Paul Krugman: Breaking Greece

http://krugman.blogs.nytimes.com/2015/06/25/breaking-greece/

I’ve been staying fairly quiet on Greece, not wanting to shout Grexit in a crowded theater. But given reports from the negotiations in Brussels, something must be said — namely, what do the creditors, and in particular the IMF, think they’re doing?

This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do — see the chart, which compares the projections in the 2010 standby agreement with reality — are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity.

Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we’re not in high school here. And right now it’s the creditors, much more than the Greeks, who keep moving the goalposts. So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others?

At this point it’s time to stop talking about “Graccident”; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.

Tsipras states that referendum is fundamental to democracy and states that the Greek nation is called to show “daring and virtue”

http://en.protothema.gr/pm-a-tsipras-defends-greeces-right-to-a-referendum/

Prime Minister Alexis Tsipras says that he will not be riled into a political skirmish by responding to main opposition ND party leader Antonis Samaras’ accusations as the whole of Greece knows their role in bringing the country to where it is today.  He says that today will remain in history as a day when eurozone members cast out a member not allowing the leader of a democratic country to express itself as it has a right to do. “We will all respect the result. We will defend democracy, popular sovereignty and the founding values of Europe,” he said.

“We will not ask, in the land where democracy was born, the permission of Mr. Schaeuble and Mr. Dijsselbloem to give the floor to the Greek people,” he said. He said Europe shouldn’t fear referendums – many countries have held them before, including in cases where treaties such as Maastricht were implemented.

He accused the International Monetary Fund of coming to Europe to cause a rift.

“Yesterday our creditors blackmailed us with the threat of depriving liquidity,” he said. “Today they used the fear of a bank run.” He referred to a “propaganda of fear” but he argued that the referendum could shake it off.

Though Greece is a peaceful country, he said that the country is not afraid of fighting when necessary. “We negotiated with our back to the wall,” he said. “Despite these conditions, every citizen in this land knows that Greece over these months, and the Greek government has made an honest effort to negotiate with decisiveness and dignity.”

Tsipras said that the IMF presence zeroed the chances of an “honorable compromise.”

“They asked us to place the burden on pensioners… to cut pensions, even the subsidy for the lowest pensions,” said Tsipras. “They made it clear that they weren’t interested in measures to tax wealth and would not include these in the measures.” He pointed to the contradictions in negotiations and backtracking on agreements that had already been made. Tsipras criticized creditors for insisting on further cuts to pension spending, hitting the poorest and refusing to raise the minimum wage.

Tsipras pointed to the creditors’ demands on VAT in tourism. “Who are they working on?” “What interest do they serve?” “Why do they want to create problems to Greece’s greatest asset – tourism?” were some of the questions Tsipras asked.

After listing all the demands the creditors had offered, he pointed to the vague pledges given in return. He said that the measures would have brought “slow death” to Greece.

“Once you said that we were leading the country to the rocks. Next, you said that we were signing memorandums,” he said, referring to the opposition’s contradictory criticism. “Perhaps there was envy that we are doing what you wanted to do but couldn’t, which is resist!”

“Greece will not surrender! Greece is not a game that’s over!” he said, adding that the intent was for an “honorary compromise” and for a truly “viable solution”. He said that he wanted an honest negotiation, not blackmail.

A referendum is not a “coup” as some suggest, said the leader, who points out that calling the people on their own future is not a problem. He said that the result of the referendum will be respected.  He criticized efforts to turn a memorandum on creditors’ proposals into a memorandum for an exit from the euro, adding that this is not the intent of the government.

“Greece is not a visitor or guest in the European structure. We are equal amongst equals. No one has the right to show us the door out from our common house and we are not intending to give anyone this right at any rate,” he said, pointing to the popular mandate on January 25 that gave an opportunity to Europe to change its course. The vote also gave “Troika” the chance to become “institutions” to become democratic organs, but they chose to “continue being troika that kill democracy in Europe.”

“We don’t have the right to make Greece a debt colony for the next few decades,” he said, adding that there would be no death plaque placed on democracy in the land where democracy has lived for thousands of years.

Paul Krugman: Syriza should ignore calls to be responsible

The troika was peddling an economic fantasy: Greeks have paid the price

Incoming Greek prime minister Alexis Tsipras is being far more realistic about austerity and growth than European officials who want the beatings to continue until morale improves. Photograph: Michael Kappeler/EPA

Paul Krugman

Tue, Jan 27, 2015, 16:06

Alexis Tsipras, leader of the left-wing Syriza coalition, has become prime minister of Greece. He is the first European leader elected on an explicit promise to challenge the austerity policies that have prevailed since 2010. And there will be many people warning him to abandon that promise, to behave “responsibly”.

So how has that responsibility thing worked out so far?

To understand the political earthquake in Greece, it helps to look at Greece’s May 2010 “standby arrangement” with the International Monetary Fund, under which the so-called troika – the IMF, the European Central Bank and the European Commission – extended loans to the country in return for a combination of austerity and reform. It’s a remarkable document, in the worst way. The troika, while pretending to be hardheaded and realistic, was peddling an economic fantasy. And the Greek people have been paying the price for those elite delusions.

False assumptions

The economic projections that accompanied the standby arrangement assumed that Greece could impose harsh austerity with little effect on growth and employment. Greece was in recession when the deal was reached, but the projections assumed this downturn would end soon – that there would be only a small contraction in 2011, and that, by 2012, Greece would be recovering. Unemployment, the projections conceded, would rise substantially, from 9.4 per cent in 2009 to almost 15 per cent in 2012, but would then begin coming down fairly quickly.

What actually transpired was an economic and human nightmare. Far from ending in 2011, the Greek recession gathered momentum. Greece didn’t hit the bottom until 2014 and, by that point, it had experienced a full-fledged depression, with overall unemployment rising to 28 per cent and youth unemployment rising to almost 60 per cent. And the recovery now under way is barely visible, offering no prospect of pre-crisis living standards.

What went wrong? I fairly often encounter assertions to the effect that Greece didn’t carry through on its promises, that it failed to deliver promised spending cuts. Nothing could be further from the truth. In reality, Greece imposed savage cuts in public services, wages of government workers and social benefits. Public spending was cut much more than the programme envisaged, and it’s about 20 per cent lower than it was in 2010.

Yet Greek debt troubles are if anything worse than before the programme. One reason is the economic plunge has reduced revenues: the Greek government is collecting a substantially higher share of gross domestic product in taxes, but GDP has fallen so quickly that overall tax take is down. Furthermore, the plunge in GDP has caused a key fiscal indicator, the ratio of debt to GDP, to keep rising even though debt growth has slowed and Greece received some modest debt relief in 2012.

Why were the original projections so wildly over-optimistic? As I said, because supposedly hardheaded officials were in reality engaged in fantasy economics. Both the European Commission and the European Central Bank decided to believe in the confidence fairy – that is, to claim that the direct job-destroying effects of spending cuts would be more than made up for by a surge in private-sector optimism. The IMF was more cautious, but it underestimated the damage of austerity.

And here’s the thing: if the troika had been truly realistic, it would have acknowledged it was demanding the impossible. Two years after the programme began, the IMF looked for historical examples where Greek-type programmes, attempts to pay down debt through austerity without major debt relief or inflation, had been successful. It didn’t find any.

Unable to lecture

So now that Tsipras has won, European officials would be well advised to skip the lectures calling on him to act responsibly and to go along with their programme. The fact is they have no credibility; the programme they imposed on Greece never made sense. It had no chance of working.

If anything, the problem with Syriza’s plans may be that they’re not radical enough. But it’s not clear what more any Greek government can do unless it’s prepared to abandon the euro, and the Greek public isn’t ready for that.

Still, in calling for a major change, Tsipras is being far more realistic than officials who want the beatings to continue until morale improves. The rest of Europe should give him a chance to end his country’s nightmare. – (New York Times)

Tue, Jan 27, 2015, 16:06