By Guillermo Medina
MADRID, Mar 4 2015 (IPS)

At last, on Tuesday Feb. 24, the Eurogroup (of eurozone finance ministers) approved the Greek government’s commitment to a programme of reforms in return for extending the country’s bailout deal.

The agreement marks the end of tense and protracted negotiations. It consists of a four-month extension for the second bailout programme worth 130 billion euros (over 145 billion dollars), in force since 2012 and which was due to expire on Feb. 28. The first bailout was for 110 billion euros, equivalent to 123 billion dollars.

Guillermo Medina

During this period, the European Central Bank (ECB) will provide Greece with liquidity and the terms of a new bailout will be hammered out.

The eleventh-hour agreement was no doubt motivated partly by fears that a “Grexit” – Greek withdrawal from the eurozone monetary union – would have triggered a financial earthquake with unforeseeable consequences. The result is a very European-style compromise that averts catastrophe and gains time while avoiding facing the underlying problems.

In exchange for an extension of financial support from Greece’s partners and creditors, Prime Minister Alexis Tsipras will have to submit all his government’s measures during this period to Eurogroup inspection.

But the deal promises Greece more than just restrictions. The country will have to pay its debts to the last euro, but if, as seems probable, deadlines for primary surplus targets are extended, the country will have greater ability to pay (France has just secured this for itself).

In the final document, Greece promised to adopt a tax reform that would make the system fairer and more progressive, as well as reinforce the fight against corruption and tax evasion and reduce administrative spending.“Germany has undeniably secured its basic goal: the enshrining of austerity as the fundamental dogma of the new European economic order, although political prudence and even self-interest have softened the application of the dogma, and may continue to do so in future”

If the government pursues these goals, together with the fight against contraband, efficiently and with determination (as indeed it should, because they are part of its programme and target its domestic enemies), the income will be helpful for the application of its social and economic programmes.

In view of the successive positions that Greece has had to relinquish in the course of the negotiations, it appears that the country has achieved the little that could be achieved.

The negotiations between Greece and its European partners mark a milestone in the political tussle in the European Union since the reunification of Germany in 1990, between moving towards a Europeanised Germany or a Germanised Europe.

Germany has undeniably secured its basic goal: the enshrining of austerity as the fundamental dogma of the new European economic order, although political prudence and even self-interest have softened the application of the dogma, and may continue to do so in future.

Germany has openly tried to impose its convictions and its hegemony on Europe. Greece was only the immediate battlefield. Brussels and Berlin have been divided from the outset about how to solve the Greek crisis, but Germany prevailed.

However, the masters of Europe do not have any interest in “destroying” Greece, and so cutting off their nose to spite their face. They are satisfied with a demonstration of the asymmetry of power between the two sides, and the public contemplation of assured failure for whoever defies the status quo and supports any policy that deviates from the one true official line.

The problem with a Germanised Europe is not the preponderant role that Germany would play, but that it would impose a “Made in Germany” model of Europe that conforms to its own interests. That is how it would differ from a Europeanised Germany.

The Greek crisis has highlighted the ever-widening contrast between the values and ideals that we consider to be central to the European project, such as solidarity, mutual aid and social justice, and the new values that set aside basic aims like full employment, social welfare and equal opportunities.

It is paradoxical that Europe, which is apparently absent from or baffled by threats from the opposite shore of the Mediterranean, should take a harsh, tough attitude with a small partner overwhelmed by debt. It is also paradoxical that structural reforms are demanded of Greece, without admitting Europe’s own urgent need to redesign the eurozone and reframe the policies that have led to the poor performance of its monetary union.

The Greek crisis and the difficulties in overcoming it have a great deal to do with a design of the euro that benefits financial interests, particularly Germany’s.

The project neglected the harmonisation of tax policies and created a European Central Bank that lacked the powers that permit the U.S. Federal Reserve and the Bank of England to issue money and buy state debt.

As is well known, the ECB has made loans to European banks at very low interest rates, and they in turn have made loans to states, including Greece, at much higher interest. Government debts thus mounted up, and in order to pay they were forced to cut public spending.

Why does Europe persist in following failed policies while refusing to follow those that have lifted the United States out of recession? The only explanation is stubborn attachment to an ideological vision of economic policy that is devoid of pragmatism.

How can insistence on the path of error be explained at such a time? There may well be a quota of incompetence, but the basic reason is, as Nobel prize-winners Joseph Stiglitz and Paul Krugman affirm, that the goal of the policies imposed by the “Troika” (European Commission, ECB and International Monetary Fund) is to protect the interests of financial capital. And this is because the powers of political institutions, the media and academia, are dominated by financial capital, with German financial capital at the core.

Financial interests are essentially capable of shaping the decisions of European governance institutions. In the United States this subservience is less clear-cut, allowing hefty penalties to be imposed on certain banks, as well as the development of other economic strategies.

This is because independent mechanisms of control and oversight exist, the Federal Reserve has well-defined goals (whereas the ECB has spent years fighting the insistent threat of inflation), and there is democratic administration with the political will to resist.

In conclusion: the issue is to clarify what sort of Europe the citizens of Europe want, and what institutional changes are needed to achieve it.

And even more importantly, having seen the consecration of German hegemony over the Old World, what sort of German leadership would be compatible with a united Europe based on solidarity? Is this even possible? (END/IPS COLUMNIST SERVICE)

Translated by Valerie Dee/Edited by Phil Harris    

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

By Guillermo Medina
MADRID, Dec 22 2014 (IPS)

Political and institutional corruption has become the main concern of Spanish citizens after unemployment and the dramatic social consequences of the economic crisis, according to opinion polls.

The systemic nature of corruption – recognised by most analysts but denied by Prime Minister Mariano Rajoy of the right-wing People’s Party (PP) – is coinciding exasperatingly with the impoverishment of most of society and the enrichment of a few of its members, leading to a rejection of current politics and institutions that verges on social rebellion.

In the 2011 municipal elections, 39 percent of candidates under investigation for corruption throughout Spain were re-elected, according to a report by the Politico analytical group. Some notoriously corrupt officials even claimed that the “favourable judgment of the electorate” was a kind of absolution.“The systemic nature of corruption is coinciding exasperatingly with the impoverishment of most of society and the enrichment of a few of its members, leading to a rejection of current politics and institutions that verges on social rebellion”

But indifference towards corruption was transformed into intolerance when the crisis arrived and scandals began to emerge.

In October 2004, a poll by the Centre for Sociological Research (CIS) found that only 0.6 percent of respondents mentioned corruption among their main concerns; by October 2014, according to the same source, 42.3 percent were naming it as their second-highest concern.

Citizens have now made a direct connection between corruption and the crisis, profligacy, unemployment, impoverishment, inequality and a political style. Irritated and provoked by their observation of the obscene ostentation and impunity of the corrupt, many have reached the conclusion that it will not be possible to eradicate corruption without profound change.

In the view of many Spanish citizens, corruption has its origins in a model of party politics that reduces democracy to a mere mechanism for deciding – every four years – which party will occupy the seats of power, with no substantial change for the people.

The meteoric rise of Podemos (“We Can”), the movement and political party proposing radical change, is therefore not surprising. Founded in January this year, Podemos secured 25 percent of voter intentions in a survey published on Dec. 7 by the newspaper ‘El País’.

Due to deficiencies in the electoral law and certain flaws in their original make-up, the other parties have thwarted the wishes of the electorate and have created a crisis of representation.

Frequently, lax laws, long criminal proceedings, short statutes of limitations and the most varied tricks of judicial ingenuity conspire to grant impunity to conduct that is harmful to the common interest and causes public scandals.

No wonder Carlos Lesmes, president of the General Council of the Judiciary, said recently: “We have a criminal system devised to penalise the petty thief, but not the large fraudster; it does not work in cases such as we are seeing now, in which there is so much corruption.”

People today are aware of the relationship between politics and corruption. One of the most pernicious effects of this omnipresent phenomenon is that it monopolises and conditions political debate, weakening institutions like Congress and the government itself, which should be focusing their attention on solving the country’s crucial problems.

Politics are deadlocked. Accords have become unviable because the country is divided by two contrary and reactive forces, between those who are enraged at the “caste” and are seeking a radical alternative, and those who are frightened by what they rightly consider to be a threat to their interests and prioritise attacking their rivals, while trying to convince us that they are fighting corruption.

At this point, the corruption and disrepute of the political class has resulted not only in the growth of Podemos, but is perceived as a curse even by the business community, which sees it as a hindrance to economic recovery.

A survey among the 500 participants at the recent National Congress of Family Business awarded only 1.08 out of 9 points to the political situation. Last year the result was 1.66 out of 9.

Democracy does not create corrupt people, but corrupt people end up corrupting democracy, and then corruption becomes a structural, systemic problem. Multiple abscesses turn into gangrene and after that, ending corruption means cleansing the entire system.

Fighting corruption is only possible in the broader context of political and institutional regeneration. So it seems to those who demand regeneration, and because they feel that the established parties are lacking in political will, they state their intention to vote for Podemos.

The anti-corruption measures proposed so far by the government are uninspiring and lack depth because they do not make the necessary connection between corruption and political regeneration. The opposition Spanish Socialist Workers’ Party (PSOE) goes further than the PP although its proposals are also inadequate and somewhat vague.

It is impossible to fight corruption effectively without reforming the bipartisan model, introducing internal democracy and carrying out a thorough reform of the system of justice to guarantee the independence of the judiciary, as judges and magistrates are demanding.

Political corruption goes hand-in-hand with the exercise of power, whether in Andalusia (PSOE), Catalonia (Convergence and Union), Valencia (PP) or Spain as a whole (PP). Therefore the existence of regulatory institutions, a real separation of powers, and free and independent media are essential for combating it.

Even if it is accepted that ending poverty and unemployment is more important than regeneration, I do not see how the former can be achieved without the latter.

The idea that the economic crisis has generated a political crisis is widespread, but the reverse is equally true, so we are up against the question of which came first, the chicken or the egg.

For a time, the Spanish government has tried to face the economic crisis, leaving aside the political crisis, with dire consequences. Unfortunately the Prime Minister does not take this view and believes instead that the long-heralded economic recovery will be the panacea for all ills. The results are clear for all to see. (END/IPS COLUMNIST SERVICE)

(Edited by Phil Harris)

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

The nationalisation of Bankia, the fourth largest Spanish bank, and its parent company BFA, caused an uproar and focussed attention on the failure of the financial reforms passed by the government of Mariano Rajoy last February 3. The insufficiency of these reforms combined with investors’ lack of confidence and the requirements of the European Central Bank (ECB) and the European Union (EU) forced the government on May 11 to decide on a new reform package intended to “definitively” provide solvency and credibility to the national financial system.

The measures adopted require banks to boost provisioning levels and would provide for support using public funds if necessary. They also require the segregation of toxic holdings in real estate firms (surrogates for the “bad banks”). However, even despite the explicit backing of the ECB and EU, there are doubts that the latest steps go far enough.

The nationalisation of BFA-Bankia on May 9 and the new reforms have unleashed a storm of accusations and blame. The ruling Popular Party (PP) and the opposition Socialist Spanish Workers Party (PSOE) accuse each other of using public funds to save the banks, although the reality is that neither is free from blame. No government could simply stand by as a major bank collapsed: the systemic risk involved could spread and bring down the entire system.

The previous socialist government of Jose Luis Rodriguez Zapatero devoted massive amounts of public funds to help troubled banks. And he did this with the support of the PP, then in the opposition. Similarly, the PSOE backed the Rajoy administration’s financial reform in February.

As for BFA-Bankia, the entire government blamed the disastrous lack of vigilance by the Bank of Spain, which had approved its books months earlier. However, oversight was managed and controlled by the PP since 1998. Its last president, Rodrigo Rato, ex-vice president and ex-economic minister in the administrations of Jose Maria Aznar and ex-director-general of the International Monetary Fund (IMF), was forced to resign.

The underlying factor is the failure of the February 3 reform package, given that its main goal, the clean-up of the financial sector, has not been achieved. Not only has it failed to restore the banks to its role as a provider of credit, it has further eroded the confidence of the markets, the EU, and the IMF. The result is that the problems of the financial sector, mainly a matter of real estate holdings, is now the primary and most urgent obstacle to exiting the crisis.

The government’s strategy in February consisted of requiring banks to devote 50 billion euros to clean-up themselves and at the same time to merge “sick” institutions with those that were more solvent. Segregating the most toxic real estate assets in a “bad bank” was rejected because of the unpopularity of such a move. The political cost of using public funds for such a solution would have been extremely high.

But the intervention was too slow, complex, and inefficient. The quantity mentioned was clearly insufficient because the banks’ valuation of bad real estate assets was higher than the market value. This is what happened with Bankia and its parent company.

Nonetheless, the government continued to say that it was satisfied with the reforms. On April 7, the minister of the economy, Luis De Guindos, stated that Spain could lift itself out of the crisis “without foreign assistance” -as if the low-interest liquidity from the ECB wasn’t exactly that.

The economic chiefs “sold” the notion that the drop in the risk premium was due to the effects of the austerity measures, when in reality this change would have been the result of the liquidity provided by the ECB since December in the form of long-term, low-interest credit.

Spanish banks simply devoured these funds. However, the ECB soon recognised the danger that this “all you can eat” liquidity could anaesthetise the banking sector, dampen efforts to clean itself up, and implement reforms in countries accessing it. So the ECB said it was closing the tap. Experts then predicted that when this happened, the countries that had failed to carry out deep restructuring of the financial system would be hit hard. This seems to be what we are now seeing.

Finally it became clear that new reform was needed to ward off imminent disaster, though it was planned in a confused manner as all blamed the “mess inherited” and the Bank of Spain.

On May 11, the council of ministers took its hardest decision yet. Recapitalising the bank with public funds was a hard sell given the growing difficulty of financing the state and regions and the social hardship caused by budget cuts, even it was cast as an emergency intervention.

The reform requires banks to segregate their toxic property assets in real estate companies and boost provisions on losses revealed in audits by an independent entity with international credibility. Provisioning will be required even on non-problematic assets. The government is requiring banks to come up with 28 billion additional euros to cover real estate risk and is offering 15 billion in convertible bonds at 10 percent interest to entities that cannot obtain credit on the market (which is probable) and need help to comply with the new requirements. These measures would cover 45 percent of the 304 billion euros connected to real estate.

The new plan, which has the explicit backing of the EU and the ECB, raises numerous doubts. Details like how these real estate companies will be financed remain to be worked out. And it could well be that the 15 billion euros that the government considers to be the “maximum necessary” will not be enough to cover the new valuations. Moreover, the requirement for provisions against healthy assets will create fragility throughout the financial system, which in many cases will have to reduce dividends. The public supports the idea but stakeholders are selling. It should be borne in mind that banks are already suffering the negative effects on business in its entirety.

The new reform may seem like a big step forward but the proof is in the pudding. Will it be, like the last phase of reforms, insufficient? (END/COPYRIGHT IPS)

* Guillermo Medina, a journalist and writer, is ex-director of the newspaper “YA”, ex-deputy, and ex-president of the Defence
Commission of the Spanish Congress.

The governing Popular Party (PP) is making it clear that it knows how to dominate the communications game and seize the initiative. In the opposition during the previous government it convinced a majority of voters that Spain’s problem was President Rodriguez Zapatero and that if their candidate Mariano Rajoy won, the end of the crisis would begin. He was presented as “change” itself, the mythical balm of Fierabras prepared by Don Quixote, a generator of hope that never laid out specifics or even promised more than he would he able to achieve.

Once in power, the PP used the 2011 budget gap (which turned out to be 8 percent of GDP instead of the projected 6 percent) to justify “the change of change” and raise taxes -though this increase had been widely viewed as inevitable and was mainly caused by bad management of the Autonomous Communities and the onset of the recession. Since then the PP government, far from downplaying the gravity of the problem, has done the opposite, stating that “the numbers are terrifying”, that unemployment “will not improve in the short term but grow even more severe in 2012” (Rajoy, 8 February), and that exiting the crisis will be very difficult and take a long time.

The intention of the government is clear: the worse the people’s view of the situation, the more resigned they will be to accept reforms without resisting -first and foremost “hard and deep” labour reform. Moreover, if Rajoy scares the daylights out of people at the beginning of his term, the blame will fall on the pervious government.

Thus far this strategy has proved effective in preventing what otherwise might have been a plunge in support for the government. This is what the polls show, including the last conducted by the Centro de Investigaciones Sociologicas (CIS), which indicates just a tiny drop in popular support.

The negative side of this strategy, for everyone, is that it works against the chances for a recovery. In effect, a resigned, conformist, and above all frightened society (there is more and more written on the use of fear as a tool for social manipulation) will be more likely to accept the reforms the government wants. It is possible this will even render a general strike unviable in this period. But pessimism will certainly not create the right climate to spur business to start hiring and the people to start spending.

The government may succumb to the temptation to replace the “welfare state” with the “necessity state”, reducing state action to the minimum allowed by the current dire situation and a government shrunk by the exigencies of the crisis. Thus necessity will be used to explain and justify everything, from the replacement of legitimately-elected governments with a team of technocrats to the subordination of the welfare state to opportunistic political manoeuvres. The crisis will impose as the established paradigm of the profitability of public services and policies, which opens the door to their reduction and ultimately their privatisation. And so the crisis, which had been seen as an opportunity to improve and advance all of society, together, has been transformed into an excuse for the advancement of a few and the regression of many in a society that is more and more unequal.

First in the opposition and now in the government, the PP has maintained its unshakeable loyalty to the real components of the welfare state. One would expect no less, given that it is the “party of the workers” (Maria Dolores de Cospedal, PP general secretary). But there are too many signs that what may begin as a “restructuring of the welfare state to make it viable” will end up, because of the reductionist and technocratic view of the current crisis, in drastic downsizing.

The idea that necessity -and the necessity state- is here to stay is being drilled into the public consciousness and used to the advantage of a government that doesn’t even try to hide its impotence in the face of the crisis and in fact renounces policymaking to please the nebulous entity we call the markets. Far from rebelling against the hegemony of the markets, the PP is using their power as a mantle to cover their own ineptitude and errors. And if some protest that this is degrading to democracy itself, the PP pulls out another of its weapons: the argument that we are all guilty of causing the current crisis by living beyond our means, thus shifting responsibility from the few who in fact caused the current crisis to the society at large.

In the medium term what will the social and political consequences of all this be? Will the state of necessity give rise to a state of resignation? I have heard it stated that the government has carte blanche to complete its project -including its unstated goals- without fearing a significant social backlash. This may be the case today, but it would be a mistake to confuse resignation with inhibition, and conformism with support. Resignation is never a permanent psychological state; rather it tends to incubate rebellion. Especially when, confused by the small degree of social protest, the government, citing fiscal pressure, deactivates the systems of social cohesion and solidarity that assure peace in times of crisis. It should not be forgotten that the welfare state, even tempered by adverse conditions, is not merely a social necessity -or a “leftist” notion- but a necessary element for the balanced operation of the system and the economic progress of European social democracies since the end of the Second World War. (END/COPYRIGHT IPS)

(*) Guillermo Medina, a journalist and writer, is ex-director of the newspaper “YA” , ex-deputy, and ex-president of the Defence Commission of the Spanish Congress.