosphere and the sheer volume of competing information, makes for a lot of white noise. I want to filter much of it out and boil the issues down to some very basic points. This is by no means a definitive list, but it is one which I think captures a number of “big ticket items” which I have not seen made clearly and explicitly.

1. The crisis is not an economic, but a political one. In the grand scheme of things, the sums which are the totality of the difference between the government’s proposal and the EU/IMF’s counterproposals are tiny and risible. Stripped of their political significance, they would not even show up as a blip on the European, let alone the global economic radar. A solution has not been achieved, because the EU/IMF are defending austerity in general. To concede, would be to accept they got it wrong.

2. The measures being counter-proposed by the EU are undeliverable and punitive. One only has to look at the proposals on VAT to realise that the EU is either clueless or not interested in a deal. Proposed VAT rates of 11% on staple food and 23% on electricity/water are not only regressive and unaffordable, but would plunge Greece into an inflationary death spiral, discouraging tourism, encouraging illegal trade and costing many times more than they raise in lost revenue. The proposal to scrap the relief to islands shows a lack of understanding of basic economic realities regarding the cost of shipping goods to thousands of small, remote islands. It is blindly trying to apply German policies. The proposals are not economically realistic; they are a punishment beating for having elected the “wrong” government.

3. The entrenched position of the players has to do with domestic rather than international policies. The battle between Merkel and Schäuble behind the scenes for leadership of their party before the next German election; the threat Rajoy faces in Spain from Podemos, underlined by recent municipal results; resistance to Dijsselbloem’s programme of ultra-right-wing economic policies in the Netherlands within his own Labour Party; the failure of Renzi to stimulate a stagnating Italian economy; – all these factors, and many besides, play a much bigger part in shaping players’ position towards the Greek crisis, than anything to do with the Greek crisis.

4. A fundamental misjudgment of Syriza in general and Tsipras in particular. There was a catastrophically widely held belief among the European establishment that, once elected, Tsipras would “play ball”. There is still palpable shock at his sticking to his election commitments, often expressed as the accusation that he is being unreasonable. Every statement out of EU institutions for the last five months has been practically underlined by the subtext “shit, he wasn’t bluffing”.

5. A Grexit would be disastrous for the EU. Tsipras understands this. Given current geopolitical circumstances, Putin’s expansionism, the powder keg that is North Africa, the Middle East on the brink of all-out war – strategically, Europe could afford to lose practically any single country from the Union, except Greece. Greece is the geographic and military key to all those conflict zones. Greece slipping by default into a China/Russia alliance would be nothing short of a global game-changer.

6. There was an underestimation of popular support for Syriza and misunderstanding of the mood in Greece. The EU/IMF clearly expected support for the new government to ebb away, as fruitless negotiations protracted. The opposite has happened. Support is significantly higher now than in the January election. Tsipras’s personal ratings are sky high. After living on the brink of disaster for so many years, I sense a que-sera-sera attitude in most people. This is not to say they don’t fear capital controls, the threat of Grexit, austerity, hunger, poverty and degradation. It is to say that they have lived with them for so long, they have become an ordinary part of the landscape.

7. Greeks are busiest in the summer. Everyone is busiest during the summer months. Everyone is richer during the summer months. It was a fundamental miscalculation by the EU/IMF to try and win a PR battle of fear during this period. The country is too light, too warm, too beautiful and too busy to take notice.

_______

CONCLUSION: The EU/IMF have played their hand badly. By calling a bluff that wasn’t a bluff they have played themselves into a situation in which they have no win scenario and no exit strategy. They will lose. The only question now is whether they lose badly or not and whether they take Greece down with them.

If this intransigence is played out, they force Greece into a new election, possible Grexit, instability, and plunge the entire continent back into recession. If they back down, Greece is seen as victorious, Podemos wins in Spain and they start the same negotiations with Iglecias, only the sums involved are larger and a resistance front in Southern Europe pushing back against imposed market liberalisation and austerity becomes a serious challenge.

They have, I think, realised this, but are still locked in a self-destructive raising of the stakes. Merkel and Hollande have noted this, which is why they have taken charge of negotiations increasingly away from the Eurogroup.

The reason this matters to all is twofold. First, it forces out into the open and brings into sharp contrast the increasing divergence between the wellbeing of markets and the wellbeing of populations. Second, it marks a clear act of economic blackmail by a global de facto establishment – let’s call it “The Davos Set” – unhappy at a democratic people opting for an alternative to neoliberalism.

How these tensions resolve themselves will determine whether national elections remain meaningful in any way; whether democratic change is possible or violent revolution is in fact the only effective option.

_______

41 Comments leave one →
  1. June 4, 2015 7:52 pm

    I broadly agree with your analysis. Having researched and written about the Greek crisis since the very beginning, I came to the conclusion that the orthodox advice of austerity would lead to 20 years of stagnation. This felt excessive in 2009-10, but look at us now, already 5 years into a crisis worse than the Great Depression. Is it too much to think that doing the ‘right’ thing as our lenders advise us to do will lead to another 5 years of this and then another 10? Oh yes, the Troika will argue, but look at Ireland. Mr Dijsselbloem has no trouble pointing to the successes of other states that kept up with the programme. Sure, but ‘success’ is a fluid concept. On a neoclassical measure Greece too could succeed this way, but you wouldn’t want to live there.

    The conclusions of my work and my call for allowing democracy to determine economic governance meant that I had to support Syriza in the January election. Reading the works of Tsakalotos helped in explaining the European commitment of Syriza’s leadership and offered some balance to the Grexit desires of the left factions (and authors like Lapavitsas). I felt at the end of 2014 that the time was right for Europe to rethink austerity and that a push was needed for a relaxation of the programme. This push could well have come from a left government in Greece that would act as a focal point for anti-austerity voices from across the continent. Syriza (at least in its official versions) is pro-european and pro-euro, but anti austerity and recessionary programmes. Who can argue with that? All major economists in the world agree.

    Things however have gone wrong, badly wrong, and Syriza bears a large part of the responsibility.

    • elenits permalink
      June 9, 2015 4:29 am

      “Things however have gone wrong, badly wrong, and Syriza bears a large part of the responsibility.”

      A big negative statement backed up by no proof, as usual.

      • June 9, 2015 7:19 am

        Why do you think there is no proof? I am not pursuing an agenda against Syriza. In fact I preferred them to everyone else. There is no point denying reality though. This is not a with-us-or-against us discourse. If you think your life would be better after Grexit, great, but the majority who voted on 25/1 do not.

  2. June 4, 2015 8:05 pm

    Every time I talk to a Tory voter about austerity, they come back with, “It’s essential so that we don’t pass on debt to our children.” So far as I can tell, this means that it’s absolutely fine for people who they don’t know to suffer appallingly now in order that they can offer hypothetical tax breaks to their own offspring in the future. This makes perfect sense, although it is, of course, utterly contemptible. It is vital that we resist austerity at every turn. Initially I was of the opinion that austerity was a con but I am increasingly convinced that it is a scam, intended to restore the old order of aristocracy set against poverty.

  3. Nick James permalink
    June 4, 2015 8:10 pm

    Well said Alex.

    Is it not at that the neo-libs on the one hand protest against any rise in progressive taxation, citing the Laffer Curve (laughs) as “evidence”, while simultaneously proposing a substantial rise in regressive taxation and ignoring that same evidence which (it has to be admitted) becomes relevant when the proposed rise is just too much.

    Sad to say, maybe only violent opposition is the only way to free ourselves of that hypocrisy when democratic politics fails so badly that it cannot deliver a solution acceptable to everyone.

    People are more important than money – end of.

  4. Mac permalink
    June 4, 2015 8:35 pm

    “Putin’s expansionism” ? I hope this is not a reference to Ukraine.

  5. June 4, 2015 8:51 pm

    Reblogged this on sdbast.

  6. June 4, 2015 8:58 pm

    Fantastic article!The BEST analysis of the situation that i have read lately!

  7. June 4, 2015 9:19 pm

    The VAT proposals are brutal and barbaric. Will the lenders’ proposal to reduce tax evasion include having our ΑΦΜ tattooed in the inside of our forearms?

  8. emmagee47 permalink
    June 5, 2015 2:17 am

    Congratulations on producing a concise and illuminating piece. I have been trying to find cogent arguments of my own to help take on the austerity- mongers. This does a great job.

  9. June 5, 2015 6:37 am

    Good luck. Rather complicated for a bystander!

  10. June 5, 2015 8:32 am

    Horrified by micro proposal for the VAT on food and energy levels which hits both rich and poor. What still mystifies me is how successful the current regime is in gathering tax, which I understood was one of the reasons for the present Greek demise and also I don’t understand why the Greeks are still keen to remain in the Eurozone? Is this likely to fade if the Grermans insist on their agenda? Your blog has really helped explain the side that will not be discussed more widely on our and EU media. The austerity argument and consequent justification for such harsh fiscal responsibility has massive holes in it and sadly was an argument that never gained any traction here in our own recent election or now.

  11. June 5, 2015 10:31 am

    Now that I got the vitriol out of my system in a post above, let me compliment you on a very well presented analysis.

    I would not minimize the impact of the “battle between Merkel and Schauble of leadership of their party” on things. I have long suspected that Schauble has been trying to regain what he believes is his rightful position as former heir apparent to Helmut Kohl, a position gained by Frau Merkel in the wake of a campaign contributions scandal the toppled Kohl from party leadership, as well as killing Schauble’s chances due to his lying about funds he received. Schauble was maneuvered himself into a “win-win” situation, as whatever the outcome, be it capitulation by the lenders or a Grexit (either of which will produce results distasteful to the German population) , he can blame Merkel. Schauble has been very careful to take any stance that would weaken his popularity in Germany, regardless of how economically disastrous it might be for Greece or the EU in general. He is a master of the blame game.

    • June 6, 2015 8:09 pm

      CORRECTION: Next to last sentence should read:

      Schauble has been very careful NOT to take any stance that would weaken his popularity in Germany, regardless of how economically disastrous it might be for Greece or the EU in general.

  12. June 5, 2015 10:52 am

    One factor you don’t mention is the effect a Grexit would have on the value of the euro, which would presumably rise as the eurozone became more dominated by the rich German and French economies. This would be a big problem for Germany at its exports are currently considerably cheaper than they should be.

  13. Litsa Gogou permalink
    June 5, 2015 3:12 pm

    For a long time now I hadn’t the chance to read a so “common sense” article about the Greek issue.I’m pleasantly surprise and I got strength that some people can still have clear mind in this mess of different info.

  14. June 5, 2015 4:17 pm

    Thank you
    fantastic blog
    Good luck
    ———————————
    My Blog
    http://www.skullweb.org
    +_+_+_+_+_+_+_+_

  15. vteodorescu permalink
    June 5, 2015 6:09 pm

    good analysis, one of the best around!

  16. June 5, 2015 7:11 pm

    Being an ancient Greek from me mum and having lived under the Drachma and before Greece was in the EU, with the dratted Euro.

    Let me tell you.

    Greece falling of the EU, the Euro and going back to the Drachma will not be a problem.

    The Greeks have survived and then thrived far, far worse than that in the 20th century.

    Never mind further back.

    The whole reason the EU and the IMF are being this punitive is so Greece will leave the Euro.

    The EU cannot come out and say the Euro was a mistake.

    So austerity is being used as a weapon to bring down the Euro and go back to the Deutsch Mark, that was a cash money you could spend anywhere in western Europe and in the Balkans.

    Austerity was tried in the 1920s in England, destroying the boom after the First World War, bringing unemployedm and had not one effect in preventing the Wall Street Crash that took the banks with it in 1929.

    Austerity was a paper written by fools, who missed out Australia and Canada because they did not fit.

    An American university student tried to replicate their paper’s findings only to find these university professors could not properly work an Excel spreadsheet.

    Our UK politicians are aristocratic feudal, stuck in the world of the lords of the manor of 1066 AD Normans and all that, and cannot comprehend the basic concepts of commerce and trade.

    Feudalism was long before capitalism.

    The EU is trapped in just such a mindset, with feudal empire.

    Social capitalism works.

    When inequality gets extreme, nowhere in world history has such a society been a success.

    Who said that?

    A rich American, saying there needs to be sick leave pay, social medicine and a living wage.

    The rich getting richer does not provide a trickle down effect of wealth.

    One man buying a pair of trousers, is worth far less to the economy that 1000 men with the money enough to buy a pair of trousers.

    The IMF keep saying the belief of austerity.

    Did austerity cause Ebola?

    Because one cut back in Greece was the spraying of swamplands (far away from tourist spots) that left old rural Greeks dying from West Nile Disease and immigrant farm workers with malaria.

    Austria sending medical aid to Greece’s social hospitals of such basics as bandages and aspirin.

    What happened in Greece is plain, utter daft.

    They cut the wages even in the private sector. So everyone had less money.
    No welfare, More cost to medicine. Admission fees to get through the doors of a hospital.

    Then nil basic tax allowance altogether.

    Then taxed, taxed, taxed, and taxed again and again, on non-existent money.

    So less spending money.

    The shops closed.

    The businessmen then sleeping rough in Athens’ parks.

    Shop workers lost jobs.

    They had no money to spend.

    They were given free plots of land back in the village, living in some ancient poorly renovated old family house.

    Then the EU came with the ENFIA and wanted to tax worhtless small tracts of inherited wild forest land, farm land used for only for food to eat, or to feed a goat or a chicken, and olive groves that cost more to cultivate than any price for the olive and olive oil. Used again only for food.

    Thent he EU raised the tax on cars. So everyone gave back the registration plates to untax then and many cars sit for years rotting away in Athens’ streets.

    The tolls went up. So people with fewer cars, then made less journeys.

    This is not austerity.

    It is pure and complete madness.

    You tax a nation to death, wiping out business, wiping out any spending money, cut the wages even further, and tax what little business there is left, I saw once of a 1 Euro coffee being taxed over 40 cents in a coffee shop.

    And all that tax goes away abroad.

    And then they say sell islands with Greek citizens to foreigners entirely.

    Would you sell the Isle of Wight away?

    But the UK is just as bad.

    They say don’t nationalise gas, electric, water, railway.

    But most of these are owned by foreign governments, whose profit helps their own citizens and not ours.

    So onwards into greater insanity.

    Roll on the Drachma and Greece leaving the Euro and the EU. It was a disaster from day one.

    From day one.

    A bottle of water was 50 Lepta – half a Drachma.

    Became 50 cents – half a Euro.

    A Euro on that first day was worth about 360 Drachma.

    And then we had Papandreou with his treasonous open gob policy, who betrayed an entire nation.

    The EU does not know enough about its own budget, let alone anyone else’s.

    Greece was not the author of its own economic downfall.

    The EU empire has milked it dry.

  17. June 6, 2015 7:31 am

    Reblogged this on thedarklordblog.

  18. June 6, 2015 9:25 am

    Congratulations on voicing an opinion without hysteria that makes so much sense to me. X

  19. June 6, 2015 8:35 pm

    I am so happy to come across your blog and see that there are other voices out there saying the same things I say. The mass misinformation media are so dedicated to repeating their Masters’ voice that they don’t realise (or maybe they do?) they are cultivating Cold War feelings all over again. Living in Greece and faced with the daily influx of refugees I am also very much aware of the other difficulties of the region… Thanks again for a very strong article. I am not familiar with blogging etiquette – can I reblog it on mine?

    • June 6, 2015 10:59 pm

      Thank you for reading and for your kind words. Of course you may repost. Traditionally, one tends to reproduce the first couple of paragraphs or an excerpt that they liked particularly and link to the original blog. If you are also on WordPress, it will do this automatically via the reblog button.

  20. June 7, 2015 11:30 am

    Admittedly not leftists, but I consider our team at Reform Watch Greece to be realists. It seems to us that you kinda gloss over the whole issue of structural reform. You are from Greece, when was the last time you had to deal with what we call the Big Fat Greek Public Sector? If the Greeks mumble but dont demand public sector reform through the political parties (seems they usually support the BFGPS for votes), why is it wrong to press for this reform externally? Greece can’t afford to keep wasting the kind of money it does for the low quality of services (let alone corruption) the public receives and the creditors are not wrong to try and fix this. So why is it bad policy to kick Athens hard to reduce spending here and cut the deadwood hired by the previous political parties?

    • June 7, 2015 10:30 pm

      I don’t think I’m mumbling. I’m speaking clearly and at a reasonable volume.

      I don’t think I even advanced the idea that reform is not needed. Reform, however, cannot be effected via blackmail. That much ought to be clear from everything that is happening in every single part of the world where the west has tried to simply impose its values.

      As a partner and lender of last resort, one is allowed to demand a programme targeted at balancing the books. What is unacceptable is to dictate via which policies this is to be achieved, down to the micro level of specifying VAT rates. Such action completely circumvents the democratic process.

      Greek people voted for a different set of priorities. If the elected government wants to balance the books by leaving staple foods VAT-free and taxing 4x4s and swimming pools to oblivion, it is not for an entirely unelected cabal to tell them not to. It worries me that you don’t seem to grasp this concept.

      Just because you agree with the reforms proposed, doesn’t mean they can be imposed on a majority that expressly does not. Or, rather, they can, but there is a name for that: dictatorship.

    • June 8, 2015 9:07 am

      You are of course right – Greece is in urgent need of public sector reform, and has accepted an unacceptable level of corruption for far to long. However the evidence clearly shows that depriving them of funds is not going to work. Instead, it leads to ordinary people suffering and clearly damages the private sector – which is the source of the tax revenue that might eventually lead them out of this mess. Yes, the Greek government ‘misled’ the EU over its finances when it joined the eurozone, but the EU was well aware that they were being misled, and went along with it regardless. Both sides are to blame, and both sides have a responsibility to find a solution that is both humane and effective, because austerity is clearly not working.

  21. June 7, 2015 12:18 pm

    i wonder why little attention is paid to the idea that the nature of the euro is at the heart of this issue.

    Greece cannot issue the euro; it can only borrow it. In the past, Greece could issue the drachma, allowing Greece to repay any debts payable in drachma. The situation is insane and really calls for some clear thinking; too many are suffering.

    The euro scheme is no different than being on a gold standard, except the ECB gets to create the gold. As a net exporter, Germany is the great beneficiary. The whole thing is rigged.

  22. June 7, 2015 9:17 pm

    Reblogged this on dyke writer.

  23. Nicolas permalink
    June 7, 2015 10:10 pm

    If you don’t want to have to deal with creditors, just don’t get in debt. Is it so difficult to understand? The Greek government is behaving like a beggar and it’s a shame to read that it is supported by a large part of the Greek people. Those people have no pride.

    As for getting closer to Russia or China, this is not begging anymore, this is prostitution. Be aware that Chinese people pursue their own interests, don’t expect any support or relief from their part (FYI: I have Chinese relatives). Altruism is not part of Chinese behavior.

    What a pathetic mentality, it’s really disappointing.I’m glad my grand-father moved out of that country 60 years ago. It’s just too bad that he hasn’t moved far enough. Now, as a European taxpayer, I’ll have to pay for this Greek mess.

    • June 7, 2015 10:22 pm

      Thank you for your comment. I started to compose a reply, but you are so economically illiterate, sure of your opinion and filled with self hatred regarding your heritage, that I genuinely did not know where to start. I recommend intensive therapy and lots of reading. Any reading. You are starting from such a low base, that even the average restaurant menu would probably educate you.

  24. bjsalba permalink
    June 8, 2015 5:56 am

    What I never understood was why no action was taken against the politicians and financiers (?Goldman Sachs?) who used complicated financial transactions to hide the real debt that Greece had before going into the Euro.

    Failing to do so invites others to repeat the process.

    • June 8, 2015 9:26 am

      The reason no action was taken was because it was in no-one’s interest to do so – the EU wanted Greece in the eurozone, so overlooked the ‘hidden’ debt. Why they did so is open to debate – my theory is that it benefited Germany by giving them a currency that is cheaper than it should be, resulting in German exports being cheaper than they should be. Thank goodness we in the UK weren’t dragged in – or rather, thank George Soros (amongst others).

    • June 8, 2015 8:44 pm

      You are assuming that Goldman only sold these magical instruments to Greece. Since they were not done in the open, other European countries might have very well cooked their books this way. They were profitable for Goldman, so why wouldn’t the sell to other nations?

  25. June 9, 2015 9:44 pm

    Just heard your article quoted by Kieser Report on RT…couldn’t agree more! We must stop TPP: Treasonous Preparation for the Plummet https://kontempl8.wordpress.com/2015/06/08/tpp-treasonous-preparation-for-the-plummet/ … …

  26. Nick permalink
    June 11, 2015 9:00 am

    Very wrong analysis.
    The popular opinion wants a deal and wants to stay in Euro.
    Syriza promised something that it cannot deliver so its support is failing.

    EU has a right to ask for reforms and not for creation of a new enlarged public sector.

  27. Jon permalink
    June 30, 2015 9:08 am

    Antío, Elláda

Trackbacks

  1. The Daily Debt Rattle | StealthFlation
  2. QOTD: Alex Andreou on Syriza, Greece and the death-knell of austerity | Boots Theory
  3. Wall Street National | What Behavioral Finance Tells Us About The Greek Negotiations - Wall Street National
  4. Why the battle between Athens and Brussels matters to all of you | Mediaterranea

Leave a Reply

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

%d bloggers like this: