Europe's liberal illusions shatter as Greek tragedy plays on
Voters across Europe have got the message from the way in which Greece’s opposition to austerity was crushed
Larry Elliott Economics editor
Sunday 1 May 2016 11.46 BST
Greece is running out of money. The government in Athens is raiding the budgets of the health service and public utilities to pay salaries and pensions. Without fresh financial support it will struggle to make a debt payment due in July.
No, this is not a piece from the summer of 2015 reprinted by mistake. Greece, after a spell out of the limelight, is back. Another summer of threats, brinkmanship and all-night summits looms.
The problem is a relatively simple one. Greece is bridling at the unrealistic demands of the European commission and the International Monetary Fund to agree to fresh austerity measures when, as the IMF itself accepts, hospitals are running out of syringes and buses don’t run because of a lack of spare parts.
Athens has already pushed through a package of austerity measures worth €5.4bn (£4.23bn) as the price of receiving an €86bn bailout agreed at the culmination of last summer’s protracted crisis and expected the deal to be finalised last October.
Disbursements of the loan have been held up, however, because neither the commission or the IMF believe that Greece will make the promised savings. So they are demanding that Alexis Tsipras’s government legislate for additional “contingency measures” worth €3.6bn to be triggered in the event that Greece fails to meet its fiscal targets.
This is almost inevitable, given that the target is for the country to run a primary budget surplus of 3.5% of gross domestic product by 2018 and in every year thereafter. This means that once Greece’s debt payments are excluded, tax receipts have to exceed public spending by 3.5% of GDP. The exceptionally onerous terms are supposed to whittle away Greece’s debt mountain, currently just shy of 200% of GDP.
If this all sounds like Alice in Wonderland economics, then that’s because it is. Greece is being set budgetary targets that the IMF knows are unrealistic and is being set up to fail. It will then be punished further for being unable to do what was impossible in the first place.
Predictably enough, the government in Athens is not especially taken with this idea. It has described the idea as outlandish and unconstitutional, but is in a weak position because it desperately needs the bailout loan and threw away its only real bargaining chip last year by making it clear that it would stay in the single currency whatever the price.
So Tsipras is doing what he did last year. He is playing for time, hopeful that by hanging tough and threatening another summer of chaos he can force Europe’s leaders to offer him a better deal - less onerous deficit reduction measures coupled with a decent slug of debt relief. For the time being though, the matter is being handled by the eurozone’s finance ministers, who want their full pound of flesh.
The mood is especially unyielding in Germany, where Angela Merkel’s popularity has suffered as a result of her open door policy toward refugees. Faced with growing hostility, she has concluded that this is not the time to show any signs of weakness. She has sought to mollify German voters by giving her finance minister, Wolfgang Schäuble, a free hand to ratchet up his criticism of the stimulus policies Mario Draghi is pursuing at the European Central Bank, and by insisting that there should be no debt relief for Greece until Tsipras has done everything demanded of him.
Merkel must pray that the lid can be kept on Greece until after 23 June, because it is hard to see how a repeat of last summer’s argy-bargy would help keep Britain inside the EU - rather more important to Germany in the long term than a few billion euros of debt relief.
The reason is that David Cameron can only win his referendum by securing the votes of non-Conservative supporters, for some of whom the handling of Greece exemplifies everything that is wrong with the EU - its lack of democracy, hyper-conservative economic agenda and insistence that the single currency is a great success when in fact it has proved to be a colossal failure.
Greece received the first of its three bailouts six years ago, when the terms were negotiated in the weekend following Britain’s general election. Gordon Brown was on his way out, but the then chancellor Alistair Darling went to Brussels to discuss the deal with fellow EU finance ministers.
Since then, there have changes of government in all the big EU countries bar Germany, and most of the smaller ones as well. Voters showed their unhappiness by getting rid of the centre-right in France and the centre-left in Spain. They waved goodbye to Silvio Berlusconi in Italy and Mark Rutte in the Netherlands.
It has been all change at local level, but no change in Brussels and Frankfurt, where the officials responsible for the eurozone’s bone-headed policies carry on regardless. Voters across Europe have got the message from the way Greece’s opposition to austerity was crushed - you can vote for whoever you like, but it won’t make any difference.
The revolt against the status quo explains why Spain can’t form a government, the two parties that have dominated Irish politics since independence could barely muster more than 50% of the vote in the recent election, the runoff for president in Austria is between the greens and the far right and Marine Le Pen has support in France.
To be sure, this is not a phenomenon exclusive to the eurozone. There is marked hostility to the US political establishment, and it is clear that many voters in the UK simply do not believe the government’s warnings about the economic risks of Brexit.
The situation in the eurozone is worse, however, in part because the democratic deficit is so marked, in part because economic performance has been woeful and in part because there has been a dogged insistence on continuing with policies that have been both ineffective and unpopular.
As Dan Atkinson and I argue in our forthcoming book about the failure of the single currency,* Greece was the point where progressive illusions were shattered. Until last summer it was just about possible to believe in a cuddly European polity dedicated to higher living standards, full employment and more generous welfare states.
Then a gun was held to Greece’s head. Tsipras was faced with a choice. Ignore what the people want or see your banks go bust. This in a country which had seen the economy shrink by a quarter in five years. Difficult to spot what was awfully progressive about sucking spending power from an economy woefully short of demand. Then or now.
*Europe isn’t working, by Larry Elliott and Dan Atkinson, Yale University Press
domingo, 8 de maio de 2016
Greek MPs approve toughest austerity measures yet amid rioting / Europe's liberal illusions shatter as Greek tragedy plays on
Greek MPs approve toughest austerity measures yet amid rioting
Crucial meeting of euro zone finance ministers will be held on Monday amid backdrop of violence in Athens over cuts worth €5.4bn
Sunday 8 May 2016 20.21 BST
Greece’s leftist-led coalition will turn to the lightning rod issue of debt relief on Monday at a crucial meeting of euro zone finance ministers following the late-night approval in Athens of laws overhauling the country’s tax and pension system.
Amid violence on the streets and a three-day general strike that had brought much of the country to a halt, the embattled government pushed the legislation through parliament with the backing of its 153 MPS. Addressing the 300-seat House, prime minister Alexis Tsipras said: “We are determined to make Greece stand on its two feet at any cost.”
Rioters pelted police with stones while black-clad anarchists lobbed flaming Molotov cocktails, after Athens’s finance minister warned Greece could become a “failed state” if it was pushed too far.
The controversial bills, worth €5.4bn in budget savings, were seen as the toughest reforms the thrice bailed-out nation has been forced to enact since its debt crisis began. The once firebrand Tsipras called the vote in advance of tortuous bailout negotiations being concluded in a bid to placate euro zone finance ministers ahead of Monday’s meeting.
In an unprecedented step, lenders are expected to focus on the nation’s staggering debt load – at over 180% of GDP the largest in Europe with Athens keen to secure a pledge that a write-down is in the office.
But creditors are also demanding a new set of contingency measures to ensure the country achieves agreed stringent fiscal targets by 2018.
Public anger against Greece’s lenders is palpable. “Every day they destroy our country a little more,” said Vassilis Papadopoulos, a young waiter, of the international creditors keeping the debt-stricken nation afloat.
Riot police disperse protesters during clashes that broke during a protest against reforms to the tax and pension systems. Photograph: Orestis Panagiotou/EPA
“OK, I accept we have to change but, like this, that’s not fair. How can anyone survive on a national monthly pension of €384 (£303)? How can a state function when over 25% of its population is unemployed?”
Ahead of Monday’s eurogroup meeting meeting, finance minister Euclid Tskalotos warned darkly of the perils involved in demanding yet more cuts of a nation whose economy has shrunk by more than 25% in the six years since successive governments began slashing budgets in return for bailout aid.
“Nobody should believe that another Greek crisis, leading perhaps to another failed state in the region, could be beneficial to anyone,” he wrote in an unusually dramatic letter to his eurozone counterparts. “There is no way that such a package can be passed by the current government, or by any democratic government that I can imagine.”
For a time, it seemed, Greece’s economic woes had gone away. Eclipsed by Europe’s refugee crisis, terrorist attacks and the fears engendered by Britain’s forthcoming EU referendum, Athens’s debt drama appeared to disappear.
But policy-makers are discovering that may have been wishful thinking. The nation that last year came close to exiting the euro – triggering the continent’s biggest existential crisis in decades – is once again close to the brink.
Economists, politicians and investors all speak of uncertainty – an uncertainty reinforced by the wildly divergent views of creditors over how best to put the country back on its feet.
Demonstrator wearing a gas mask during the protests. Photograph: Angelos Tzortzinis/AFP/Getty Images
Central to that argument is Greece’s ability to achieve a primary surplus of 3.5% by 2018. The International Monetary Fund, which believes the surplus should be no higher than 1.5%, says substantial debt relief is the only way the country can recover economically. On Friday the fund’s managing director, Christine Lagarde, threatened to pull out of Greece’s rescue programme altogether if Brussels failed to yield. Athens has received more than €250bn in bailout funds in what has amounted to the biggest financial rescue programme in global history.
Germany’s hardline finance minister, Wolfgang Schäuble, fearing hefty losses on the loans Berlin and other eurozone members have made, has steadfastly ruled out debt forgiveness.
But Tsipras won unexpected support at the weekend from Germany’s vice-chancellor, Sigmar Gabriel. In a statement to Reuters, Sigmar, who is also the economy minister, insisted debt relief was now the only way of plucking Greece out of its seemingly endless economic death spiral. “The eurogroup meeting on Monday must find a way to break the vicious circle,” he wrote. “Everyone knows that this debt relief will have to come at some point. It makes no sense to shirk from that time and time again.”
The overhaul of the pension system – along with unpopular tax measures and an increase in VAT – form the central plank of a €5.4bn package of budget cuts and reforms that Tsipras has agreed to enact in exchange for rescue funds from a third, €86bn bailout the country signed up to last summer.
After nine months of wrangling over the latest austerity measures, the once firebrand Tsipras had hoped Sunday’s vote would unlock further funds.
In July Greece faces €3.5bn in debt repayments. Without bailout aid, once again it confronts the spectre of default and likely ejection from the single currency.
“We are, with a little less drama, back where we were last year,” noted Christos Memis, a veteran political commentator now in charge of news portal Protagon.gr.
“The prime minister and his aides are a little more mature, a little wiser. They like power and I think are determined to come to an agreement with Europeans but there are hurdles not least in Syriza,” he said of Tsipras’ radical left coalition party.
With the UK’s looming EU referendum, eurozone partners have made clear that bailout negotiations have to be wrapped up by the end of May or be put on hold until July when markets will once again be rattled by the prospect of a Greek default.
Speaking to the Guardian ahead of the vote, the culture minister Aristides Baltas, said the unpopular reforms would be enforced even if no one believed in them.
“Nobody in the government agrees with this agreement but we have signed it and have made a historical pledge to implement it,” said the French-trained philosopher who played a pivotal role in drawing up the ruling Syriza’s party’s founding programme. “We know it will be hard for Greeks.”