FacebookTwitterGoogle+RedditEmail

Bankers Crush Greek Democracy

by DEAN BAKER

Greek Prime Minister George Papandreou touched off a firestorm last week when he proposed putting the austerity package designed by the “troika” (the I.M.F, the European Central Bank and the European Union) up for a popular vote. The idea that the Greek people might directly be able to decide their future terrified leaders across Europe and around the world. Financial markets panicked, sending stocks plummeting and bond yields soaring.

However, by the end of the week things were back under control. The leaders of France and Germany apparently laid down the law to Papandreou and he backed off plans for the referendum. While the government is in the process of collapsing in Greece, the world can now rest assured that the Greek people will not have an opportunity to vote on their future.

This is unfortunate since it means that Greece’s future will likely be decided by politicians who may not have the interests of the Greek people foremost in their minds. By their own projections, the austerity package designed by the troika promises a decade of austerity, with high unemployment, falling real wages and sharp reductions in public services and pensions. And, their projections have consistently proven to be overly optimistic.

If given the opportunity would the Greek people endorse this sort of austerity package? The answer obviously depends on the alternative.

The alternative route almost certainly means a disorderly debt default and a departure from the euro. That is not a pretty picture. If Greece follows the path of Argentina, the last country to make a similar break, then the economy is likely to undergo a free fall for a period of time. The duration of this free fall will depend on how long it takes the government to get a new currency in use and construct some provisional formula for converting euro-denominated contracts into the new currency.

In Argentina this period was three months, with another three months of stagnation before the economy began a sustained boom. The process could be more difficult in Greece, both because it is tied in more extensively to the eurozone countries and also because Argentina at least had its own currency.

However, even in the case of Greece, such a break would not be impossible. There will be a desire to hold the new currency. The government just has to impose a new property tax that is only payable in the new currency.

People will want to hold onto ocean-front property in the Greek islands or at the foot of the Acropolis, so there will be demand for the currency. Also, the prospect of a tourist boom, once prices in Greece fall by 50 percent relative to Italy, Spain, and other popular destinations will go a long way toward supporting the Greek economy.

If the Greek people can convince themselves of a plausible alternative then they could make a few demands on the troika. First, they could say that 10 years of continuous austerity is not acceptable.

Yes, the Greeks had been reckless borrowers, but the European banks had also been reckless lenders. It is true that the Greek government had lied about its budget situation. However, the word among finance types is that everyone knew they were lying and went along with the joke. Goldman Sachs even designed a nifty swap that allowed it to profit from the lies.

Instead of austerity, the Greek people might insist that the ECB focus on a growth agenda. This would mean that the ECB would have to ditch its obsession with a 2 percent inflation target and start acting like a real central bank. The ECB could start by guaranteeing the debt of Italy and Spain, both of which risk a rising interest rate-default death spiral if there is not a credible guarantee behind their debt.

It might also start pushing more expansionary policies. It’s always hard to admit when you are wrong, but the ECB-IMF policy of growth through austerity is not working. Every month we get more proof of this fact with data showing that growth is lower than expected and unemployment is higher than expected. Is there any evidence that could get these people to change their minds before they destroy Europe’s economy? Maybe the Greek people could have forced the troika to actually look at the data.

There would have been other potential for fun in these negotiations. The Greek people, who have already been forced to accept a rise in their retirement age and lower pensions, may suggest the same for IMF economists. These hard-working types can often retire from their jobs in their early 50s. Instead of the meager Greek pensions of a few hundred euros a month that got the banker types so riled, the IMF crew can be pocketing close to $10,000 a month in their pensions. Maybe IMF pensions would have come up for debate if the Greek people actually had to be convinced that a bailout was in their own good.

But the chance to bring the Greek people into the discussion was quickly nixed. We are back to a conversation among the bankers and the politicians. There is not much room for democracy in this story, but we can still dream.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of False Profits: Recovering from the Bubble Economy . He also has a blog, ” Beat the Press ,” where he discusses the media’s coverage of economic issues.

This article was originally published by The Guardian.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:

CounterPunch Magazine

minimag-edit

August 29, 2016
Eric Draitser
Hillary and the Clinton Foundation: Exemplars of America’s Political Rot
Patrick Timmons
Dildos on Campus, Gun in the Library: the New York Times and the Texas Gun War
Jack Rasmus
Bernie Sanders ‘OR’ Revolution: a Statement or a Question?
Richard Moser
Strategic Choreography and Inside/Outside Organizers
Nigel Clarke
President Obama’s “Now Watch This Drive” Moment
Robert Fisk
Iraq’s Willing Executioners
Wahid Azal
The Banality of Evil and the Ivory Tower Masterminds of the 1953 Coup d’Etat in Iran
Farzana Versey
Romancing the Activist
Frances Madeson
Meet the Geronimos: Apache Leader’s Descendants Talk About Living With the Legacy
Nauman Sadiq
The War on Terror and the Carter Doctrine
Lawrence Wittner
Does the Democratic Party Have a Progressive Platform–and Does It Matter?
Marjorie Cohn
Death to the Death Penalty in California
Winslow Myers
Asking the Right Questions
Rivera Sun
The Sane Candidate: Which Representatives Will End the Endless Wars?
Linn Washington Jr.
Philadelphia District Attorney Hammered for Hypocrisy
Binoy Kampmark
Banning Burkinis: the Politics of Beachwear
Weekend Edition
August 26, 2016
Friday - Sunday
Louisa Willcox
The Unbearable Killing of Yellowstone’s Grizzlies: 2015 Shatters Records for Bear Deaths
Paul Buhle
In the Shadow of the CIA: Liberalism’s Big Embarrassing Moment
Rob Urie
Crisis and Opportunity
Charles Pierson
Wedding Crashers Who Kill
Richard Moser
What is the Inside/Outside Strategy?
Dirk Bezemer – Michael Hudson
Finance is Not the Economy
Jeffrey St. Clair
Roaming Charges: Bernie’s Used Cars
Margaret Kimberley
Hillary and Colin: the War Criminal Charade
Patrick Cockburn
Turkey’s Foray into Syria: a Gamble in a Very Dangerous Game
Ishmael Reed
Birther Tries to Flim Flam Blacks  
Brian Terrell
What Makes a Hate Group?
Andrew Levine
How Donald Trump Can Still be a Hero: Force the Guardians of the Duopoly to Open Up the Debates
Howard Lisnoff
Trouble in Political Paradise
Terry Tempest Williams
Will Our National Parks Survive the Next 100 Years?
Ben Debney
The Swimsuit that Overthrew the State
Ashley Smith
Anti-imperialism and the Syrian Revolution
Andrew Stewart
Did Gore Throw the 2000 Election?
Vincent Navarro
Is the Nation State and Its Welfare State Dead? a Critique of Varoufakis
John Wight
Syria’s Kurds and the Wages of Treachery
Lawrence Davidson
The New Anti-Semitism: the Case of Joy Karega
Mateo Pimentel
The Affordable Care Act: A Litmus Test for American Capitalism?
Roger Annis
In Northern Syria, Turkey Opens New Front in its War Against the Kurds
David Swanson
ABC Shifts Blame from US Wars to Doctors Without Borders
Norman Pollack
American Exceptionalism: A Pernicious Doctrine
Ralph Nader
Readers Think, Thinkers Read
Julia Morris
The Mythologies of the Nauruan Refugee Nation
George Wuerthner
Caving to Ranchers: the Misguided Decision to Kill the Profanity Wolf Pack
Ann Garrison
Unworthy Victims: Houthis and Hutus
Julian Vigo
Britain’s Slavery Legacy
FacebookTwitterGoogle+RedditEmail