Greece joins Spain and Portugal in protesting austerity measures

SMH
Liz Alderman
Niki Kisantonis

Up in flames ... burning firebombs form a backdrop to a
riot officer during a demonstration in Athens on Wednesday.

After a period of relative calm, European markets shuddered once again as protests erupted across Greece and demonstrators surrounded the Spanish parliament for a second day to protest against the austerity program of the Prime Minister, Mariano Rajoy.

Greek riot police clashed with hundreds of hooded youths hurling petrol bombs on Wednesday, as tens of thousands of striking workers rallied against a latest round of austerity measures in Athens.

On Tuesday in Spain tens of thousands of demonstrators besieged the parliament over the austerity measures. Last week more than half a million people marched in cities across Portugal to protest against an increase in social security contributions, and a million marched in Barcelona calling for Catalan independence.

The Greek clashes took place after more than 50,000 people marched to parliament demanding the government ignore the latest demands of the country's creditors for additional cuts to salaries, pensions and benefits. Riot police fired tear-gas and pepper spray against demonstrators who used marble stones and bottles as weapons and set fire to garbage bins and portable kiosks in central Syntagma Square.

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One group could be seen setting fire to trees in the National Gardens, causing flames and black smoke to fill the skies above the parliament.

The nationwide strike, called by the country's two biggest private and public sector unions, is the first such action since the country's conservative-led coalition government was formed in June.

The 24-hour walkout affected schools, pharmacists, customs workers, ports and government offices. Museums and major archaeological sites turned tourists away. Shops were closed and ferry services suspended. More than a dozen domestic and international flights were cancelled or rescheduled after air traffic controllers called a three-hour stoppage. Petrol stations remained shut for most of the day and hospitals operated on emergency staff as doctors joined the strike.

Among the strikers was Babis Vasiliadis, a hotel chef who was recently left unemployed. He said: ''This is not just about having a decent job and making enough money to feed your family - it is about the right of every citizen to live a decent life.''

Marching nearby, 58-year-old pensioner Stavroula Zervea, said she no longer can survive after her pension was slashed by more than a third. ''I suspect it will only get worse - but the question is how much more tax hikes can the Greek people handle?'' she said.

Hours before demonstrators hit the streets, the Prime Minister, Antonis Samaras, and his Finance Minister, Yannis Stournaras, reportedly hammered out a deal on the $15 billion package of spending cuts, along with a further $2.6 billion in taxes, demanded by the country's international lenders, the European Commission, the European Central Bank and the International Monetary Fund.

The bulk of the cuts will affect wages, pensions and welfare benefits, putting renewed pressure on the country, which is in the fifth year of recession and has seen unemployment soar to more than 24 per cent.

Germany Rejects Obama's Criticism in Euro Crisis

Der Spiegel

In a sign of tensions between Berlin and Washington, German Finance Minister Wolfgang Schäuble said on Sunday that President Barack Obama should focus on cutting America's own budget deficit before advising Europe on how to tackle its debt problems. 

German Finance Minister Wolfgang Schäuble rebuffed recent criticism of Germany's handling of the euro crisis from Barack Obama, telling the US president to get his own house in order before giving advice.

"Herr Obama should above all deal with the reduction of the American deficit. That is higher than that in the euro zone," he told German public broadcaster ZDF on Sunday night. It is easy to give advice to others, he added, 

Obama, worried about the impact of the debt crisis on the global economy and financial markets -- and on his own prospects for re-election --has been urging Europe to step up its efforts to tackle the problem.

In the interview, Schäuble also reiterated his opposition to euro bonds, saying countries must remain individually liable for their public debt as long as they were taking sovereign decisions on how the money was being spent.

"If you spend the money from my account, you won't be frugal with the money," said the finance minister. He added that he was against devoting large sums of money -- for example from the European Central Bank -- to fight the crisis. The roots of the crisis needed to be fought credibly, he said, adding that that was succeeding in Ireland and Portugal, which have both received international bailouts. "It's not succeeding so well in Greece,"he added.

Schäuble said a new structure needed to be found for the single currency, and that reforms could come quickly. He added that credible decisions could be taken at the next EU summit on Thursday and Friday when proposals for deeper integration will be presented. 

One of the decisive questions at the summit would be how much power the member states should transfer to Brussels. In an interview with SPIEGEL published on Monday, Schäuble said he could imagine that Germany will soon have to hold a referendum on a new constitution enshrining greater EU sovereignty.

"I don't know when that will happen, and I doubt anyone does," he told SPIEGEL. "But I assume that it'll happen sooner than I would have thought a few months ago."

cro -- with wire reports

The European Stabilization Mechanism, Or How Goldman Sachs Captured Europe

Global Research
Ellen Brown

The Goldman Sachs coup that failed in America has nearly succeeded in Europe—a permanent, irrevocable, unchallengeable bailout for the banks underwritten by the taxpayers. 

In September 2008, Henry Paulson, former CEO of Goldman Sachs, managed to extort a $700 billion bank bailout from Congress.  But to pull it off, he had to fall on his knees and threaten the collapse of the entire global financial system and the imposition of martial law; and the bailout was a one-time affair.  Paulson’s plea for a permanent bailout fund—the Troubled Asset Relief Program or TARP—was opposed by Congress and ultimately rejected.

By December 2011, European Central Bank president Mario Draghi, former vice president of Goldman Sachs Europe, was able to approve a 500 billion Euro bailout for European banks without asking anyone’s permission.  And in January 2012, a permanent rescue funding program called the European Stability Mechanism (ESM) was passed in the dead of night with barely even a mention in the press.  The ESM imposes an open-ended debt on EU member governments, putting taxpayers  on the hook for whatever the ESM’s Eurocrat overseers demand.

The bankers’ coup has triumphed in Europe seemingly without a fight.  The ESM is cheered by Eurozone governments, their creditors, and “the market” alike, because it means investors will keep buying sovereign debt.  All is sacrificed to the demands of the creditors, because where else can the money be had to float the crippling debts of the Eurozone governments?

There is another alternative to debt slavery to the banks.  But first, a closer look at the nefarious underbelly of the ESM and Goldman’s silent takeover of the ECB . . . .

The Dark Side of the ESM

The ESM is a permanent rescue facility slated to replace the temporary European Financial Stability Facility and European Financial Stabilization Mechanism as soon as Member States representing 90% of the capital commitments have ratified it, something that is expected to happen in July 2012.  A December 2011 youtube video titled “The shocking truth of the pending EU collapse!”, originally posted in German, gives such a revealing look at the ESM that it is worth quoting here at length.  It states:

The EU is planning a new treaty called the European Stability Mechanism, or ESM:  a treaty of debt. . . . The authorized capital stock shall be 700 billion euros.  Question: why 700 billion?  [Probable answer: it simply mimicked the $700 billion the U.S. Congress bought into in 2008.] . . . .

A Fistful of Euros

Daily Bell
Ron Paul

This week, my congressional committee will hold a hearing to examine how the Federal Reserve bails out European banks, propping up spendthrift European governments in the process. Unfortunately, this bailout comes at the expense of American citizens, in the form of higher prices and diminished savings down the road.

A good analysis of the Fed's "swap" scheme first appeared in the Wall Street Journal back in December, in an article by Gerald O'Driscoll entitled, "The Federal Reserve's Covert Bailout of Europe." Essentially, beginning late last year the Fed provided US dollars to the European Central Bank in exchange for Euros − sometimes as much as $100 billion at a time. The ECB then funneled those dollars to European banks to provide liquidity and prevent crises from bank insolvencies. Since the currency swap was not technically a loan, the Fed did not have to embarrass itself by openly showing foreign bank debt on its balance sheet. The ECB meanwhile did not have to print new euros and expose the true fragility of big European banks.

The entire purpose of this unholy arrangement was to obscure the truth: namely that the Fed was bailing out Europe with US dollars.

But why is it the business of the Federal Reserve to bail out European banks that find themselves short of dollars to pay their dollar-denominated contracts? After all, those contracts often were hedges taken to protect banks against weakness of the euro. Hedges are supposed to reduce risk, but banks that miscalculate should suffer their own losses accordingly. It's not our business if the ECB chooses to create moral hazards by providing liquidity to European banks, but why should the Fed prop up Europe's bad decisions!

The Fed has promised to provide unlimited amounts of dollars to the ECB, should circumstances require it. It boggles the mind. Of course, when Fed officials first entered into these swap agreements with the ECB last September, they did so quietly. The American public only found out via websites of the ECB, the Bank of England, or the Swiss Central Bank.

There is an Alternative to Neoliberal Monetary Austerity

Global Research
Michael Hudson

Eurozone

I have just returned from Rimini, Italy, where I experienced one of the most amazing spectacles of my academic life. Four of us associated with the University of Missouri at Kansas City (UMKC) were invited to lecture for three days on Modern Monetary Theory (MMT) and explain why Europe is in such monetary trouble today – and to show that there is an alternative, that the enforced austerity for the 99% and vast wealth grab by the 1% is not a force of nature.

Stephanie Kelton (incoming UMKC Economics Dept. chair and editor of its economic blog, New Economic Perspectives), criminologist and law professor Bill Black, investment banker Marshall Auerback and me (along with a French economist, Alain Parguez) stepped into the basketball auditorium on Friday night. We walked down, and down, and further down the central aisle, past a packed audience reported at over 2,100. It was like entering the Oscars as People called out our first names. Some told us they had read all of our economics blogs. Stephanie joked that now she understood how the Beatles felt. There was prolonged applause – all for an intellectual rather than a physical sporting event.

With one difference, of course: Our adversaries were not there. There was much press, but the prevailing Euro-technocrats (the bank lobbyists who determine European economic policy) hoped that the less discussion of possible alternatives to austerity, the easier it would be to force their brutal financial grab through.

All the audience members had contributed to raise the funds to fly us over from the United States (and from France for Professor Alain Parguez), and treat us to Federico Fellini’s Grand Hotel on the Rimini beach. The conference was organized by reporter Paolo Barnard, who had studied MMT with Randall Wray and realized that there was plenty of demand in Italian mass culture for a discussion of what actually was determining the living conditions of Europe. His aim was to show that the emerging financial elite hopes to use this crisis as their opportunity to carve out personal fiefdoms by privatizing the public domain of the governments they have seduced, bribed or coerced into unnecessary debt. Instead of using a central bank to finance their deficits, governments are told to dump these assets under distress conditions at fire sale prices. So governments end up beholden to bondholders and Eurocrats drawn from neoliberal ranks.

Paolo and his enormous support staff of translators and interns provided us an opportunity to give an approach to monetary and tax theory and policy that until recently was almost unheard of in the United States. Just one week earlier the Washington Post published a review of MMT (followed by a long discussion in the Financial Times . But the theory remains grounded primarily at the UMKC’s economics department and the Levy Institute at Bard College, with which most of us are associated.

The basic thrust of our argument is that just as commercial banks now create credit electronically on their computer keyboards (creating a bank account credit for borrowers in exchange for their signing an IOU at interest), so governments can create their own money. They can reclaim this proper function without incurring needless interest-bearing debt to private bondholders or from banks that create credit by electronic fiat. Government computer keyboards can provide nearly free credit creation to finance spending.

Once the money is created by government, the crucial difference is that governments spend it (at least in principle) to promote long-term growth and employment, invest in public infrastructure, research and development, provide health care and other basic economic functions. Banks have a more short-term time frame and narrowly self-interested motivation. Some 80% of their loans are mortgages against real estate. Banks lend against collateral in place, and the economy’s largest assets are land and buildings. Although banks loans also are used to finance leveraged buyouts and corporate takeovers, most new fixed capital investment by corporations is financed out of retained earnings, not bank credit.

And contrary to popular belief, the stock market has ceased to be a source of such financing. Textbook diagrams still depict it as raising money for new capital investment. Unfortunately, it has been turned into a vehicle to buy out companies on credit (e.g., with high interest junk bonds), replacing equity with debt (“taking a company private” from its stockholders). Inasmuch as interest payments are tax-deductible – on the pretense that they are a necessary cost of doing business – corporate income-tax payments are lowered. And what the tax collector relinquishes is available to be paid out to the bankers and bondholders who get rich by loading the economy down with debt.

The upshot is that the flow of corporate earnings is not used for productive investment, but is diverted to the financial sector – not only to pay interest and penalties to banks, but for stock buybacks intended to support stock prices and hence the value of stock options that managers of today’s financialized companies give themselves.

Welcome to the post-industrial economy, financial style. Industrial capitalism has passed through a series of stages of finance capitalism, from Pension-Fund capitalism via Globalized Dollarization and the Bubble Economy to the Negative Equity stage, foreclosure time, debt deflation, and austerity – and now what looks like debt peonage in Europe, above all for the PIIGS: Portugal, Ireland, Italy, Greece and Spain. (The Baltic countries of Latvia, Estonia and Lithuania have been plunged so deeply into debt that their populations are emigrating to find work and flee debt-burdened real estate. The same has plagued Iceland since its bank rip-offs collapsed in 2008.)

Hundreds of Thousands Rally in Portugal Against Austerity

Sign of the Times

Hundreds of thousands protested in Portugal Saturday against austerity measures ahead of next week's talks with international creditors, with unions vowing to keep up the pressure.

Officials from the so-called Troika -- the European Union, European Central Bank and the International Monetary Fund -- will next week evaluate progress on the country's bailout programme.

Demonstrators arrived in Lisbon from across the country in the rally described as one of the country's biggest in three decades.

Many were brandishing banners such as "The struggle continues" and "No to exploitation, no to inequality, no to impoverishment."

The CGTP union which called the march estimated 300,000 people took part, while police would not give any figures, in line with their usual practice.

"We are convinced that it is one of the biggest demonstrations in the last 30 years," said Armenio Carlos, general secretary of the CGTP, in a speech at the end of the protest in the landmark Praca do Comercio (Commerce Square).

He launched sharp attacks against the bailout conditions, calling them "a programme of aggression against workers and against the national interest."

"Austerity did not create wealth. The country needs the rope around its neck to be removed so that it can breathe, live and work," the unionist said, calling for a revision to the minimum wage of 485 euros gross.

"Net salary is at 432 euros, while the poverty line is at 434 euros, and that concerns currently ... 400,000 workers" in Portugal, he said.

Trader on the BBC says Eurozone Market will crash

World powers seek to contain Europe debt crisis

ArabNews
Gabriele Steinhauser

Saudi Arabia's Finance Minister Ibrahim Al-Assaf, center, attends the International
Monetary and Financial Committee (IMFC) meeting during the annual IMF-World Bank
meetings in Washington on Saturday.

WASHINGTON: Under pressure from skeptical financial markets, the world's economic powers scrambled on Saturday for ways to keep Europe's debt crisis from spiraling out of control.

The continent's financial woes grabbed the attention of the policy-setting committees of the 187-nation International Monetary Fund and the World Bank during the lending institutions' annual meetings.
Treasury Secretary Timothy Geithner told the IMF panel that the European debt crisis posed the most serious threat to the global economy and that failure to take bold action raised the risk of domino-style defaults by heavily indebted European countries.

He said the European Central Bank should try to ensure that governments pursuing sound reforms could get loans at affordable rates and that European banks have access to the capital they need to operate. The ECB is the central bank for the 17 nations that use the euro as a common currency.
Global financial markets plunged last week on fears of a possible default within weeks by Greece on its government debt and on worries a default would cause runs on major European banks with heavy exposure to Athens' debt.

"The threat of cascading default, bank runs and catastrophic risk must be taken off the table. Otherwise, it will undermine all other efforts, both within Europe and globally," Geithner said. "Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets even more severe."

Geithner was one of a number of finance leaders demanding forceful action.

Mark Carney, the head of Canada's central bank, called for "overwhelming" the problem with a big increase in Europe's rescue fund for heavily indebted countries.

In an interview with CBC radio, Carney suggested that a European financial stability fund should be increased from 440 billion euros to 1 trillion euros. At current exchange rates, that would be the equivalent of expanding a $590 billion fund to $1.35 trillion.

"You need a big pot of money," he said.
 
For Christine Lagarde, who took over as head of the IMF in June, the debt crisis has been a tough first test. Lagarde has warned that without strong and collective action, the world's major economies risk slipping back into recession.

To avoid that, finance officials of the Group of 20 major economies pledged on Thursday to "take all necessary actions to preserve the stability of banking systems and financial markets."
But private economists have questioned whether the plan goes far enough to deal with market concerns that a Greek default is a virtual certainty.

German Finance Minister Wolfgang Schaeuble said a second bailout package for Greece may have to be re-evaluated because of Athens' problems in fulfilling earlier financial promises.

This re-evaluation could include changing the terms of the voluntary contribution from banks and other private investors to Greece's rescue, two European officials said.

One of the officials said that Germany and other rich euro zone nations, including the Netherlands and Austria, are now pushing for an "orderly default" by Greece. That would entail losses for investors that go beyond the 21 percent cut in the face value of government bonds foreseen under the voluntary contribution. The officials spoke on condition of anonymity because of the sensitivity of the issue.
The comments underline how confidence is eroding among core euro zone countries over whether they can actually save Greece. The Greek debt is close to 160 percent of its gross domestic product and its economy looks set for a fourth straight year of recession.

Stock markets in Europe and the US recouped some of their previous day's hefty losses Friday, but investors remained skeptical about whether the world's leading economies can keep the global economy from going over the cliff.

Despite the modest gains Friday, the worries are piling up for investors. The Federal Reserve warned this week that the American economy is in significant difficulty, while there were several downbeat European and Asian economic indicators.

Sung Won Sohn, an economics professor at California State University's Martin Smith School of Business said the great concern is that if Greece doesn't make further painful cuts in government spending and ends up defaulting on its debt, the shock waves will rock big banks in Europe.
He said this would cause fearful investors to sell bonds of other heavily indebted countries such as Italy and Spain, countries with much bigger economies.

"The fear in markets is that the problem will spread to bigger economies such as Spain and Italy. Europe would not have the resources to handle a crisis of that magnitude," Sohn said.
The finance officials at the Washington meeting said they believed that the 17 nations that use the common euro currency were getting the message they needed to move more quickly to reform their surveillance procedures and increase economic support.

Titanic Battle or Insider Trading? The S&P Downgrade and the Bilderbergers: All Part of the Plan?

Global Research
Ellen Brown

What just happened in the stock market?

Last week, the Dow Jones Industrial Average rose or fell by at least 400 points for four straight days, a stock market first.

The worst drop was on Monday, 8-8-11, when the Dow plunged 624 points. Monday was the first day of trading after US Treasury bonds were downgraded from AAA to AA+ by Standard and Poor’s.

But the roller coaster actually began on Tuesday, 8-2-11, the day after the last-minute deal to raise the U.S. debt ceiling -- a deal that was supposed to avoid the downgrade that happened anyway five days later.  The Dow changed directions for eight consecutive trading sessions after that, another first. 

The volatility was unprecedented, leaving analysts at a loss to explain it. High frequency program trading no doubt added to the wild swings, but why the daily reversals?  Why didn’t the market head down and just keep going, as it did in September 2008?

The plunge on 8-8-11 was the worst since 2008 and the sixth largest stock market crash ever. According to Der Spiegel, one of the most widely read periodicals in Europe:

Many economists have been pointing out that last week's panic resembled the fear that swept financial markets after the collapse of US investment bank Lehman Brothers in September 2008.

Then as now, banks stopped lending each other money. Then as now, banks' cash deposits at the central bank doubled within days.

But on Tuesday, August 9, the market gained more points from its low than it lost on Monday. Why? A tug of war seemed to be going on between two titanic forces, one bent on crashing the market, the other on propping it up.

The Dubious S&P Downgrade

Many commentators questioned the validity of the downgrade that threatened to be another Lehman Brothers. Dean Baker, co-director of the Center for Economic and Policy Research, said in a statement:

"The Treasury Department revealed that S&P’s decision was initially based on a $2 trillion error in accounting. However, even after this enormous error was corrected, S&P went ahead with the downgrade. This suggests that S&P had made the decision to downgrade independent of the evidence.  [Emphasis added.]

Paul Krugman, writing in the New York Times, was also skeptical, stating:

[E]verything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs . . . .

In short, S&P is just making stuff up — and after the mortgage debacle, they really don’t have that right.

In an illuminating expose posted on Firedoglake on August 5, Jane Hamsher concluded:

It’s becoming more and more obvious that Standard and Poor’s has a political agenda riding on the notion that the US is at risk of default on its debt based on some arbitrary limit to the debt-to-GDP ratio. There is no sound basis for that limit, or for S&P’s insistence on at least a $4 trillion down payment on debt reduction, any more than there is for the crackpot notion that a non-crazy US can be forced to default on its debt. . . .

It’s time the media and Congress started asking Standard and Poors what their political agenda is and whom it serves.

Who Drove the S&P Agenda?

Jason Schwarz shed light on this question in an article on Seeking Alpha titled “The Rise of Financial Terrorism”. He wrote:

[A]fter the market close on Friday August 5th, we received word that S&P CEO Deven Sharma had taken control of the ratings agency and personally led the push for a U.S. downgrade. There is a lot of evidence that he has deliberately tried to trash the U.S. economy. Even after discovering that the S&P debt calculations were off by $2 trillion, Sharma made the decision to go ahead with the unethical downgrade. This is a guy who was a key contributor at the 2009 Bilderberg Summit that organized 120 of the world's richest men and women to push for an end to the dollar as the global reserve currency.

[T]hrough his writings on “competitive strategy” S&P CEO Sharma considers the United States the PROBLEM in today’s world, operating with what he implies is an unfair and reckless advantage. The brutal reality is that for "globalization" to succeed the United States must be torn asunder . . .

Also named by Schwarz as a suspect in the market manipulations was Michel Barnier, head of European Regulation.  Barnier triggered an alarming 513-point drop in the Dow on August 4, when he blocked the plan of Hans Hoogervorst, newly appointed Chairman of the International Accounting Standards Board, to save Europe by adopting a new rule called IFRS 9. The rule would have eliminated mark-to-market accounting of sovereign debt from European bank balance sheets. Schwarz writes:

We all should be experts on the dangers of mark-to-market accounting after observing the U.S. banking crisis of 2008/2009 and the Great Depression in the 1930s. Mark-to-market was repealed at 8:45 a.m on April 2, 2009, which finally put a stop to the short term liquidity crisis and at the same time ushered in a stock market recovery. Banks no longer had to raise capital as long term stability was brought back to the system. The exact same scenario would have happened in 2011 Europe under Hoogervorst's plan. Without the threat of failure by those banks who hold high amounts of euro sovereign debt, investors would be free to move on from the European crisis and the stock market could resume its fundamental course.

Schwarz notes that Barnier, like Sharma, was a confirmed attendee at past Bilderberger conferences. What, then, is the agenda of the Bilderbergers?

The One World Company

Daniel Estulin, noted expert on the Bilderbergers, describes that secretive globalist group as “a medium of bringing together financial institutions which are the world’s most powerful and most predatory financial interests.” Writing in June 2011, he said:

Bilderberg isn’t a secret society. . . . It’s a meeting of people who represent a certain ideology. . . . Not OWG [One World Government] or NWO [New World Order] as too many people mistakenly believe. Rather, the ideology is of a ONE WORLD COMPANY LIMITED.

It seems the Bilderbergers are less interested in governing the world than in owning the world. The “world company” was a term first used at a Bilderberger meeting in Canada in 1968 by George Ball, U.S. Undersecretary of State for Economic Affairs and a managing director of banking giants Lehman Brothers and Kuhn Loeb. The world company was to be a new form of colonialism, in which global assets would be acquired by economic rather than military coercion. The company would extend across national boundaries, aggressively engaging in mergers and acquisitions until the assets of the world were subsumed under one privately-owned corporation, with nation-states subservient to a private international central banking system. 

Estulin continues:

The idea behind each and every Bilderberg meeting is to create what they themselves call THE ARISTOCRACY OF PURPOSE between European and North American elites on the best way to manage the planet. In other words, the creation of a global network of giant cartels, more powerful than any nation on Earth, destined to control the necessities of life of the rest of humanity.

. . . This explains what George Ball . . . said back in 1968, at a Bilderberg meeting in Canada: “Where does one find a legitimate base for the power of corporate management to make decisions that can profoundly affect the economic life of nations to whose governments they have only limited responsibility?”

That base of power was found in the private global banking system. Estulin goes on:

Greece and the Euro: Towards Financial Implosion

Global Research
By Prof. Rodrigue Tremblay

“If you can't explain it simply, you don't understand it well enough.”

Albert Einstein (1879-1955), German-born theoretical physicist and professor, Nobel Prize 1921

“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.”

Thomas Jefferson (1743-1826), 3rd President of the United States (1801-09)

"Having seen the people of all other nations bowed down to the earth under the wars and prodigalities of their rulers, I have cherished their opposites, peace, economy, and riddance of public debt, believing that these were the high road to public as well as private prosperity and happiness."

Thomas Jefferson (1743-1826), 3rd President of the United States (1801-09)


On the 4th of July, the credit agency Standard & Poor called  Greece what it is, i.e. a country in de facto financial bankruptcy.  No slight of hand, no obfuscation, no debt reorganization and no “innovative” bailouts can hide the fact that the defective rules of the 17-member Eurozone have allowed some of its members to succumb to the siren calls of excessive and unproductive indebtedness, to be followed by a default on debt payments accompanied by crushingly higher borrowing costs.

Greece (11 million inhabitants), in fact, has abused the credibility that came with its membership in the Eurozone.  In 2004, for instance, the Greek Government embarked upon a massive spending spree to host the 2004 Summer Olympic Games, which cost 7 billion euros ($12.08 billion). Then, from 2005 to 2008, the same government decided to go on a spending spree, this time purchasing all types of armaments that it hardly needed from foreign suppliers. —Piling up a gross foreign debt to the tune of $533 billion (2010) seemed the easy way out. But sooner or later, the piper has to be paid and the debt burden cannot be hidden anymore.

Greece's current financial predicaments (and those of other European countries such as Spain, Portugal, Ireland and even Italy) are not dissimilar to the ones Argentina had to go through some ten years ago. In each case, an unhealthy membership in a monetary union of some sort led to excessive foreign indebtedness, followed by a capital flight and a crushing and ruinous debt deflation.

In the case of Argentina, the country had decided to adopt the U.S. dollar as its currency, even though productivity levels in Argentina were one third those in the United States. An artificially pegged exchange rate of one peso=one U.S. dollar held for close to ten years, before the inevitable collapse.

Indeed, membership in a monetary union and the adoption of a common currency for a group of countries can be a powerful instrument to stimulate economic and productivity growth, with low inflation, when such monetary unions are well designed structurally, but they can also turn into an economic nightmare when they are not.

Unfortunately for many poorer European members of the euro monetary union, the rules for a viable monetary union were not followed, and its unraveling in the coming years, although deplorable, should be of no great surprise to anyone knowledgeable in international finance.

What are these rules for a viable and stable monetary union with a common currency?

1- First and foremost, member countries should have economic structures and labor productivity levels that are comparable, in order for the common currency not to appear persistently overvalued or persistently undervalued depending on any particular member economy. An alternative is to have a high degree of labor mobility between regional economies so that unemployment levels do not remain unduly high in the least competitive regions.

2- Secondly, if either one of the two above conditions is not met (as is usually the case, since real life monetary unions are rarely “Optimum Currency Areas”), the monetary union must be headed by a strong political entity, possibly a federal system of government, that is capable of smoothly transferring fiscal funds from surplus economies to deficit economies through some form of centrally managed fiscal equalization payments.

This is to avoid the political strains and uncertainty when the standards of living rise in surplus regional economies and drop in regional deficit economies. Indeed, since the regional exchange rates cannot be adjusted upward or downward to redress each member country's balance of payments,  and since the law of one price applies all over the monetary zone, this leaves fluctuations in income levels and employment levels as the main mechanism of adjustment to external imbalances. —This can turn out to be a harsh remedy.

Indeed, such a system of income or quantity adjustment rather than price adjustment is somewhat reminiscent of the way the 19th century gold standard used to work, albeit with a deflationary bias, except that it was expected to have price and income inflation in surplus countries and price and income deflation in deficit countries, caused by money supply expansions in surplus economies and money supply contractions in deficit economies. In a more or less formal monetary union, we are left with income inflation and deflation while the central bank holds the rein on the overall price level.

3- A third condition for a smoothly functioning monetary union is to have free movements of financial and banking capital within the zone. This is to insure that interest rates are coherent within the monetary zone, adjusted for a risk factor, and that productive projects have access to finance wherever they take place.

In the U.S., for instance, the highly liquid federal funds market allows banks in temporary deficit in check clearing to borrow short-term funds from banks in a temporary surplus position. In Canada, large national banks have branches in all provinces and can easily transfer funds from surplus branches to deficit branches without affecting their credit or lending operations.

4- A fourth condition is to have a common central bank that can take account not only of inflation levels but also of real economic growth and employment levels in its monetary policy decisions. Such a central bank should be able to act as lender of last resort, not only to banks, but also to the governments of the zone.

Unfortunately for the Eurozone, it currently fails to meet some of the most fundamental conditions for a smoothly functioning monetary union.

Let's look at them one by one.

Europe ties Greece loans to austerity

Sidney Morning Herald
Rodney Thompson

Europe has promised to unblock existing bailout loans for Greece and draw up a second financial rescue as long as its parliament approves fierce new budget cuts and a raft of asset sales.

After seven hours of crunch talks aimed at averting Greek default and fears of a domino effect across their shared currency area, eurozone finance ministers said they and the IMF would release 12 billion euros ($A16.25 billion) of loans in "mid-July" once Greece's parliament passed the austerity measures.
They also agreed on a roadmap for a second, 100 billion euro ($A135.45 billion) bailout, which would involve taxpayers' money but also a "substantial" contribution via the "informal and voluntary rollovers of existing Greek debt at maturity" by private banks, pension funds and insurers.

 

Greece needs funds to avoid a repayments bottleneck next month, but ahead of a parliamentary confidence vote in Prime Minister George Papandreou's reshuffled government set for Tuesday, Luxembourg prime minister Jean-Claude Juncker said it was "obvious" that commitments to hand over more money could not be given prior to parliamentary backing for conditional austerity.

"We stressed forcefully that the Greek government, by the end of this month, must act so as to convince us that all the commitments entered into by the Greek authorities are met," Juncker said, referring to negotiations with the European Union and International Monetary Fund.

A controversial budget plan, including 28.4 billion euros ($A38.47 billion) of fiscal belt-tightening, along with a vow to make 50 billion euros ($A67.72 billion) from privatisations by 2015, has triggered civil unrest.
Juncker, who heads the group of eurozone finance ministers, said while the political situation had evolved, "we have to wait for the final vote on the program".

"We still sense the need for a deal between the main Greek parties," he warned, despite new Greek finance minister Evangelos Venizelos vowing "we can achieve our targets".
Only once Greek MPs bite the bullet will that "pave the way for the next disbursement by mid-July," the Eurogroup said - releasing 8.7 billion euros from eurozone governments and 3.3 billion from the IMF.

Showing the extent of international fears over renewed financial contagion, G7 finance ministers from Britain, Canada, France, Germany, Italy, Japan and the United States held a late-night telephone conference to discuss the Greek debt crisis.

Wrapping up moments before the opening of Asian markets, ministers said banks, pension funds and insurers will be invited to agree to "informal and voluntary rollovers" of existing debts years after their original redemption dates.

The litmus test, they said, was that the private sector contribution would be one "avoiding a selective default," meaning different ranking for different creditors, public and private.
"On these conditions, ministers decided to define by early July the main parameters of a clear new financing strategy."

However the initial verdict from Asia was less than encouraging, with the euro falling against the dollar in a trend that dealers said reflected the continuing uncertainty surrounding the bailout.
The euro fell to $US1.4235 in Tokyo afternoon trading from $US1.4301 in New York late Friday.
The European single currency also sagged to 114.11 yen from 114.46 yen.

Meanwhile, the main Milan stock exchange index fell by more than two per cent at the start of trading on Monday after Moody's warned it may cut Italy's credit rating in view of strains in the economy.
Banking stocks were among the worst affected, with shares in Intesa San Paolo dropping 2.42 per cent to 1.775 euros and UniCredit plunging 2.36 per cent to 1.487 euros following Moody's announcement on Friday.

Juncker warned on Saturday that the euro crisis hitting Greece could affect Italy and Belgium, saying in an interview with a German daily: "We are playing with fire."
Juncker told Suddeutsche Zeitung that the crisis could also hit, "due to their high levels of debt, Belgium and Italy, even before Spain".

The Battle against Neoliberalism: Massive Popular Uprising in Greece

Global Research
By Yorgos Mitralias
June 11, 2011

Hundreds of thousands of Greek ‘Indignés’ (‘Outraged’) walk out to wage war against their neoliberal persecutors

Two weeks after it started the Greek movement of ‘outraged’ people has the main squares in all cities overflowing with crowds that shout their anger, and makes the Papandreou government and its local and international supporters tremble. It is now more than just a protest movement or even a massive mobilization against austerity measures. It has turned into a genuine popular uprising that is sweeping over the country. An uprising that makes it know at large its refusal to pay for ‘their crisis’ or ‘their debt’ while vomiting the two big neoliberal parties, if not the whole political world in complete disarray.

How many were there on Syntagma square (Constitution square) in the centre of Athens, just in front of the Parliament building on Sunday 5 June 2011? Difficult to say since one of the characteristic features of such popular gatherings is that there is no key event (speech or concert) and that people come and go. But according to people in charge of the Athens underground, who know how to assess the numbers of passengers, there were at least 250,000 people converging on Syntagma on that memorable night! Actually several hundreds of thousands of people if we add the ‘historic’ gatherings that took place on the main squares of other Greek cities (see map).

At this juncture we should however raise the question: how can such a mass movement that is shaking the Greek government (in which the EU has a particular interest) not be mentioned at all in Western medias? For these first twelve days there was virtually not a word, not an image of those unprecedented crowds shouting their anger against the IMF, the European Commission, the ‘Troika’ (IMF, European Commission, and European Central Bank), and against Frau Merkel and the international neoliberal leaders. Nothing. Except occasionally a few lines about ‘hundreds of demonstrators’ in the streets of Athens, after a call by the Greek trade unions. This testifies to a strange predilection for scrawny demos of TU bureaucrats while a few hundred yards further huge crowds were demonstrating late into the night for days and weeks on end.

This is indeed a new form of censorship. A well-organized political censorship motivated by the fear this Greek movement might contaminate the rest of Europe! Confronted as we are with this new weapon used by the Holy Alliance of modern times, we have to respond together both to expose this scandal and to find ways of circumventing such prohibition to inform public opinions, through developing communication among social movements throughout Europe and at once creating and reinforcing our own alternative media...

Going back to the Greek ‘Outraged’, or ‘Indignés’ or Aganaktismeni, we have to note that the movement is getting more and more rooted among lower classes against a Greek society that has been shaped by 25 years of an absolute domination of a cynic, nationalist, racist and individualist neoliberal ideology that turned everything into commodities. This is why the resulting image is often contradictory, mixing as it does the best and the worst among ideas and actions! For instance when the same person displays a Greek nationalism verging on racism while waving a Tunisian (or Spanish, Egyptian, Portuguese, Irish, Argentinian) flag to show his internationalist solidarity with those peoples.

Should we therefore conclude that those demonstrators are schizophrenic? Of course not. As there are no miracles, or politically ‘pure’ social uprisings, the movement is becoming gradually more radical while still branded by those 25 years of moral and social disaster. But mind: all its ‘shortcomings’ are subsume into its main feature, namely its radical rejection of the Memorandum, of the Troika, the public debt, the government, austerity, corruption, a fictional parliamentary democracy, the European Commission, in short of the whole system!

It is surely not by chance if for the past two weeks demonstrators shout such phrases as ‘We owe nothing, we sell nothing, we pay nothing’, ‘We do not sell or sell ourselves’, ‘Let them all go, Memorandum, Troika, government and debt’ or ‘We’ll stay until they go’. Such catchwords do unite all demonstrators as indeed all that is related to their refusal to pay for the public debt.[2] This is why the campaign for an audit Commission of the public debt is a great success throughout the country. Its stall in the middle of Syntagma square is constantly besieged by a crowd of people eager to sign the call or to offer their services as voluntary helpers...[3]

While they were first completely disorganized the Syntagma Aganaktismeni have gradually developed an organization that culminates in the popular Assembly held every night at 9 and drawing several hundreds speakers in front of an attentive audience of thousands. Debates are often of really great quality (for instance on the public debt), actually much better than anything that can be seen on the major television channels. This in spite of the surrounding noise (we stand in the middle of a city with 4 million inhabitants), dozens of thousands of people constantly moving, and particularly the very diverse composition of those huge audiences in the midst of a permanent encampment that looks at times like some Tower of Babel.

All the qualities of direct democracy as experimented day after day on Syntagma should not blind us to its weaknesses, its ambiguities or indeed its defects as its initial allergy to anything that might remind of a political party or a trade union or an established collectivity. While it has to be acknowledged that such rejection is a dominant feature among the Aganaktismeni, who tend to reject the political world as a whole, we should note the dramatic development of the Popular Assembly, both in Athens and in Thessaloniki, that shifted from a rejection of trade unions to the invitation that they should come and demonstrate with them on Syntagma.

Obviously, as days went by, the political landscape on Syntagma square clarified, with the popular right and far right located in the higher section, in front of Parliament, and the anarchist and radical left on the square itself, with control on the popular assembly and the permanent encampment. Of course, though the radical left is dominant and tinges with deep red all events and demonstrations on Syntagma, this does not mean that the various components of the right, from populist, to nationalist, to racist and even neonazi, do not further attempt to highjack this massive popular movement. They will endure and it will very much depend on the ability of the movement’s avant-garde to root it properly in neighbourhoods, workplaces and schools while defining clear goals that throw bridges between huge immediate needs and a vindictive outrage against the system.

While fairly different from the similar movement in Spain through its dimensions, its social composition, its radical nature and its political heterogeneity, the movement on Syntagma shares with Tahrir square in Cairo and Puerta del Sol in Madrid the same hatred against the economic and political elite that has grabbed and emptied of any significance bourgeois parliamentary democracy in times of arrogant and inhuman neoliberalism. The movement is stirred by the same non violent democratic and participative urge that is to be found in all popular uprisings in the early 21st century.

Our conclusion can only provisional: whatever is to come (and the consequences may be cataclysmic), the current Greek movement will have marked a turning point in the history of the country. From now on everything is possible and nothing will ever be the same again.


Translated by Christine Pagnoulle

Yorgos Mitralias is founding member of the Greek Committee Against the Debt, which is affiliated to the international network of CADTM (www.cadtm.org ). See the web site of the Greek Committee : http://www.contra-xreos.gr/ 

Cash-strapped Greece set to begin privatizations

Monsters and Critics

Athens - Greek Prime Minister George Papandreou on Monday said his cash-strapped government will accelerate privatizations of government holdings in an effort to raise money and cut the country's massive deficit.

Greece only has enough cash to prevent default until mid-July, making it imperative that the country convince its foreign creditors to approve the scheduled release next month of its fifth tranche of emergency funding.

Inspectors from the International Monetary Fund (IMF), the European Central Bank (ECB) and European Commission have asked Greece to speed up reforms, which would clear the way for the next loan instalment of 12 billion euros (16.8 billion dollars) to be given to the cash-strapped country. 

During marathon talks with cabinet ministers, Papandreou promised to speed up reforms and set into motion yet a new round of belt-tightening under the government's midterm fiscal programme. It would include more consumer tax increases, cuts to public sector spending, and an ambitious privatization drive to avoid default.

Athens is also seriously considering the firing of full-time civil servants for the first time, as well as deeper cuts in public sector wages.

'The battle to save the country is continuing,' Papandreou told a cabinet meeting.
'We averted the threat of the country's bankruptcy and placed the country on a track of streamlining and growth. ... we have a duty to the country and to the Greek people to ensure our future course,' the prime minister added.

The government will move ahead with a 50-billion-euro privatization programme, which will include selling off the country's two biggest ports of Pireaus and Thessaloniki, as well as: the Public Power Corporation; Hellenic Postbank; OTE Telecom; gas company DEPA; gaming group OPAP; and the Athens water utility.

Reports said the additional emergency measures may include halving a current 12,000-euro tax exemption and cuts in other exemptions on medical expenses and interest on home loans.
Other austerity measures may also include adding a one-off levy on high incomes over 80,000 euros, a tax on large real estate property and higher taxes on food and electricity.

Visiting international inspectors, who had been in Athens for the past two weeks, suspended their work on May 20 and said they would return only when Greece adopts more measures under the mid-term fiscal and privatisation plan.

Talks with EU/IMF inspectors are scheduled to resume later in the week after the bill goes to parliament.

Despite receiving a 110-billion-euro (155-billion-dollar) bailout last year from the EU and IMF, Greece is again on the brink of insolvency as efforts to meet tough targets are being hampered by a deep recession and weak revenues.

Greece managed to slash its deficit last year by nearly five percentage points, but it needs to cut its deficit to 7.6 per cent of gross domestic product this year under the terms of the bailout.


Last week, Europe's top financial officials considered a soft restructuring of Greece's debt for the first time, adding that it will also have to rapidly execute the 50-billion-euro sell-off and privatization plan to which it has already committed itself.

Many analysts believe that Greece will have to restructure its massive debt of more than 340 billion euros, as it looks increasingly unlikely to be able to raise new loans from next year as originally planned.

On Friday, Fitch warned that it would consider any kind of debt restructuring as a sovereign default.
Faced with an ongoing recession and rising unemployment, the government is increasingly losing public support according to a new poll, which showed more than 80 per cent of Greeks will not accept additional measures.