Economics and politics - comment and analysis
21. April 2015 I Heiner Flassbeck I Economic Policy, Europe

The last act of the Greek drama begins

This is the (updated) translation of an article that was published April 7, 2015 on flassbeck-economics. We are publishing one article in English every week to allow more readers to follow closely our analysis of global and European events. However, translation is not free and we have to ask for a contribution from our English speaking readers also.

We have been confronted with a lack of basic clarity for many weeks now. Did the government in Athens produce a list of reforms or did it not? Is this list, if it exists, a final or a provisional one? Are the reforms that the Greeks propose acceptable, in part or as a whole, to the creditors or not? Does the list address the revindications of the ”institutions” sufficiently well or not? It is an uncanny situation. For weeks in a row, there has been a stream of news that is not clear, not complete or not trustworthy. Are the Greek government and the creditors trying to reach a ”compromise”? The only thing we know for sure is that so far no compromise has been reached. Nothing substantial has come out of the negotiations. The only thing that the Greek government managed to achieve – even in the German press – is the omission of the word ”troika.” This is ridiculous, of course, but it tells you about the willingness to compromise on the part of creditors. And, indeed, what a success for the Greek side!

The real question, which has to be to addressed, has, of course, nothing to do with word games. How to turn the Greek economy around so that it can finally start growing again? This is the question that the new Greek government wants to see on the agenda. But the progress has been absolutely nil. Even the contrary is true. The situation is getting worse day by day. The Greek state is running out of money and industrial production in the country, the most important indicator of economic development, which is already very low in Greece, is trending further downward.

What do the creditors want? Money, yes, but how do they expect the Greeks to pay? A budget is not a mere heap of numbers that one manipulates at will until, as by magic, the desired result appears. A budget is many things. It is also – and very importantly – an expression of the health of an economy and the state of a society at large. But the prospects for both the Greek economy and Greek society look extremely bleak. The situation is so volatile and so potentially chaotic that no one knows what to expect. This is one of the reasons for the lack of consumer confidence. People spend as little as possible, because they are fundamentally unsure about the future. On top of that there are millions of unemployed. Every time new bad news arrives, uncertainty increases further. No potential investors invest in such a climate. There simply is no reasonable anticipation of profitability. And so things go from bad to worse.

The nonsense one hears every day now about a possible ‘Graccident’ (some accident that would lead to Greece’s exit from the EMU) or a ‘Grexit’ (a Greek exit) also destabilises the situation further. One should actually no longer comment on it, but sudden and random accidents of a society as a whole do not exist. What does exist, however, are irresponsible political decisions bearing the full potential to initiate a chain reaction of chaotic events. An exit from the EMU without the constructive support from the EU by one single, small, already devastated country will inevitably lead to chaos, panic and, possibly, a failing state.

Sadly, a scenario leading to the eruption of panic and chaos is becoming increasingly likely, even without a Grexit. The blatant failures of the policies that are being pursued by the creditor countries, their refusal to compromise and to agree to a reorientation has taken on grotesque dimensions. The creditors go on to demand what they have always demanded, without any consideration of the question to what their policies have already led to. In the case of Greece, and the new Greek government that is not to their liking, the ”institutions” (formerly the ”troika”) committed themselves to actions that resemble a medieval castle siege. They are willing to virtually starve a country in order to get it to capitulate. Rumours about the time of the final Greek surrender are cooked up, including new data about the Greek ”bankruptcy” in the German media and elsewhere. It goes very far. I received requests from journalists weeks ago asking if I could be available during the weekend in order to comment on the final act.

The situation has become so bad that, apparently, no one notices any longer or does not seem to care that all this undignified quarrelling and morbid speculation is destroying people’s faith in democracy and in Europe. And this is the Troika’s fault. Why was it so impossible for the institutions to give the SYRIZA government the benefit of the doubt after the first general agreement was reached in late February? The new government could have given the opportunity to try to turn the Greek economy around, with the means it has, especially the good will of a great part of Greek society, and with a generous credit. But, clearly, this was completely out of the question – just imagine that the Greeks would succeed and that, in doing so, they would refute the policies of the Troika!

Instead, now it is just business as usual. The creditors assume, without any further ado or discussion, that they have to right to intervene into the economic and social policies of the crisis countries, that they have the right to dictate every detail for years to come. This very radical view has become axiomatic. One can find it everywhere. Thus, The Financial Times wrote about one of the Greek reform lists that: “Although the submission marks another effort by Athens to meet euro zone concerns, the measures fail to address several issues (…) bailout monitors have insisted on, including an overhaul of the Greek pension system and greater labour market liberalization.”

This makes complete sense to the creditors, but the debtors call it new colonialism. What do you think it is? Imagine the shamelessness and the audacity: the country that has increased its wage flexibility by more than any other country in Europe since 2010, is now being forced to liberalise its labour market! How more surreal can it get? To justify this madness, “experts” and “journalists” in particular in Germany assert, rather cheekily, one of two things: either Greece has made no progress in the last six years at all or the ”reforms” that Greece has to implement have shown to be beneficial in Spain and Portugal and are thus the right medicine. It is not even no longer important that none of this is true. This is the world we live in now. Whatever the powerful are saying is always right. Politicians turn to the media to say whatever they want and the media tell us that the politicians are right. Decent journalism and thoughtful analysis are no longer part of the democratic culture.

The uncompromising, cold, exercise of power against all reason has many fathers (and, in this case, mothers). Perception is crucial and old prejudices are coming to the fore again. In the view of many in Europe, and, one can suspect, certainly many of those who feel powerless, it is Germany, the European economic superpower, that is to blame. The era after the two world wars during the last century when wise politicians tried to create common ground and growth that benefited all is gone. Such wisdom can no longer be found in politics. Wise and prudent policy has been superseded by harsh economic dogma and primitive party politics that transcend national borders, as if this is the most natural thing. The institutions presume the existence of a naked, indisputable, right of the strongest to intervene in the policies of foreign countries, to dictate which policies have to be followed, how the economy should be reformed, how far privatisations have to go, how social welfare arrangements should be restructured, how the labour market should look like, yes, even which government coalitions should be formed – all of this in blatant disrespect for the results of free national elections. This is very worrisome. What is at stake in Europe is not only economic recovery. We reached the point where democracy itself is at stake. The will of the people is being made redundant and irrelevant by the institutions. This is very dangerous, because it awakens spirits that, once active, have the potency to once again catch Europe into their ugly claws.

Transl. W. Denayer