By William K. Black
April 17, 2016 Bloomington, MN
The old joke, that conveys a critical truth, is the poster that says “The daily floggings will continue until morale improves around here.” The troika misses the irony in the poster, for it thinks that the answer to the eurozone nightmare problems caused by austerity is more austerity. The latest example is three IMF stories that ran contemporaneously. The IMF, again, lowered global growth forecasts. Two, the IMF is calling for fiscal stimulus rather than austerity. Three, the eurozone wants to inflict more severe austerity on Greece, purportedly to make the IMF happy. If you sense a logical disconnect, you are right. Continue reading →
KCUR.org feature includes recorded interview with Randy Wray and others regarding the current crisis in the eurozone. Randy explains that some economists predicted the problems with the European Monetary Union with an explanation of sectoral balances.
I recently attended a panel discussion called by Bernie Sanders—and moderated by Stephanie Kelton—to discuss the crisis in Greece. The panelists were Joseph Stiglitz, Jacob Kirkegaard (of the Peterson Institute) and James Galbraith (who, it had been disclosed just a few days earlier, was part of a secret committee in Greece which evaluated how, and at what cost, an actual Greek exit from the Euro could be managed.)
Jacob Kirkegaard was game in acknowledging that he’d been invited to lend “diversity” to the discussion—and then proceeded, without even wearing a uniform, to give a highly credible impersonation of a six foot nine inch SS storm-trooper. Joseph Stiglitz was a charming rambler who punctuated each point he made with a bright smile—the more painful the point, the brighter the smile. James Galbraith punctuated his points with the very first word of each sentence, which came out as a kind of uncontrolled squawk quickly followed by an incisive and original intelligence that I found truly mesmerizing. (I’d never before seen or heard any of these people.)
Pavlina Tcherneva discusses Greece’s Bailout with Richard Aldous on American Interest. You can listen here. She describes a deal that seems to contain more austerity than was initially proposed, and calls some of its economic incentives perverse. She discusses why the economic situation in Greece today is in some ways worse than was America’s Great Depression, and compares the decision to bail out Greece to Ireland’s austerity experience.
It is often the moral and economic blindness of New York Times articles about the EU crisis that is most striking. The newest entry in this field is entitled “Now Europe Must Decide Whether to Make an Example of Greece.” That is a chilling phrase most associated in our popular culture with a Consigliere and his Don deciding whether to order a mob “hit.” It is, therefore, fitting (albeit over the top) as a criticism of the troika’s economic, political, and propaganda war against the Greek people. Except that the article is actually another salvo in that war.
Let’s start with the obvious – except to the NYT. “Europe” isn’t “decid[ing]” anything. The troika is making the decisions. More precisely, it is the CEOs of the elite German corporations and banks that direct the troika’s policies that are making the decisions. The troika simply implements those decisions. The troika consists of the ECB, the IMF, and the European Commission. None of these three entities represents “Europe.” None of them will hold a democratic referendum of the peoples of “Europe” to determine policies. Indeed, they are apoplectic that the Greek government dared to ask the people of Greece through a democratic process whether to give in to the troika’s latest efforts to extort the Greek government to inflict ever more destructive and economically illiterate malpractice on the Greek people.
If you want to know why economic policy has gone insane in the UK you simply have to read the work of the BBC’s “Economics editor,” Robert Peston. I showed one example of his failed effort to terrify the Greeks into voting “Yes” in favor of continuing the self-destructive policies that have forced Greece into worse-than-Great Depression levels of unemployment in my most recent column. Peston argued that the Greeks had to submit to the troika’s demands that it make these policies even more economically illiterate and self-destructive because the troika would otherwise ensure that Greece’s economy was “utterly crippled.” As you know, the EU stands for “ever closer union.”
The people of Greece have just shown great courage, and even greater common sense, in voting “No” in overwhelming numbers against the troika’s war on the Greek people and labor throughout the EU. In recent days we have seen the spectacle of the major media shamelessly lying globally about the referendum and the Greek government – cheered on by the troika. The troika openly sought to depose a second Greek head of state for the high crime of favoring a democratic vote on the troika’s economic malpractice and effort to extort the Greek people by threatening to destroy their economy. The tone and content of the propaganda were extraordinary – and reversed reality.
The BBC came up with a good “hook” for a story on the troika’s assault on the Greek economy and people. “Yanis Varoufakis, the Greek finance minister, spent his academic career … studying game theory.” Professor Marcus Miller, a UK economist (U. Warwick) wrote an article for the BBC premised on how Varoufakis would apply game theory to Greece’s negotiations with the troika (the IMF, ECB, and the European Commission). Miller is a colleague of the great Robert Skidelsky and has co-authored with him an article explaining the economic illiteracy and self-destructive nature of the troika’s (and UK’s) infliction of austerity in response to the Great Recession.
The BBC, however, is such a great fan of austerity that one rarely reads why the vast majority of economists think that using austerity to respond to a Great Recession is akin to the quackery of bleeding a patient to make him healthier. Miller’s article in the BBC about game theory has the wrong title (recall that the author often does not get to choose the title), the wrong game, the wrong concept, and the wrong payoffs. The title of the article is: “Can game theory explain the Greek debt crisis?” The article does address that issue. It is limited to the issue of the new Greek government’s negotiations with the troika concerning a crisis that they inherited.
“There are red lines in the sand that will not be crossed,” Greek Prime Minister Alexis Tsipras said just weeks ago as he began the long negotiations process with creditors.
Some of these lines included no more pension cuts or value-added tax (VAT) increases, and a debt restructuring deal that incorporates renewed economic assistance from Europe. Tsipras has been working to complete the previous government’s austerity commitments, without any guarantee of a meaningful debt reprieve in the future.
Crafted by the Greeks, an agreement seemed close at hand, but was nevertheless rejected by the International Monetary Fund and Greece’s euro partners at the European Commission and European Central Bank. The fiscal tightening that is currently being discussed is on the order of 2 to 3 percent of gross domestic product (GDP), comparable to that at the peak of the crisis in 2010.