Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Europe Page 12 of 16

Fourteen Points on the World Economy as the US GDP Drops .7 Percent

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On May 29, 2015

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So, while it generally takes two quarters for a recession to be so-called, it may be that the recession is here.

Let us recap the non-recessionary period:

  • The percentage of people employed in the US never recovered;
  • More than the total amount of growth went to the top four percent or so, with most of that going to the top one percent and most of that going to the top .1 percent;
  • The stock market had a huge bull market, even though the economy wasn’t working for anyone but the top few;
  • Outside America, the “south” of Europe never recovered in any meaningful way, and most European nations generally did badly for most of their citizens;
  • Various resource nations did well for a time, but their success was based on demand from developed nations or, more commonly, from China;
  • Chinese demand collapsed some time ago;
  • China has been printing more money than either Japan or the US; much more;
  • Japan’s “unconventional monetary policy” has been a roaring failure–if its intention was to get the Japanese economy going again;
  • The collapse in oil prices last year helped the US briefly, but because the rest of the world has rolled off a cliff and because those gains couldn’t go widespread, it was only briefly (this is as I predicted at the time);
  • Canada’s economy was hurt badly by the oil price crash, and because the mixed economy has been critically injured, there is very little else to hold up the economy;
  • Both Britain (or London…almost the same thing) and Canada have huge housing bubbles, and those bubbles, with the addition of financial games, are all that holds those economies together at this point;
  • Britain never actually recovered either, for the majority of its citizens–just a large enough minority to elect Cameron;
  • Australia has tied itself massively to resource extraction on the back of Chinese demand. There is no meaningful Australian economy whose fate is not tied to China.
  • India’s development is hollow neo-liberalism, and has seen an actual decrease in per capita calories. It is consumptive and limited to a few key areas.

Let me put this another way: The developed world is in depression. It has been in depression since 2007. It never left depression. Within that depression, there is still a business cycle: There are expansions, and recessions, and so on. Better times and worse times.

While cheap solar is a big deal, it is not yet deployed sufficiently to break the “widespread demand will crash the economy through oil price increases” problem, and this is exacerbated the by the deadlock rich elites have on most of the world’s politics and economic policies, since it is not in their interest to solve problems, but only to become more rich.  Not that solving problems is something they mind, if it makes them richer and keeps everyone else poor.

The world still has very few problems we couldn’t solve if we acted on them in a productive way (though some, like climate change and the great die-off, are beyond the point of no return for catastrophic damage), but that’s largely irrelevant while public policy remains in the hands of oligarchs. There is some reason for hope, as left-wing parties rise in Europe, but those green shoots are still nothing but green shoots.

I suggest that my readers who are able to make money do so now, you may soon find that you can’t. This is especially important if your employment is precarious.  Take care of yourselves, and take care of each other, unless you are lucky enough to live in the few rich, social democratic states left, you cannot expect much aid from your governments.

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Happiness and Freedom: East German Version

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On April 30, 2015

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Picture: Fall of the Berlin Wall

Picture: Fall of the Berlin Wall

Many East Germans remember East Germany favorably:

Today, 20 years after the fall of the Berlin Wall, 57 percent, or an absolute majority, of eastern Germans defend the former East Germany. “The GDR had more good sides than bad sides. There were some problems, but life was good there,” say 49 percent of those polled.

The state with the Berlin Wall, which people died to get across, is remembered fondly?

Some of this, as the article points out, is nostalgia.  Some of it is from people who were children or not even alive when East Germany fell.

But I’m not surprised, because the happiness and life satisfaction data for East Germany showed a precipitous fall after unification, as it did in Russia after Communism fell there. (That drop has been made up since, but it was huge.)

I’m further not surprised because there were things that East Germany, in particular, did well. To start, it did community and civic association brilliantly: There were clubs for everything, people joined them, and they enjoyed them.

Happiness is strongly correlated to community: The sort of anomie which capitalist societies encourage, where you know hardly anyone well, destroys happiness.

Second, there wasn’t a great deal of inequality compared to modern capitalism. The research on happiness and equality is robust–the more equal a society, the happier people are.

Third, everyone was more or less taken care of. They may not have been taken care of with the finest consumer goods, but they had enough food, shelter, and so on.

Fourth, they didn’t have to move much. Labor force mobility in Germany today isn’t terrible, but the sure knowledge that you can stay where you were born and grew up can be as much a comfort as anything else, and it means that you don’t leave behind your community–your friends and family.

Capitalist transitions are brutal. The data from China is unambiguous: People moving from their ancestral villages to the city generally are never, personally, as happy as they were in the village.

The people interviewed in Der Spiegel’s article on East Germany tend to acknowledge the East German Stasi police state as bad, then wave it aside.

How badly has your life been affected by the fact that your government spies on you 24/7? East Germany may have had huge numbers of informants, but London has cameras everywhere and “anti-social disorder orders,” which make virtually any behaviour cops want to call illegal, illegal. Nor was East Germany’s incarceration rate nearly as high as America’s is now, and so on.

Sure, “the police state” was bad, but that wasn’t, to people who lived there, necessarily the most important thing about being an East German. Westerners believe this because of relentless cold war propaganda. Then the USSR and the Warsaw Pact fell, and our lords and masters started building their own surveillance and police states.

Still, it’s a bad sign when you aren’t even considered a better place to live than East Germany, with its Stasi. The failures of the post-Soviet era are making that period look better and better. In Russia, there is a surge of nostalgia for the USSR, for reasons which are are remarkably similar. People are discovering that, as wonderful as Levis jeans are, there is a cost to the modern consumer society in terms of anomie, corruption, and economic precarity.

Though I think I like the bitter joke from 1990s Russia best:

Everything they (Communist authorities) told us about Communism was a lie. Unfortunately, everything they told us about Capitalism was the truth.

And so the wheel turns. When capitalism, in a large region in one of the most successful countries in the West, has half the population thinking communism wasn’t so bad, something has gone off the rails. Triumphalism of the “we’ve won, so we don’t have to treat the population well” variety may well yet bite capitalists, and all of us, hard.

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Austerity in the EU—in Rap

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On April 21, 2015

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The entire video is worth watching, but if you want to skip to the meat, go to 3:37. This is one of the most accurate portrayals of Lagarde (in charge of the IMF) and Merkel I’ve seen. Better than most written analysis.

Also, funny.

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Do Tsipras and Syriza want to resist Austerity?

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On February 25, 2015

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By Mark From Ireland (Elevated from the comments)

(In response to my article on whether Syriza got owned, Mark writes):

Did Syriza get owned?

Yes and No. Syriza is a coalition between a variety of factions ranging from PASOK lookalikes to people with genuinely socialist principles. I’ll be interested to see how Alekos Flambouraris for example will react, will he help “sell” this within the Syriza coalition?

If the currently dominant faction (who have always wanted to work within the Euro framework and are very pro-EU) are to succeed in getting Syriza to accept this capitulation they’re going to have to override internal resistance. From whom? My guess would be that the resistance will centre around Panagiotis Lafazanis and the “Left Current/Left platform” grouping. The “Left Current/Left platform” are, I believe, fairly well organised and they do have a consistent critique not only the current state of affairs but also of capitalism per se. Lafazanis and his comrades can truthfully say that in attacking the capitulation to the troika that they are merely defending the platform upon which Syriza stood and that anybody who wants to vary or overturn that platform has to provide cogent and compelling reasons as to why. But the problem that Lafazanis and his comrades face is both one of policy and of internal organisational strenght. Principles are all very well but if you don’t control the party structure you’re going to lose every time. I said above that they’re “fairly well organised” but are they as well organised as Tsipras and his supporters?

Tsipras’ opponents to the left face a very real problem and one which reminds me in a way of the problem faced by the British Labour left when confronted with Tony Blair. Like Blair Tsipras has a substantial personal mandate and like Blair he’s got a record of going over the heads of his critics to party congress (he’s already successfully done this over candidate lists) and also like Blair he’s got a record of successfully campaigning alone – of very pointedly not campaigning alongside the left-wingers. Just like Blair he can say that Syriza’s victory is a personal victory brought about by him. (He’s also tried Blair’s strategy of giving difficult posts to left-wingers* how that will work out is something that will tell us a lot. Blair successfully marginalised his internal opposition using it whether Tsipras can do the same I just don’t know as the Blair/Tsipras analogy can only go so far).

So the question in a way isn’t so much one of whether or not Syriza got owned as one of whether Syriza is a coherent and viable movement without Tsipras and his followers. I have my doubts.

I hope that Greece manages to resist but I doubt they’ll resist if Tsipras remains at the helm as he never wanted to resist in the first place.

*What for purposes of shorthand I’ll call the Bennite and Militant tendencies

Did Syriza get owned?

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On February 24, 2015

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The details of the Syriza request to the Troika are here, for those who want to read the actual list. The public statement is here.

The best analysis I’ve read of the deal, as compared to Syriza promises, is by Stathis Kouvelakis, in the Jacobin Magazine.

Kouvelakis makes the case, convincingly to me, that Syriza caved, and got virtually nothing of what it wanted.  Here is a summary of what Syriza wanted:

Not consenting to any supervisory or assessment procedures, it requested a four-month transitional “bridge program,” without austerity measures, to secure liquidity and implement at least part of its program within balanced budgets. It also asked that lenders recognize the non-viability of the debt and the need for an immediate new round of across-the-board negotiations.

But the final agreement amounts to a point-by-point rejection of all these demands.

…..

In the Eurogroup’s Friday statement, the existing program is referred to as an “arrangement,” but this changes absolutely nothing essential. The “extension” that the Greek side is now requesting (under the “Master Financial Assistance Facility Agreement”) is to be enacted “in the framework of the existing arrangement” and aims at “successful completion of the review on the basis of the conditions in the current arrangement.”

Kouvelakis goes through the agreement point by point, and backs up his argument.  You should read the entire piece.  More important than proving the obvious (that Syriza got virtually nothing) is why.

The question that emerges, of course, is how we landed in this quandary. How is it possible that, only a few weeks after the historic result of January 25, we have this countermanding of the popular mandate for the overthrow of the memorandum?

The answer is simple: what collapsed in the last two weeks is a specific strategic option that has underlaid the entire approach of SYRIZA, particularly after 2012: the strategy that excluded “unilateral moves” such as suspension of payments…

Kouvelakis calls part of this the “good euro” strategy—the supposition that anyone in power in the Euro area wanted Syriza and Greece to get real debt relief and exist austerity.  This, as I have argued in the past, is delusion:

The key here is psychological. Greeks need to admit that their fellow Europeans do not care how badly they suffer; need to acknowledge that they are not seen as Europeans by their fellow Europeans, and need to look East and South for their survival and future prosperity.

Until Greeks get through their heads, and hearts, that the other European countries are not their friends, they will continue to suffer.

Unilateral is the key word.  Greece cannot depend on any other nation in Europe to look after its interests, let alone Germany (the very idea that the German government cares one whit how much Greeks suffer is so laughable as to move beyond fantasy into insanity).

Greece must do what it can it unilaterally.  This doesn’t mean no negotiation, but that negotiation will not be with Europe or Germany or the ECB, it will be with other countries who need what Greece has to offer enough to make a deal.

Read the Jacobin article.  And understand what just happened, because as Kouvelakis notes the only thing worse than defeat is pretending it was victory.

None of this means that victory is not still possible.  But it is only possible if Syriza spends the next few months planning moves which do not require Europe’s approval.

I genuinely hope they do.  The sooner they do, the sooner Greeks will be better off (though yes, the transition will be painful), and the sooner the current European and World system, which is causing so much unnecessary suffering, will end.

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Syriza and Greece Seem to Have Been Owned

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On February 21, 2015

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So, the Greeks have an understanding for an extension of the loan agreement.  On Monday they have to present the “reforms” they will be undertaking in exchange for it.

I don’t know what those reforms will be, but I know that the agreement still gives the Troika (now called “institutions”) veto power over Greek policy.  The key text in the mealy-mouthed statement is this one:

The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.

The Greeks also promised to pay back everything.

Yeah, Tsipras may be attempting to portray this as a victory, but it’s not.

The bottom line here is that Syriza weren’t really willing to default or Grexit.  One can note that they campaigned on ending austerity, but staying in the Euro.

That was always problematic: yes, that’s what many Greeks want, so it was a political winner, but if they were serious (and it appears they were) it left them without the ability to actually negotiate a better deal.

Much has been made of the fact that Greek Finance Minister Varoufkis is an academic specialist in game theory.  In the the early days he seemed serious about being willing to default.  It appears he wasn’t, it was a bluff.

I’m not an expert on game theory, but I do know something about it, and about negotiation and I’ll tell you this, for threats to work they must be credible, and to be credible you must be willing to actually go through with them.  Faking is never as good as sincerity.  Having campaigned on “have your cake and eat it too”, Syriza was in a bad position to negotiate with Europe.

I had hoped they were negotiating to show the Greeks that no good deal was possible, then would be willing to say to Greeks “only default and Grexit is viable.”  So far, it appears not.

It’s worth noting that reports are that Southern politicians in places like Portugal, Spain and Italy were pushing for no debt forgiveness.  For their own political futures, they need to be able to say “there was no alternative”.  But, of course, debt forgiveness would be good for all of those countries, meaning politicians pushing against it for Greece (setting a precedent allowing it for them) are acting  against the best interests of their own countries.  There is a word for such people, and it starts with “T”.

The Greek Communist party refused to join with Syriza in a coalition government because they expected this to happen, they have been proved correct.  If Syriza does not get a very good deal, or spend the next few months making the case to Greeks for default; in other words, if they don’t turn this around, then they will have their one term and the Greeks will turn to someone else.  Golden Dawn, the fascist party, came in third, but Syriza voters, being left-wing, might prefer the Communist party.  We will see.  Syriza, after all, is not very left wing at all.

It should be noted that we don’t know what threats were made behind closed doors. My guess is that they were very harsh: Greece cannot feed itself, it cannot fuel itself, it has very little to offer in exchange for the foreign currency it requires to buy what it needs.  A default and a Grexit where the Troika and other European countries were not trying to punish it could be managed.  But one where they did seek to punish it would be difficult.  Syriza may not have properly gamed out how to survive in that scenario, and may have been surprised by how punitive the Troika intended to be in the case of default and Grexit.

If so, that is political incompetence (and game theory incompetence).  One should always know what one’s best alternative to a negotiated settlement is.

I’ve written in the past how Greece could handle such a scenario.  (Here and here.)  It’s not an insoluble problem, but it does require being willing to backhand Europe as hard as they have backhanded Greece and then to get even nastier.  Greece has a lot to offer Russia, for example, and Russia can take care of Greece’s fuel needs easily in exchange for Greek bases and so on, which essentially cost Greece nothing.

The key here is psychological. Greeks need to admit that their fellow Europeans do not care how badly they suffer; need to acknowledge that they are not seen as Europeans by their fellow Europeans, and need to look East and South for their survival and future prosperity.

Until Greeks get through their heads, and hearts, that the other European countries are not their friends, they will continue to suffer.  Until they are willing to take the losses that Grexit and default will impose, things will continue to get worse.  (Being genuinely willing to take those losses is also the only way they might be avoided.)

I note also that sheer idiotic incompetence of Syriza in not putting in place currency controls to prevent capital flight during the negotiation period.  This is virtually an own-goal it is so stupid, and should bring into question just how smart Varoufkis is (or Tsipras, if he over-ruled Varoufkis.)

I wish the Greeks the best. But as with all those who have been horribly damaged by neo-liberalism and austerity, they need to get through their heads that those in charge of the policy have no fellow feeling for them; that people like Merkel, Shauble and the Germans who support them are enemies, not friends, let alone family members in some big European family which cares about all Europeans.

This is economic war, with the casualties that implies.  The Germans and the ECB are treating it as such; the collaborators in Italy, Portugal and Spain are treating it as such. Until ordinary people, and the representatives they put their faith in start treating it as such, they will continue to lose.

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The Greek Pivot East and the Future of Greece In Europe

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On February 3, 2015

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In my most recent article on Greece and Syriza’s options I pointed out that cutting deals with other pariah nations might be wise.

Practically the first thing Greece did was say that they will not be onside for any more Russian sanctions.

Russia said they would consider, if asked, bailing out Greece.  (This is a way of saying, “go ahead, ask”.) Given Russia’s own reserve problems, one wonders where it would find the money, BUT my guess this is a “if you default” scenario.  Russia won’t pay off European banks for Greece, but if Greece defaults, it will help Greece running. (Not least, most likely, by selling them heavily discounted hydrocarbons, and probably even loaning them the rubles to buy them with.)

That takes care of one of Greek’s main problems: food, oil/gas, and medicine—what they MUST have which they MUST buy from other countries.

A few words on Greece’s negotiations with Europe are also in order.  First, note that the “bailouts” given to Greece mostly weren’t — 89% just went back to lenders.  Worse, the imposed austerity conditions caused an actual collapse in GDP and employment, which means that the cost of the bailouts was far more to the Greek government and economy than the actual amount of money received.

In other words, this was all just a bullshit way of bailing out banks, and as the FT notes, only because bailing them out direct was “embarrassing”.  To avoid embarrassment, millions were impoverished, people set themselves on fire, and Greece was devastated.

This, people, is why I say, and mean, that Merkel is monster.  A disgusting, rotting excuse for a human being, let alone a statesman.  Millions suffered, not just in Greece but in the other peripheral countries, for no good reason.  Austerity is just the voodoo economics of the modern day, but even more devastating.

The deal Greece wants is more than fair to “lenders”.  And I mean “more than fair” literally.  They deserve to be defaulted on, because they didn’t do their due diligence, and all loans since the financial crisis at the very least, should NEVER have been made.

An independent Bloc is desperately needed in the world.  BRICS plus allies, with their own payment system, reserve currency and international trade and settlement system.  Until it exists, countries like Greece will feel (and often be right) that they have no choice but to buckle under to whatever terms the West sets.

Enough.  This suffering is not required in any world which runs on rational economics AND has as its goals the welfare of everyone.  It never was required.  All of the deaths, job losses, homelessness, hunger and so on was optional.  It was chosen because it suited oligarchs and politicians like Merkel.

This is the world you live in. It must be changed.  Since core westerners are unwilling to change it from withing in time to save millions and millions from suffering; it will have to be changed by those it is most severely impoverishing.

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Let’s Talk Turkey About Greece

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On January 16, 2015

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In light of the upcoming Greek elections and the possibility of a Euro exist, this article from 2012 is worth revisiting.

1) Greece is very likely to exit the Euro.

2) When Greece exits the Euro it will be punished severely by the monetary authorities.  They intend to let Greeks starve.  They will cut off food supplies, and Greeks will not be able to afford food.  Oil is also going to be a problem.  Greeks will probably not be able to flee to other countries.

3) The reason they will punish the Greeks is because they can.  They couldn’t punish the Argentinians (well, they’re working on it) or the Icelanders, because both those countries can feed themselves.  They can punish the Greeks.  They need to make an example, because they are worried about Spain, Portugal, Ireland and other countries.  (Heck, even the Dutch are having problems.  The Dutch!  If the Dutch can’t make it in the Euro, no one can.)  This isn’t, contra Lagarde about “bad Greeks”, while it is true that Greece should never have been let in to the Euro, well, everyone knew that.  Including the countries that let Greece in.

4) Greece is going to have get hardcore and creative about creating a new economy.  Since the monetary authorities intend to starve them and deprive them of oil, they must retaliate hard.  Greece has a number of options, and this is what Greece should do You don’t play nice with people who are trying to cause a famine in your country.

  • Greece has a large fleet.  Use it to strip mine the Mediterranean of all resources possible.  Yes, the Med is a fragile ecosystem.  If the other Euros don’t like it, they can not punish Greece, otherwise Greece will have to feed itself.  The Euros could send fleets, but as the British-Iceland fishing war proved, that’s prohibitively expensive.
  • Start gun-running and other black market activities up.  European gun-running currently goes through Albania.  Greece has much better ports.  If the Euros don’t like it, they can militarize Greece’s borders at a cost much higher than feeding the Greeks.
  • Become a full on black-hole for banking.  If anyone wants to store money in Greece, they can.  No questions asked, no forms needed.
  • Make deals with other “pariah” and semi-pariah nations.  Start with Iran and Russia for oil (Iran will be happy to give oil in exchange for black market help).  Make a deal with various 2nd world nations for food, start with Argentina, they have no reason to love the IMF or the European Union, which promised to “punish” them for nationalizing oil in Argentina.  In exchange Greece can offer use of their fleet, for cheap, and port rights for the Russian navy.  They’ve wanted a true warm water port for some time.  Offer them a nice island in the Med with a 30 year lease.
  • Hold on for a couple years.  Odds are that soon enough Ireland, Spain, Portugal and maybe others will leave the Euro.  They won’t be in any mood to screw Greece for their ex-Euro masters.  Heck, odds are 50/50 that there won’t be a Euro zone at all in 3 years, since Germany wants to screw everyone, including France.
  • Nationalize basically every industry.  It’s unfortunate, but it’s going to be necessary.  Hundreds of billions of dollars have fled Greece in the past 3 years, in fact that was one of the main reasons for dragging out the “bailouts” (really, bailouts of German banks), to let the money flee.  All Greek assets are going to be frozen overseas, so the Greeks will need to work with what they have.
  • No more money goes out of the country.  Slap on currency controls, to make sure what money is there doesn’t leave (this is aimed at Greece’s rich).  If any banker or anyone else circumvents them, throw them in jail, the sentence should be life, generous, since they are committing treason.
  • Seriously change the tax system, and insist on really taxing the rich.  Go to heavily progressive taxation, reduce the burden on the poor (a large number of people now), this will buy support.
  • A food rationing system, with cards and delivery to every person in the country will be necessary.  It won’t be fun, but combined with the above, you can make sure that no one starves.

Greece has been under siege for years now, and traitors within its own country (its politicians) have betrayed it.  This means Greeks are in serious danger of suffering a famine.  The response to that, by Greeks, will have to be pragmatic and severe.  If non-Greeks don’t like it, that’s too bad.  When millions of people are in danger of starving, a country does what it has to.

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