Bursting the Bubble

Grexit for dummies: Wildfire and Pyromaniacs

1 July 2015 | by

The wildfire

The Greek folk, after the ECB’s refusal to pump up more money into the Greek economy until the payment of the debt issue is addressed, ran to the ATMs attempting to ‘save’ their savings. Previously the Greek President, Alexis Tsipras, was forced to decree a limitation on the outflow of capital to prevent either a financial crisis or that the Greeks would have spend all their money on more matches and gasoline.

Only the possibility of Greece being out of the euro zone is provoking the chaos across the EU. With the British referendum on the horizon, Juncker himself said recently that, “If the Euro fails, the Anglo-Saxon world would do everything in the hand to break, at a regular pace, and department by department, the euro zone”. In addition, center-right governments, like the Spanish one, rub their hand in a lusty gesture due to the political benefit that a Grexit fiasco could bring in their electoral race, with new parties such as Podemos.

Pyromaniacs

In a scenario full of Greek and EU, extracted from the propaganda for dummies manual, the EU president Jean-Claude Juncker inflamed European media when taking the risk of telling the Greek citizenship what and how to vote in the upcoming referendum proposed by Tsipras (where the Greeks will decide on endorsing the position of the Greek government in negotiations with the Troika, or not). Also, the good cop Juncker, tried to manage the crisis by patronizing the Greeks, by stating that they should vote yes to Europe, that the Troika’s efforts are not aimed to humiliate them nor to perpetuate the harmful austerity-based policies, but that the Troika is seeking what is good for the Greek people. He also promised that if the Greeks behave, as in voting for Europe in the referendum, their ‘sins’ will be forgiven and, without announcing how, will help the Greeks to remain in the Euro although the deadline to meet the payment would expire. This manoeuvre, intentionally or not, turned the referendum into a death match between Greece and the EU. To top his previous statements, he told everyone how sorry he was for Tsipras’ betrayal, who warned the Greeks rather than Juncker himself. If the siege from Juncker’s cabinet to the democracies of Greece and the rest of Europe was not enough, the European Council President, Donald Tusk, played the bad cop warning that if the “no” wins the referendum “there will be even less room for negotiations “.

For its part, the Spanish government of Mariano Rajoy is already thinking about how many votes he is going to scratch out of this drama, facing a general election in 2015. He stated that “the Spanish people can be calmed because he did things good.” However, this stability depends on external factors to the government, particularly on the ability of the European Central Bank (ECB) to keep  open lines of liquidity supporting Greek –or Spanish- banks. And, even more heavily on the ECB continued involvement in financial markets to buy national bonds, relieving pressure from the markets. In parallel, the increase of the debt rates reflect that the possibility of re-tighten financial conditions to Spain is still very real and can put Spain back on the ropes like three years ago.

Has the European Union the means to extinguish the fire?

From a structural point of view, NO. Paul Krugman speaking to the NY times, the Nobel laureate in economics stated that it is clear that the creation of the euro was a terrible mistake. Europe never had the preconditions for a single currency of success, above all, due to the absence of prior fiscal and banking union.

Given the current EU policy framework, no. Passing through more tax or economic reforms, such as tax increases, would only deepen the mistake of austerity. Similarly, continuing with a deregulatory agenda, favorable to multinationals, would contribute to the widen consumers’ vulnerabilities. Moreover, it also seems that the TTIP or the expansion of the single European market to the digital market will not be the solution for any of these problems and in the best case scenario, will be just a pretty tasteless step in the path to recovery.

From the social point of view, no. The threat of further labour or pensions, threatens to trigger a race-to-the-bottom scenario for Greek workers and pensioners. In addition, the unwillingness to show solidarity on behalf the EU member states, as for example, on the EC proposal for the asylum seekers’ resettlement, does not seem to help finding a solution. As an example, the reasons that EU Member States used to refuse the scheme for relocating 40,000 refugees rightly proposed by the EC: The Czech Republic limits the problem to Mediterranean and demands that they solve with their own. Slovakia calls for “alternative programs,” while accusing the proposal of being “insincere and hypocritical” because of the refusal of some countries to accept Bulgaria and Romania in the Schengen area (fearing a massive Roma immigration) while insisting on the EU solving the “foreign problem”. Poland demands that all refugees must be Christians. Bulgaria feels ignored, since the proposal only includes Italy and Greece, and on the rebound, is unlikely to vote in favour. Countries like Denmark and United Kingdom have kindly opted out, since the treaties allow them to choose such option. The French government swims in a contradictory sea, due to the political cost of accepting the proposal. Meanwhile, the Spanish government whistles to the sky and Estonia, Hungary, Latvia and Lithuania openly declare their opposition to the plan.

Playing with fire

Creditors have played with fire offering Greece a “take it or leave it” deal that would impose even more gratuitous suffering, not sacrifice, based on austerity. This offer was, and still is, intended to be rejected by the Greek Prime Minister, Alexis Tsipras, who in the case of losing the referendum, would cause the destruction of his political “raison de être”. However, in the Krugman’s words, Greek voters should vote “no” and not be swayed by the misdirected Juncker manoeuvre. The Greek government should be ready to, if necessary, leave the euro. This does not mean, far from it, that it would be the best case scenario but Greece has reached a point of no return where it needs to set up a firewall or it will be consumed by the wildfire, together with any pretension of independence, autonomy and democracy that they may have. It is not an economic issue; it is an issue of power. The power of creditors to dodge legitimate democratic systems and pull out the plug onwhatever economy that cannot / want not pays. A power that will persist, while leaving the euro would be considered unthinkable.

2 Comments

  1. Tener que buscar un artículo en inglés para enterarme del Grexit, y que esté escrito por uno de mi tierra ….

    • Juan

      Y que pa colmo esté trabajando de camarero en la playa 😀 pero así están las cosas. Cuando necesites cualquier otra cosa pregúntamelo y te ahorro el tostón de leertelo, a su servicio 😉

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