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The four oxen and the lion

by Kostis Papadimitriou Mon Jun 6th, 2011 at 06:36:56 AM EST

Another centre-left government is replaced by a centre-right in the EU. As expected, PS was ousted in Portugal and the two right-wing parties have a strong parliamentary majority to form a government. That follows the ousting of the not so centre-left govermnent of Brian Cowen in Ireland by another EPP member.

It's "The Four Oxen and the Lion" all over again. It's the "Ireland is not Greece", "Portugal is not Ireland", "Spain is not Portugal" chain. Anyway, the tide is so strong that I cannot see how things could have turned different.

The EU is in a phase of strengthening supra-national institutions and the EPP wants to do that under its own terms.

Despite any legitimate objectios about Socrates, I can say that his struggle to resist the ECB et altri pressure from December 2010 until his resignation was rather heroic and cunning, too. Although it proved futile. At least that was how it looked from this corner of the euro zone (Athens).


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the not so centre-left govermnent of Brian Cowen in Ireland

Well indeed: it was government led by a right-liberal party that is loaded with some neoliberal extremists.

Despite any legitimate objectios about Socrates, I can say that his struggle to resist the ECB et altri pressure from December 2010 until his resignation was rather heroic and cunning, too.

Could you tell me more about that? To me it seemed to be a futile attempt to avoid the worst by implementing a weakened version of the austerity medicine rather than something different. He spoke up against loss of sovereignty, but didn't have ideas how to do something different and predictably alienated voters (who then had no better idea than vote for someone worse).

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Jun 6th, 2011 at 11:28:37 AM EST
How I see the chain of events:
  1. Greece's deficit problem is covered up by the EPP as long as the conservative party rules. The problem is well known already on July 2009 Ecofin but made no public at the moment. More you can read on Handelsblad here.
  2. October 2009 - Papandreou wins the election. The new governments announces that the deficit is already almost double than predicted by the previous one. A violent attack starts by EU institutions to cover up their responsibilities. However, Greek spread remain under 200 basis points.
  3. End November 2009 - The ECB underestimates the situation and believes that the global crisis is over. Trichet says he will withdraw the extraordinary measure to provide liquidity. That spooks investors and sends Greek spreads well above 200 bps.
  4. May 2010 - Greek rescue and all that which is well known.
  5. Autumn 2010 - The ECB says it will not follow Fed's QE2 believing the euro crisis is over.
  6. October 2010 - Deauville
  7. The two previous steps force Ireland to seek rescue by the EFSF.
  8. Talks on the terms of the ESM - which will replace EFSF after 2013 - start.
  9. Socrates had decided not to enter the EFSF before the ESM rules have been set on March 25.
  10. December 2010 - The ECB has stopped buying Portuguese bonds and says so in public sending Portuguese spreads sky high.
  11. Socrates is ready to keep his defense by having provided enough financing until March 25, 2011. So he denies to join the EFSF.
  12. Late March 2011 - The ECB bullies Portuguese banks to stop financing their government with ECB liquidity (FT, "ECB blamed for Portugal aid request", April 11).  
  13. It is announced that decisions on the ESM are postponed for June.
  14. March 31, 2011 - Socrates replies with calling an early election. That means that there will be a caretaker government until then.
  15. It is made clear that ESM decisions will be postponed for September 2011.
  16. Socrates concedes. EPP has unlimited cards in this poker game.

Meanwhile, the narrative on Greece takes a U-turn. Suddenly the government that was praised for "unprecedented reforms" is described as "reform exhausted". This is to cover up that the Troika has failed on two basic promises on its side, while Greece has kept with most of its part of the deal. The deal was "you do as we say" (you follow the doctors orders, as DSK has literally said) and, first, you will have such and such macro performance, and, second, you will return to private markets on viable terms by 2012. However, the Troika predictions on growth/recession, unemployment, inflation etc. have already failed. It is clear that all indexes will develop far worse than predicted and the country will return to growth much later than anticipated by the Memorandum. Moreover, it is clear will not be able to return to the markets because the ECB has not provided the necessary liquidity for this to happen. That has nothing to do with Greece's performance. The markets are also closed for Ireland, Portugal and maybe soon for Spain also (Spanish spreads have already move above the unsustainability level of 200 basis points - Italy is yet a little below).

That how it looks like from here.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband

by Kostis Papadimitriou on Mon Jun 6th, 2011 at 03:36:04 PM EST
And when the backers of the EPP also control or intimidate most of the MSM they can get their cocked version of events to fly, especially by appealing to xenophobia and racist stereotypes.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 6th, 2011 at 04:18:08 PM EST
[ Parent ]
It is tempting to describe this as a coup using the ECB, the "markets" and the EPP as weapons.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 6th, 2011 at 04:39:48 PM EST
[ Parent ]
But, but, but...

...Greece's debt to GDP was 110% in mid 2009, so if the problems were known internally, they were actually known by everyone, including Papandreou, prior to that. Why? Because Greece's debt to GDP has been at 100-105% for over two decades now. No surprise that it moved slightly up during a global economic crisis.

I thought it much too convenient that Papandreou blamed the previous gov't. of course they were at fault--for a lot of corruption. But so was the Simitis gov't prior to that.

The charge that Greece misrepresented its books to Eurostat--and therefore investors--was also largely a fraud. Why? Read the January 8, 2010 report on Greece that's available from Eurostat right on the front page. Greece gave bad statistics to Eurostat yearly. Because Greece's government ministers were lax in rounding up the necessary information--presumably in order to maintain their interests in the ministries. But this doesn't mean accurate data was not reported at the end of the year. Indeed, Eurostat sent teams of accountants to Greece--something the report describes with much perturbation--and after a lot of work, they came up with accurate numbers for Greece. At the end of every year. Eurostat continues to do this to this day. So while the Greek gov't was horrid with numbers, it is NOT accurate to say that investors and the EU were not apprised of the state of Greek debt. And if the Eurostat numbers were wrong during the entire decade, then they are doubly wrong now, because the revisions showed a jump from an average around 100% from 2000-2009 to 115% in 2010.

In other words, investors should not scream fraud. Indeed, EUROSTAT and PIMCO has issued warnings about the state of Greek debt all through the decade. PIMCO hasn't bought Greece since 2006.

by Upstate NY on Mon Jun 6th, 2011 at 06:07:00 PM EST
[ Parent ]
Spiegel: A Fatally Flawed Recovery Plan: Greece Back on the Brink
So much for the theory. A visit to the Acropolis offers an example of what is really happening. There are more museum guards here now, a consequence of the Greek interpretation of consolidation.

Consolidation, Greek Style

Here's how it works: OSE, the national railroad, was expected to eliminate its annual deficit of €1-2 billion by slashing about 1,800 of its 5,800 jobs. But, as in other government-owned businesses, the employees were not let go but transferred to new jobs instead -- albeit with reduced pay.

Greece's partners in the euro zone are gradually losing patience with Prime Minister Papandreou and his team. A year after receiving €110 billion in international financial aid commitments, Greece has hopelessly failed to reach the agreed austerity goals. Its lenders are now questioning the government's ability to reform, the economy has declined even further than feared, and important tax revenues have failed to materialize.

How is it that Germany did better than other EU countries because its private sector was able to reduce work hours and pay without firing people, and now it is wrong for Greece to reduce public wages without firing people?

The Spiegel piece is naked narrative-setting for the U-turn in the Troika position. And the thrust is "unemployment, unemployment, umeployment". Throw the bums on the street. See how well that will work.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 02:35:55 AM EST
[ Parent ]
I would go so far as to say that the troika's constant moving of goalposts and ridiculous demands on oversight of privatization constitute not only a negotiation in bad faith, but also a guarantee that Greece will be totally abandoned by its partners in the future.

The sea of people in front of the Greek Parliament understand this. The Greek politicians with their visions of turning Greece into Denmark do not.

Someone in a Greek paper, writing about the massive Greek protests, invoked Aeschylus this morning, "Who can exhaust the sea?"

We shall see.

by Upstate NY on Tue Jun 7th, 2011 at 12:37:54 PM EST
[ Parent ]
But the economic history of the first two decades of this century will be written by the "partners".

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 12:43:07 PM EST
[ Parent ]
It's not yet certain that the political history will be.

The ECB is (literally?) playing with fire here.

Here's a question - what kind of concerted EU-wide political action would be needed to remove the ECB's headlock on national policy across the EU?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jun 7th, 2011 at 01:24:40 PM EST
[ Parent ]
How about a Europe-wide referendum of the form that is allegedly forseen by the Lisbon Treaty? 1 million signatures, isn't it?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue Jun 7th, 2011 at 06:09:02 PM EST
[ Parent ]
It is. But the provision was only ratified in April, and won't become active until 2012.

And it's not a forced referendum or a demand for policy - it's a petition mechanism that asks the Commission to, like, think about stuff, if it wouldn't mind, and if it's not doing anything too taxing elsewhere.

Even so - it would make a terrific media campaign. And given current sentiments, I'd be surprised if it took anything like a year to get a million signatories supporting broad anti-bankster measures.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jun 7th, 2011 at 07:04:15 PM EST
[ Parent ]
yes

ThatBritGuy:

Even so - it would make a terrific media campaign. And given current sentiments, I'd be surprised if it took anything like a year to get a million signatories supporting broad anti-bankster measures

much better than blairblocking even

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Jun 7th, 2011 at 09:31:54 PM EST
[ Parent ]
We could plan to have a qualified petition ready for submission on the day the provision comes into effect, if that is allowed.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 7th, 2011 at 10:22:59 PM EST
[ Parent ]
So far it is only thee oxen fallen prey to the lion. Spain could be four. It is critical that the Spanish people understand that their government is not obliged to guarantee the bad loans made by private banks in Spain. I don't know if the indignado movement will succeed in spreading this understanding or not.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 6th, 2011 at 04:29:52 PM EST
A little more on what I call the "unsustainability level" of sovereign yield spreads.
Of course, there is not a "scientifically" defined such level. This level is a function of the public and private debt as a percentage of GDP, the rollover needs and the time-span.
In a monetary union where you cannot devaluate your debt, if you have to pay 200 basis points (2.00%) more on interest compared to your partners for a mid-term period (let's say five years), you are finished. The reason that I include the private debt is because the spread on sovereign passes to the private sector very soon. So, Troika is supposed to enforce Greece measures that will reinstall its competitiveness. Oh, really? With a public and private debt at around 260% of GDP (Greek private debt is relatively low at an average of 110% compared to other old-EU countries), and a spread of 200 basis points, you have to pay a surcharge around 5% of your GDP compared to Germany. That's not working. Full-stop. You might be able to do that for one year or so but not for five (in the first year you have to roll over only part of your debt). But you do not need the full five years to have a crisis. You just need investors to realize that the spreads are here to remain for five years. Then it is self feeding. Spain is in the situation that they are not yet sure for how long the spreads will remain above 200 bps. When they make up their mind, they will either jump sky-high or fall bellow 100 bps.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband
by Kostis Papadimitriou on Tue Jun 7th, 2011 at 03:19:50 AM EST
With a public and private debt at around 260% of GDP (Greek private debt is relatively low at an average of 110% compared to other old-EU countries), and a spread of 200 basis points, you have to pay a surcharge around 5% of your GDP compared to Germany.
I am reminded of this table from 2009 - it may have been Jerome to post it in an open thread. Anyway, here it goes:

Think about those numbers and the facts that 1) debt is used to prop up growth rates; 2) when the private sector retrenches, the public sector funds the shortfall with its deficit. Clearly no sensible monetary union can be built on constraining public debt but not private debt as long as the private sector enjoys an implicit guarantee from the public sector.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 03:56:45 AM EST
[ Parent ]
These data by McKinsey on Economist I had on mind when I've claimed "relatively low" about Greek total debt (Gremany 286%, UK 466%, France 322%, Italy 315%, year 2009). These include debt of financial institutions. But I have to check if the Greek data are comparable with Jerome's or Economist's (McKinsey) data and I will come back.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband
by Kostis Papadimitriou on Tue Jun 7th, 2011 at 11:42:02 AM EST
[ Parent ]

The EU is in a phase of strengthening supra-national institutions and the EPP wants to do that under its own terms.

That would be nice (even if the EPP held the reins) but it's not what's happening. what we're seeing is more inter-governmental stuff and in particular big countries, led by France and Germany, trying to impose a directorate on everybody else.

This has long been a temptation of France, which Germany used to resist, with the help of federalist countries like the Benelux, but now that the Dutch are on the side of the "we are virtuous and want the evil Southerners to pay for -their- our banks' sins" they are helping the German attempts.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue Jun 7th, 2011 at 05:07:07 AM EST
That would be nice (even if the EPP held the reins)

No, that wouldn't be nice. See what creating the ECB has wrought.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 05:44:28 AM EST
[ Parent ]
between what is done by EU institutions without political legitimacy what is done by EU institutions with political legitimacy and right wing leadership.

It may look the same, but in one case, they do the "common wisdom" of the Serious People (ie, TINA) whereas in the other case they do rightwing policies which can be fought off as such, and reversed once you get a left wing leadership.

If people vote for rightwing governments, they can't complain about rightwing policies. If they vote for leftwing governments and get rightwing policies or TINA, then they have a right to be pissed.

EU institutions with clear political legitimacy/responsibility would be a massive progress.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue Jun 7th, 2011 at 06:48:16 AM EST
[ Parent ]
That is a distinction without a difference, because you're not considering the issue of institutions set up by right-wing governments, which institutionalise TINA.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 08:37:46 AM EST
[ Parent ]
between institutional rules and political legitimacy. Both can impose or change policies, but only one (political legitimacy) can change the other.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue Jun 7th, 2011 at 09:23:40 AM EST
[ Parent ]
Please answer this question.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 09:43:00 AM EST
[ Parent ]
Is this the kind of "supranational institution" you would allow the EPP to set up?
"Would it go too far if we envisaged . . . giving euro area authorities a much deeper and authoritative, say in the formation of the country's economic policies if these go harmfully astray?" asked Mr Trichet, suggesting "a direct influence, well over and above the reinforced surveillance that is presently envisaged?"

...

The central banker's boldest suggestion was a "new concept" for the euro zone that envisioned cases of "compulsory" intervention from EU leaders and the ECB in "major fiscal spending items and elements essential for the country's competitiveness".

...

"Confronting the challenges of the future requires strengthening the institutions of economic union - the `E' in EMU," he said. "Would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the Union?"

In Mr Trichet's view, this EU finance ministry need not administer a budget but monitor directly fiscal and competitiveness policies. This ministry could ensure closer integration of financial services across the EU and sit on boards of international financial institutions.

No, thanks.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 06:22:12 AM EST
[ Parent ]
I believe that what you're assuming here is that we can fix the problems introduced by EPP ideology later. Is this really a safe assumption? Weren't you previously pleased that the EU was stuck, given who was running the place?
by Colman (colman at eurotrib.com) on Tue Jun 7th, 2011 at 10:46:09 AM EST
[ Parent ]
Jerome was never on the side of those who welcomed paralysis:
Despite arguments by some on this site that the French "Non" to the EU Constitution brought in a welcome period of paralysis at a time when neo-liberal ideas dominate in Brussels, I continue to think that this vote was an unmitigated disaster
(from 5 years ago)

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 12:17:37 PM EST
[ Parent ]
I fail to see how the current crisis could have been worse, had the EU constitution been ratified. Perhaps this is a failure of imagination on my part, but I believe that we would have been spared a large part of the nationalist backlash which has so badly damaged the European project these recent years.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Jun 9th, 2011 at 08:38:02 AM EST
[ Parent ]
Would we have gotten different national (and EU-level) politicians as a result?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 9th, 2011 at 09:07:54 AM EST
[ Parent ]
That so many average people were averse to a strong EU enabled a power vacuum at the center of the current EU. The people most likely to fill that vacuum were those with the least regard for the aspirations of the average voter precisely because the average voter was not keen on the project itself.
by Upstate NY on Sat Jun 11th, 2011 at 10:43:02 AM EST
[ Parent ]
Looking at the constitution/Lisbon treaty from a perpetually eurosceptic country some things come to mind:

  • That the French people votes no is seen as a sign of democracy in France - "why are we not allowed to vote?".

  • That the EU runs over the votes and institutes basically the same system anyway is seen as an indication of the lack of democracy in the EU (the federal level that is). Though that is as was already expected.

  • The symbolic stuff would not have created any support for the EU project as such. More likely to have created derision, in particular considering how poorly the federal level does PR.

So for Sweden, it would not have mattered. The success of the Sweden democrats (our ugly party) is not based on anti-EU sentiment, it is based on anti-foreigner sentiment and capitalisation on general discontent.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Jun 9th, 2011 at 12:40:57 PM EST
[ Parent ]
Are you suggesting that European nationalism would have just disappeared with the constitution? Or be even faintly changed?

That, suddenly, we would all be friends?

The only way for such a thing to advance now (and back then by the way), is by annihilation of democracy (which in part happened with the Lisbon treaty, by the way). I would postulate that anyone that want to force more integration now is, to put it bluntly, an enemy of democracy.

Note the word "force", it is important. One thing is trying to convince the peoples of Europe to unite further (good luck). Another, despotic, is push forward against what is the current will of the peoples of Europe. The many peoples of Europe (we are not one people, for sure).

by cagatacos on Fri Jun 10th, 2011 at 06:53:37 PM EST
[ Parent ]
Then, you are subscribing with Dani Rodrik's The Paradox of Globalization.

In his latest book, he identifies a fundamental 'trilemma': that we cannot simultaneously pursue democracy, national self-determination, and economic globalization.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband

by Kostis Papadimitriou on Sat Jun 11th, 2011 at 02:18:56 AM EST
[ Parent ]
You cannot pursue either democracy or national self determination while the current form of globalization is effective. Globalization, as currently practiced, is driven by financial elites who are hostile to democracy and national self determination. They deploy their money to suborn all significant governments where democracy is an issue and they call pariah on any who attempt self determination. Others can only have control of things they are not concerned with, so long as they remain unconcerned. Want to challenge them? Get a sling and a rock. It has worked before, reportedly.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jun 11th, 2011 at 10:38:46 PM EST
[ Parent ]
It was "ratified", disguised as the Lisbon Treaty, once rejected by the Irish, if memory serves, and brought back a year later, with minor changes to be voted in. This process, I would imagine, had the Irish persisted in saying "No", would have had involved N iterations of referenda until the "yes" vote triumphed. It was not, despite its equivalence to the rejected Constitutional treaty, brought to vote elsewhere in the EU.

This charade of forcing a treaty, repeatedly rejected by the peoples of the EU, by hook or by crook, was IMHO the most flagrant display of the EU elites' total disregard of european public opinion, and fed a legitimacy crisis that in turn "tuned out" large parts of the people of the EU to any discussion of the European project. Worse, the EU then handled the Crisis with neoliberalism embedded as a constitutional mandate. This didn't help. In fact, this contempt for popular dissatisfaction fed the nationalist far right, on the ascendant right now across the EU, and affecting policy in many countries already.

Were there a broader coalition against the passage of any treaty not prepared by a special constitutional session of the European Parliament, specifically elected on that mandate, instead of the SD subscribing to the neoliberal constitutional agenda remarketed as a sneaky Treaty, things just might have been a tad better at this point.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sat Jun 11th, 2011 at 06:12:12 PM EST
[ Parent ]
Regarding the second Irish referendum (3 years ago), to my question
So, what if the no wins?
Frank Schnittger answered
There is no plan B, and the EU project will probably be in a state of semi-paralysis for some time - until the next major global crises, where the woefully inadequate response of the EU will probably force a re-think.  Big projects like the EU need big crises like WWII and the Cold War to move them forward.  Let's hope it doesn't take another war...
The yes did win, and yet here we are in 2011 with the EU in a state of semi-paralysis, putting up a woefully inadequate response to a major internal EU crisis and no impetus for a re-think but rather more TINA.
Other than the expansion to 27 which was done in total haste and was supposed to have happened after the new treaty in any case, "the EU project" has been in semi-paralysis for the better part of 20 years. ... the Council, where the political impetus for "the EU project" has to come from, has been stocked with petty-minded nationalists who can't even bring themselves to campaign for their own treaty.
and
The world is likely to see an upheaval in the 2010's and the EU won't know what hit it because of these dunces.


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 12:23:08 PM EST
[ Parent ]
For Greece, it feels like having lost a war never fought.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband
by Kostis Papadimitriou on Tue Jun 7th, 2011 at 05:07:33 PM EST
[ Parent ]


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