By Fernando J. Cardim de Carvalho
RIO DE JANEIRO, Dec 30 2015 (IPS)

As 2015 approaches its end, Brazilians live a period of extraordinary uncertainty. The recession seems to get worse by the day. Inflation is high and shows unexpected resistance to tight monetary policies applied by the Central Bank. The sluggish international economy has largely neutralized incentive and the strong devaluation of the domestic currency could represent a reality to exporters and to producers who compete with now more expensive imports. After an initial resistance, employment levels began to fall.

Fernando J. Cardim de Carvalho

Any subset of that list of events would be enough to generate widespread instability. All of them put together created a hitherto unheard of situation of political and economic crisis of which one has to make extraordinary efforts to see any way out.

Impeachment procedures against the president did not come out of the blue. The revelation of the Petrobras scandal has brewed rumors and suspicions, if not against the president herself, certainly against many of those who surround, or have surrounded, her (she is a former minister of energy in Lula’s government and a former chairman of the administration council of Petrobras.) So far, however, no accusations or evidence emerged against Rousseff. In fact, she does not even seem to be a major target of investigators, who seem to be zeroing in on Lula (and his immediate family.) The piece of accusation justifying the opening of impeachment proceedings relies on the use of accounting artifices to violate the constraints on public expenditure imposed by the Fiscal Responsibility Act, which a majority of opinion makers seem to consider too weak a case to sustain an impeachment. What makes the whole process more menacing is in fact her acute political fragility. Rousseff is universally seen as Lula’s creation, but never really relinquished his power over the party and the coalition it led.

Soon after Rousseff was reelected in November 2014, she announced a radical change of orientation in her administration’s economic policies. Austerity policies, cutting expenditures and raising taxes, seemed to be unavoidable in the face of the increased federal expenditure made to ensure her victory in the presidential elections.

The incumbent president repeatedly stated during the campaign that she rejected those policies, only to announce their implementation a few days after the result of the popular vote became known. Despite the apparent support of Lula, the change in orientation was badly received by the official Workers Party (PT), which grudgingly announced support for her, but conditioning it to a change in macroeconomic policies.

The party seemed to ignore the fact that during 2014, the increase in fiscal deficits failed to have any expansionary impact on the economy, which did not grow at all. The perception that the president had no political support of her own, however, stimulated her adversaries to aggressively advance proposals for her impeachment, based on whatever reason one could find, or the annulment of the election itself, or if nothing else worked, to force her to resign. With an aggressive opposition and unable to count on a supporting political base, the government was paralyzed for the whole year.

No relevant austerity measure has obtained Congress’ approval. Despite the effort of leftist parties to blame the pro-austerity Finance Minister Joaquim Levy for the contraction of the economy, it is impossible to ignore the fact that the failed attempts to get the proposed policies approved by Congress just made explicit the lack of political power that characterized Rousseff’s position. The impasse created by the inexistence of an effective government in the face of an aggressive opposition led decision-makers to postpone any but the most immediate decisions. Investment has fallen, workers have been fired in increasing numbers, consumption has been negatively impacted, etc.

The political crisis has transformed an expected recession into something that threatens to become a major depression, both in depth and duration. The situation is made more difficult by the difficulty to visualize any sustainable solution for the crises in the mediate horizon, let alone the coming months. If the impeachment process prospers, one could expect for sure increased political instability as a result, on the one hand, of attempts by PT and the social movements that are close to it to react somehow, and, on the other, by the fact that there is no organized opposition ready to take the place of the current administration. If the impeachment initiative is defeated, the problem remains that the president does not have any vision or power and it is overwhelmingly difficult to imagine how she could recover enough initiative to last the three remaining years of her term in office.

Paraphrasing the late historian Eric Hobsbawn, who observed that the Twentieth Century had been very short (beginning in 1914 and ending in 1991), 2015 may be a long year for Brazilians. The incompressible minimal duration of an impeachment process will take it to 2016, when the social situation may be more tense than it is now, with high inflation and increasing unemployment. If a national agreement of some sort, be it in terms of allowing Rousseff’s government to work or by removing it altogether, is not reached to avoid the worse, 2015 can last even longer. The country may dive into an unknown abyss of a combination of economic, political and social crises of which it is hard to see how, when and in what conditions it will recover.

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Greek PM Antonis Samaras greets European Commission President José Manuel Barroso in Athens for the ceremony marking Greece's assumption of the rotating EU presidency. Credit: Apostolis Fotiadis/IPS

By Apostolis Fotiadis
ATHENS, Jan 8 2014 (IPS)

The start of Greece’s six-month presidency of the EU was marked by a ceremony Wednesday in the Greek capital attended by the EU commissioners. But protests were banned and there was no in-depth talk about the raging controversy over the bloc’s handling of the Greek debt crisis and the renewed concerns about the vitality of the Eurozone.

In May 2010, the Eurozone countries and the International Monetary Fund (IMF) agreed on a 110 billion euro bailout for Greece, conditional on compliance with severe fiscal consolidation, privatisations and economic reforms to bolster competitiveness. A second bailout of 130 billion euro with a debt restructure followed in February 2012, with additional austerity measures.

The recipe soon mutated into a scorched earth policy. Greece entered its seventh year of recession in 2014, with unemployment hitting a historical high of 28 percent and youth unemployment surpassing 65 percent – up from seven percent when the austerity measures began to be implemented.

In June 2013, the IMF – part of the so-called troika of international creditors overseeing implementation of the austerity policies in Greece, along with the European Commission and European Central Bank – admitted mistakes in handling the Greek debt crisis.

Deregulation of the labour market, severe taxation of the labour force and reforms of the health sector have cut so deeply through the social fabric that many are wondering whether austerity has caused a humanitarian crisis in Greece.

In 2012, nearly one million of the country’s 11.3 million people were living below the poverty line, according to the Greek Finance Ministry. Among them, more than 65,000 were surviving on less than three euros (four dollars) a day, while 102,000 people earned incomes ranging between 1,000 euros (1,358 dollars) and 2,000 euros (2,716 dollars) a year.

According to Greece’s statistics agency, by late 2012, austerity measures had shrunk the labour market by 20.8 percent – 870,000 jobs were lost since 2009 – and had taken more than 40 percent of the labour force out of the national insurance system.

Lee Buchheit, a globally acknowledged legal expert involved in the debt restructure accompanying the second bailout for Greece, told IPS that the Eurozone debt crisis is not over yet.

“It is worth remembering that with the single exception of Greek PSI [private sector involvement], not a single euro of the debt of the afflicted countries [Ireland, Portugal, Spain and Greece] has been written off. Each of those countries will be emerging from their bailout programmes carrying debt loads far heavier than when they entered the programmes.”

What has changed, Buchheit says, is the identity of the lenders. “The original private sector bondholders have been paid back in full and on time through new borrowings from official sector sources [the EU and IMF]. So the taxpayers of the debtor countries remain entirely on the hook for the repayment of those debts; they will just be paying them to a different set of creditors.”

Changing the identity of the creditor does not solve the debt problem, he said. “A sustainable solution would require either a reduction in the size of the debt loads or significant growth in the economy of the debtor countries, or both. Unfortunately, neither of those things has yet happened in the Eurozone periphery.”

But instead of considering a change of course to stimulus economics, European – most notably German – leaders are refusing to accept the failure of austerity. On the contrary, they have speculated that any extra help for Greece will come in the form of another bailout package.

Economist Philippe Legrain resigned last month from the Bureau of European Policy Advisers, an advisory body to the president of the European Commission. A week after his resignation he delivered a speech in Athens blaming European leaders for postponing an inevitable default at great social cost.

“I think Greece cannot pay back its debts in full. So the questions are not whether Greece’s debts will be written down, but when and how,” he told IPS in an email interview. “As of now, I think it will happen little by little and that it will take the form of lower interest rates and longer repayment terms rather than writing down the principal of the debt, to preserve the fiction that the debt is being repaid in full.”

Despite increasing concerns about society imploding, the Greek government insists on its optimistic scenario that foresees a return of the country to positive growth rates in 2014. The Finance Ministry has repeatedly reassured that Greece will mark a 0.6 percent primary surplus and will successfully return to the credit markets by the end of 2014.

Its optimism has been met with disbelief. The Organisation for Economic Cooperation and Development’s (OECD) forecast of a 0.4 percent contraction contrasts with the Greek government’s projection of 0.6 percent growth this year. The European Commission has predicted a Greek return to the markets in 2015.

In a scathing editorial this week, Germany’s Der Spiegel magazine described Greek Prime Minister Antonis Samaras as “out of touch with reality.”

Meanwhile, Samaras’ coalition government, expected to face a huge protest vote in the European elections next May, has no alternative but to carry on with a painful reform of Greece’s primary care sector, suspending 1,000 doctors and 8,000 administrative jobs, many of which will eventually be lost. This will make up the bulk of the 15,000 jobs the Greek government has to suspend in 2014, under its austerity obligations.

The reform will transform the biggest insurance fund in the country from a service provider to a purchaser in the private health market, with many accusing the government that the real aim is not the creation of a more effective system but the indirect privatisation of primary care which will exclude hundreds of thousands from any kind of medical coverage.

“Austerity politics are a mistake,” says cardiologist George Vichas, the spirit behind a major parallel grassroots health structure, the Metropolitan Community Clinic at Helliniko, that has treated 20,000 uninsured people in its 23 months of existence.

“But those who implemented them have not made a mistake. These results are exactly what they aimed at and what they believe in. They have experimented on Greece the last four years, but now the first signs of health sector deregulation have started appearing in Britain, France and Italy. This is Europe’s future.”

By Supachai Panitchpakdi
GENEVA, Jul 9 2013 (IPS)

Almost five years have passed since the global financial crisis, and the world economy is still reeling from its consequences. The main reason for this is the continued stagnation in developed countries, which is adversely affecting economic dynamism in other regions.

Supachai Panitchpakdi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD)

Indeed, growth in the advanced economies is likely to slow down from 1.2 percent in 2012 to only 0.8 percent in 2013. If developed countries remain unable to revive their economies, there is a risk that this mediocre pace of growth may yet turn into a global recession.

At this juncture, we therefore face a dual challenge: first, we must urgently take measures to restore stable and sustained growth in the world economy, so as to truly overcome the crisis. Second, and perhaps even more importantly, we must ensure that such a devastating financial crisis cannot recur. This will require making significant reforms to global economic governance, far beyond what has been achieved so far.

Slow growth in the advanced economies and thus in the world economy is partly the natural consequence of a credit crunch and sharply reduced demand in the aftermath of a crisis. However, in many countries, these effects are being exacerbated by severe austerity policies.

Despite years of unprecedented monetary expansions in the United States, Europe and, more recently, Japan, banking credit provided to the private sector has stagnated, or even decreased. The problem is not the supply of money, but aggregate demand.

Desperately needed are measures to support demand. And yet, austerity policies are contracting demand by raising taxes and reducing expenditure, just when such expenditure would be most required. In this way, several countries that have adopted austerity policies have now been pushed into a double-dip recession.

In addition, since these austerity programmes hamper growth – and, consequently, public revenues – they do not achieve their target of fiscal consolidation either.

It is therefore time to reassess the merits of the current policy approach.

The second key challenge is to prevent a recurrence of the crisis. The financial meltdown at the heart of the financial system has reminded us of a lesson we should already have learnt after the Asian Financial crisis (1997-1998), namely that deregulated financial markets do not allocate resources efficiently and are prone to herd-behaviour and crises.

Nevertheless, after the initial flurry of measures to bail out banks and companies in need of liquidity, enthusiasm to address the wider systemic origins of the crisis quickly faded.

At the national level, there have been efforts to strengthen regulation of the financial sector in the U.S. But at the global level, reforms have been limited to a slight revision of the Basel Capital Adequacy accord, as well as a number of measures to address tax havens. It is not clear whether these measures could have prevented the financial crisis, had they been in place in 2007. And yet, even these minor steps are beginning to be rolled back.

More importantly, the reforms have not addressed the more fundamental problems of our global financial architecture. The current system based on deregulated capital markets and floating exchange rates has not prevented prolonged misalignments of exchange rates, or the build-up of large current account imbalances. It has also failed to avert the disorderly expansion of short-term capital movements, which are a major factor of economic instability.

In order to address these issues, much bolder reforms will be required. The United Nations Conference on Trade and Development (UNCTAD) has long argued that international monetary and financial relations should be governed by rules similar to those currently governing the use of trade policy measures in the World Trade Organisation (World Trade Organisation).

In a world where tariffs and international trade are increasingly governed by a set of rules to prevent “beggar-thy-neighbour” policies and foster trade liberalisation, it is incomprehensible that similar rules do not exist for the global financial system. And this is despite the fact that even small realignments of exchange rates can wipe out any gains from trade liberalisation, or that exchange rate crises have repeatedly shown themselves to have devastating effects.

A multilateral system of rules could ensure that exchange rates better reflect long-run fundamentals, and credibly prevent the build-up of imbalances.

Similarly, there is a need to rein in the large volumes of speculative capital flows. Such unregulated capital flows generate a risk not only in the recipient country, but also in the source economy, where the solvency of banks may be undermined by their exposure to asset bubbles in foreign countries.

Financial supervision should therefore be applied at both ends of capital movements. Already, the International Monetary Fund (IMF) has recently changed its position on the use of capital controls under certain circumstances. However, a multilateral arrangement (such as the “Tobin tax”) would probably be more effective.

It is clear that truly preventing future financial crisis will require an overhaul of the current system tantamount to a new Bretton Woods. Any such system must, of course, give greater voice to developing nations than they have so far enjoyed in the international financial institutions.

(END/COPYRIGHT IPS)

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