Prime Minister Alexis Tsipras will present a new Greek proposal to the Europeans today, but there are few reasons for hope.
The European Central Bank announced yesterday that it would not provide increased liquidity to Greek banks, insuring that they will remain closed and soon run out of euros. Germany’s functionaries announced there was no basis for a new deal. While Paris and Rome seem more willing to show flexibility, the Germans seem intent on driving Greece out of the euro. There is more talk about humanitarian aid to relieve the coming starvation than about debt relief or a program that might work. The economic quarantine of Greece will tighten rapidly, as its economy collapses.
This folly is by design. The euro was designed to remove monetary policy from the hands of elected officials. The fiscal agreements – never to exceed deficits of 3 percent GDP or debt of 60 percent GDP – were designed to put a straight jacket around elected governments. When recessions hit, governments have little choice but to enforce austerity – cut spending, slash pensions and wages, cut regulations on business, privatize state assets –in order to keep their “house in order.” The result is a creditors’ paradise and a human Hades.
Syriza in its pre-referendum proposals to the International Monetary Fund and the ECB – proposals deemed inadequate by the official creditors – included more austerity, new fire sales of state industries, an increase in the retirement age to 67 and more taxes, all to reach a primary surplus of 1 percent. There was no word of a write-down of debts, merely a call to kick the can down the road, delaying payments and extending maturity dates. Syriza’s own proposals condemned the country to continued misery. For the Troika – the IMF, the ECB and the European Commission – these were unacceptably mild. The beatings had to be more intense. And their position has not budged since the Greek people rejected their blatant effort to topple the Syriza government in the referendum.
The Troika’s program of austerity is admittedly an abject failure and a humanitarian disgrace. As Michael Nevradakis summarizes, under the Troika’s austerity dictates since 2011, the Greeks have seen annual salaries decline to half of German levels, and pensions have been cut eight times, with two-thirds of pensioners living below the poverty line. Greece’s airports, harbors, ports, prime real estate, even the national lottery have been auctioned off. Schools and hospitals have been closed, while those that remain lack even basic supplies. Widespread starvation has already returned. Half a million Greek children are now said to be malnourished. College graduates are fleeing the country, where one of the two is without work.
As Nevradakis notes, “This cruel ‘belt tightening,’ the Troika promised, would restore Greece’s economy by 2012 (and then 2013, 2014, and 2015).” In reality, unemployment went from a terrible 12.5 percent in 2010 to a horrendous 25.6 percent today. And now the Troika demands that the beatings continue.
The hardliners in Berlin apparently are ready to force Greece out of the Euro as an object lesson to all, leaving Germany with even greater control over its intimidated partners. Greece is less than 3 percent of the Eurozone economy. But the Germans are once more likely to make a historic miscalculation. They are helping to create a failed state in Europe, a humanitarian catastrophe for which they will be rightly seen as centrally responsible.
Weaker and indebted Euro partners like Spain and Italy will pay higher rates to carry their debt, even as they enforce impossible austerity regimes. Parties on the right like the neo-Nazi Golden Dawn in Greece will continue to rise, peddling nationalism, anti-immigrant, anti-Europe hatreds. If the Eurozone cannot deal with a small country like Greece, it will surely not be trusted to deal with the troubles in Spain and Italy and, increasingly, France.
The Merkel government seems intent on using the European Central Bank as the quiet assassin of Greek hopes. The ECB is slowly squeezing the Greek banks, forcing their closure, increasing panic. Without a dramatic change in course, Berlin and the ECB will drive Greece out of the Euro and into an even deeper human catastrophe. The Germans and Dutch will of course send food and medicine to demonstrate their generosity.
Democracy spoke in the Greek referendum, calling on Europe to offer new hope. To date, Europe refuses to listen. Greece will suffer, of course. But the Eurozone may find it hard to overcome this disgrace.
President Obama and the Treasury Department should be putting maximum pressure on our European allies and on the IMF to change course. Janet Yellen, chair of the Federal Reserve, should be warning her counterparts at the European Central Bank of the risks involved in forcing Greece out of the Euro. It may be too late to stop this fast-moving crackup, but it is not too late to try.