By Roberto Savio
ROME, Jun 9 2015 (IPS)

Only 50 years of Cold War (and the fact that German Chancellor Angela Merkel grew up in East Germany) can possibly explain the strange political power of the United States over Europe.

After a bilateral meeting between Merkel and U.S. President Barack Obama (so much for transparency and participation), the Jun. 7-8 G7 summit opened in Germany and we found out that there had been a trade-off.

Roberto Savio

Merkel agreed that Europe should continue the sanctions against Russia – and so the other members of the G7 duly agreed – and Obama toned down the U.S. position on Greece.

That position had been forcefully expressed by U.S. Treasury Secretary Jacob Lew a few days earlier to European leaders: solve the Greek problem, or this will have a global impact that we cannot afford. This had suddenly accelerated negotiations, with the hope then that everything would be solved before the G7 summit.

But Greece did not accept the plan of the President of the European Commission, Jean-Claude Juncker, which was suspiciously close to International Monetary Fund (IMF) positions.

At the G7 summit, Obama softened the U.S. position on Greece, and even said that “Athens must implement the necessary reforms.”

Obstinacy on sanctions against Russia ignores the fact that, in a very delicate economic moment, Europe has lost a considerable part of its exports because of Russia’s retaliatory block on European imports. It is also difficult to see what advantage there is for Europe in pushing Russia into the arms of China. We will soon be seeing joint naval exercise between the two countries, which will only escalate tensions.

But let us look at Greece given that its tug of war with Europe has now been going on for five years.

Let us recall briefly. Greece had been spending much more than it could by distributing public jobs under any government, by giving easy pensions to everyone, and so on. Then, in 2009, the centre-left Panhellenic Socialist Movement (PASOK) won the elections and we found out that the figures Athens had been giving Brussels were false.

The real deficit stood at almost 12.5 percent of gross domestic product (GDP), confirmation of what the European Union and its bodies had long suspected but which it had done nothing about.“Europe is now led by Germany and the Germans are convinced that what they did at home is valid everywhere. Together with the countries of northern Europe, they look on the people of southern Europe as unethical, people who want to enjoy life beyond their means”

To avoid going into the agonising details of the continuous negotiations between Greece and the European Union, I jump to the January elections this year which the left-wing Syriza party won and its leader Alexis Tsipras was named Prime Minister on a clear programme: stop the austerity programme imposed by the “Troika” – IMF, EU and the European Central Bank (ECB) – on behalf of the European countries, led by Germany, Netherlands, Austria and Finland.

Greece is on its knees. Officially, unemployment has gone from 11.9 percent in 2010 to 25.5 percent today, but it is widely considered to be around 30 percent. Among young people, it is close to 60 percent. GDP has gone into a 25 percent decline, Greek citizens have lost about 30 percent of their revenues and public spending has been slashed to the point that hospitals have great difficulty in functioning.

Yet, the request (order) of the “Troika” is simple – cut everything the deficit has been eliminated.

So, for example, cut pensions, which have been already been cut twice. In any case, this would reap a paltry 100 million euros but would cripple people who are living on less than 685 euro a month. Or, raise VAT on tourism, from the present 6.5 percent to 13.6 percent, which would be a deadly blow to Greece’s only important source of income.

This is the plan presented by Juncker, whose arrival as head of the European Commission was accompanied by a grandiose Marshall Plan for Europe, a plan which has since disappeared totally from the scene.

In an article a few days ago titled ‘Europe’s Last Act?”, Joseph E. Stiglitz, Nobel laureate in economics, argues that the idea of austerity as a uniform recipe for Europe is missing reality.

“The troika badly misjudged the macroeconomic effects of the program that they imposed. According to their published forecasts, they believed that, by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth. They also believed that the first debt restructuring would lead to debt sustainability.

“The troika’s forecasts have been wrong, and repeatedly so. And not by a little, but by an enormous amount. Greece’s voters were right to demand a change in course, and their government is right to refuse to sign on to a deeply flawed program.”

It is on austerity that the paths of the United States and the European Union divide.

The United States has embarked on investing for growth, despite pressure from the Republican party for austerity, and the U.S. economy is picking up again.

But Europe is now led by Germany and the Germans are convinced that what they did at home is valid everywhere. Together with the countries of northern Europe, they look on the people of southern Europe as unethical, people who want to enjoy life beyond their means. As The Economist put it in an article on the Greek crisis: “In German eyes this crisis is all about profligacy”.

It did not help that another very minor crisis – that of Cyprus between 2012 and 2013 – confirmed Germany’s view about the profligacy of the south of Europe. In the case of Cyprus, the “Troika” settled the crisis at a cost of 10 billion euros.

There is widespread agreement that the crisis of Greece, which represents just two percent of the total European budget, could have been settled at the beginning with a 50-60 billion euro loan. But only since Tsipras became prime minister, and with popular support started to refuse to accept the creditors’ plan, has Greece has become a very important issue.

There is now talk of a “Grexit”, or Greece’s exit from the European Union. This would have a cascade effect, and it would mean the end of Europe as a common dream, of a Europe based on solidarity and communality.

In the G7, Obama has insisted on investments and demand as a way out of the crisis. Merkel has again repeated that Europe does not need stimulus financed by debt, but stimulus coming from the reform of inefficient economies. At this point, perhaps “everything is always about something else”, as the late award-winning Sri Lankan journalist Tarzie Vittachi once told me.

An enlightening comment on the Greek situation has come from Hugo Dixon writing in The New York Times of Jun. 7. The Greek prime minister “will have to choose between saving his country and sticking to a bankrupt far-left ideology. If he is smart, he can secure a few more concessions from creditors and a goodish deal for Greece. If not, he will drag the country into the abyss.”

And then, it is interesting to note that one of the main reasons for being so hard with Syriza is that the citizens of Spain, Portugal and Ireland, who were the first to swallow the bitter pill of austerity, would revolt if they saw a different path for Greece, and it just happens that those countries have conservative governments.

The entire European political system reeled with shock at the victory of Syriza, and again a few days ago at the victories of the left-wing anti-establishment Podemos party in municipal elections in Spain.

For some reason, the very authoritarian and conservative government of Viktor Orbán in Hungary, the victory of the very conservative Andrzej Duda as president in Poland, as well as the rise of Matteo Salvini’s anti-European and anti-immigration Lega Nord party in Italy create no panic, not even if Salvini looks to Russian President Vladimir Putin and Marine Le Pen, leader of France’s right-wing Front National, as figures of reference.

So, the real issue now in the case of Greece is to punish an anti-establishment figure like Tsipras and show that the radical left cannot run a country.

Who really believes that there will masses of citizens in Madrid, Lisbon or Dublin taking to the streets to protest if Europe does a somersault of solidarity and idealism, and lowers its requests or dilutes them over more time? (END/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. 

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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. 

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The New York Stock Exchange, as seen from the boot of George Washington’s statue at Federal Hall. Credit: Dan Nguyen/CC-BY-2.0

By Shyam Saran
NEW DELHI, Jun 5 2013 (IPS)

The global economy is awash with successive waves of liquidity generated over the past few years by the four most advanced economies, viz., the United States, the European Union, (EU), Japan and the United Kingdom, known as the G4. This liquidity has taken the form of “quantitative easing” (QE).

When zero rates of interest have failed to stimulate their economies, these countries have resorted to large-scale asset purchases by their central banks, such as corporate bonds or mortgage backed securities, to pump more money into the banking system.

The aim is to extend credit to business and industry and encourage consumption.

In the immediate aftermath of the global financial and economic crisis in 2008, when there was a danger of financial collapse, both advanced as well as emerging economies adopted stimulus packages, to revive demand, maintain trade flows and avoid large-scale unemployment. During the crisis phase of 2008/09, QE played an important role in crisis management, helping advanced and emerging economies alike.

However, while emerging economies have weathered the crisis and seen a revival of growth, the G4 continue to experience economic stagnation, depressed markets and large-scale unemployment.

Their response has been to persist with even larger doses of QE as a means of propping up demand,encouraging banks to expand and boosting stock valuations.

Before the crisis, the U.S. held 700 to 800 billion dollars of Treasury notes. The current level is 2.054 trillion dollars. In the latest round, QE-3, the U.S. Federal Bank is committed to the purchase of 40 billion dollars of mortgage-backed securities per month as long as unemployment remains above 6.5 percent.

The European Central Bank (ECB) has pumped 489 billion euros of liquidity into the eurozone since the crisis, while in the United Kingdom QE has reached the level of 375 billion pounds.

Most recently, the Bank of Japan has decided to pump 1.4 trillion dollars in the next two years into its economy, aiming at a two-percent inflation rate by doubling the money supply.

The assets of the G4 central banks have expanded from a figure of 11-12 percent of their gross domestic product (GDP) to the current unprecedented level of 23 percent. These assets were 3.5 trillion dollars in 2007 before the crisis. They are now nine trillion dollars and rising. This is the scale of liquidity expansion we are dealing with.

Since interest rates in the G4 remain at zero and their economies remain stagnant, it is inevitable that there will be significant capital outflows to emerging and other developing economies, in quest of higher risk-adjusted returns.

According to one estimate, about 40 percent of the increase in the U.S. monetary base in the QE-1 phase leaked out in the form of increased gross capital outflows, while in the QE-2 phase, it may have been about one-third.

This massive and continuing surge of capital outflows to emerging and other developing economies is having a major impact. Corporations, which have a sound credit rating, are taking on more debt, and increasing their foreign exchange exposure, attracted by low borrowing costs.

Their vulnerability to future interest rate changes in the developed world and exchange rate volatility will increase. Such inflows put upward pressure on exchange rates, stimulate credit expansion, and cause inflationary pressures, which pose a major challenge to policy-makers in the developing world.

Most of the capital inflows are in the nature of portfolio investments, which are prone to sudden and volatile movement and puts emerging economies at greater risk. The volatility one has witnessed in the Indian stock market is a case in point. In general, we may conclude that the overall impact of these capital flows is expansionary and distortionary.

There has been considerable criticism of the G4’s unconventional monetary policies from the emerging economies, including the BRICS (Brazil, Russia, India, China and South Africa).

The magnitude of QE has had unintended consequences beyond the borders of the G4, especially because their currencies are not only fully convertible but, together, constitute the pillars of the global financial system.

The U.S. dollar is the world’s leading reserve currency, and the euro, the British pound and the Japanese yen together constitute the basket of currencies the International Monetary Fund (IMF) uses to value its Special Drawing Rights. Thus, the nature of the G4 currencies and their significant role in the global financial market ensures that QE undertaken by them has a global impact on economies across our globalised and interconnected world.

It is necessary, therefore, for the G4 to act with great responsibility and to work together with the emerging economies, to minimise the adverse effects of their QE policies. It would be particularly important to forge a consensus on how to handle the potential financial turmoil and disruption that may afflict developing economies once the QE is sought to be retired and interest rates once again become positive in the G4. The sudden and large-scale reversal of capital flows is a likely scenario that would need to be anticipated and managed.

The Asian financial crisis of 1997/98 was, in part, triggered by an earlier version of QE pursued by Japan in the aftermath of the bursting of its property and asset bubble in the early 1990s. Then, too, the large inflow of low-cost yen loans led to the asset price bubbles, inflationary pressures and currency instability in the Asian economies. They paid a heavy price in the bargain.

A larger, more pervasive crisis may await the emerging and developing economies unless there is a much more coordinated and careful handling of the risks that are already building up. The G20 should have this issue at the top of its agenda.

(END/COPYRIGHT IPS)

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Greeks protesting against austerity measures. Credit: Apostolis Fotiadis/IPS

By Mario Soares
LISBON, May 27 2013 (IPS)

The economic crisis began in the United States under the administration of then-President George W. Bush, following the collapse of the Lehman Brothers Bank. It came as a result of unregulated globalisation and a neoliberal ideology that places usurious markets, offshore bank accounts, and money for the sake of money, above state power. It is an ideology that ignores citizens, even as they starve.

At the time – between 2007 and 2009 – I wrote some books: “A Changing World”, “In Praise of Politics”, “Fighting for a Better World” and “Inside the Hurricane”, addressing in all of them my concerns about the risk of a neoliberal contagion of the euro and the European Union (EU) itself.

Mário Soares, former president and prime minister of Portugal. Credit: IPS

U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher championed these disastrous neoliberal politics – which were later continued by the pseudo-labourite Tony Blair – whose negative consequences are now evident to all.

In view of the profound links between Europe and the United States, the spread of U.S. neoliberalism to the EU and particularly to the eurozone was inevitable. When the EU crisis began, chancellor Angela Merkel already headed Germany. In spite of being a Lutheran, Merkel was also a former militant of the East German Communist Party. After the fall of the Berlin Wall she stood in opposition to the German reunification to which European states contributed.

As is well known, the first victim of the crisis was Greece, the cradle of our civilization and thus a country that deserved better treatment. It got the opposite.

The German chancellor, a longtime ally of ultra-conservative liberals, heeded market demands. The situation in Greece, where German banks occupied a privileged position, deteriorated until the country was able to pay the exorbitant sum demanded by the Troika, a body comprised of Greece’s major creditors: the European Central Bank (ECB), the International Monetary Fund (IMF) and the European Commission (EC).

In the meantime, in the absence of financial assistance, the so-called peripheral states of the eurozone plunged into crisis. Ireland, Portugal, Spain, Italy (Europe’s third largest economy) and Cyprus were followed by the recent and surprising Dutch collapse. France is the latest addition to the list.

It all boils down to the criminal policy of austerity imposed by Germany, the IMF, the European Commission under the presidency of Jose Manuel Durão Barroso and, with greater discretion, Mario Draghi’s European Central Bank.

It has become more than evident that austerity favours merely usurious markets and those behind them. Austerity obliterates states and their respective populations, not only in the so-called “peripheral”, southern states, as was recklessly claimed. Take a look at the Netherlands, France and Germany. The crisis was bound to hit Germany as many economists, including Nobel Prize-winners Joseph Stiglitz and Paul Krugman, had predicted.

Currently Germany is struggling due to a policy of austerity that has shrunk many of its markets in the European states, which account for 50 percent of its exports. If austerity is maintained, Germany itself will enter a recession.

European public opinion has understood both the necessity and urgency of a break not only with current policy, but also with a political class that has proven incompetent.

The current ruling parties within the EU are mostly ultra-conservative and incapable of grasping the critical situation. Truth be told, the parties that built the EU – the socialists, the social democrats, the Labourites, and the Christian democrats, are no longer in power.

The sole exceptions are France and now Italy, where President Giorgio Napolitano was re-elected in spite of his age, and where we find a new prime minister in the figure of Enrico Letta. Both Letta and French President Francois Hollande have openly declared their opposition to austerity and their intention to restore the role of states in controlling markets, and not the other way around.

Hence, the citizens of all European countries have vociferously expressed their opposition to Troikas, the markets, pseudo-politicians and those governments committed to austerity.

It should be noted that the welfare state (a product of the postwar era), democracy as we conceived it, as well as the rule of law are all being jeopardised, creating the need for a profound and immediate political shift.

We face a straightforward dilemma: either we fight against unemployment, widespread poverty, recession and in defense of the welfare state in its broader sense, or, if we wait too long, the EU will fall into the abyss.

And not only would it be tragic for the U.S. to lose its only faithful ally, but many nations of the world would suffer: China, Russia, Japan, Brazil, India, Mexico and so on.

I am hopeful this won’t be the case. The world surely does not wish the disappearance of the European Union, the most original political project of all times and the one that brought so many benefits to its peoples. Its collapse could open the door to a global conflict. Its demise would represent an unacceptable regression of civilization, one that would set us more than a century back. May common sense and courage prevail.

(END/COPYRIGHT IPS)

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