Lorenzo & his humble friends

The fool doth think he is wise, but the wise man knows himself to be a fool

Tag: euro

This referendum is a sham

Three days ago I wrote that “the Greek government had no choice but to reject the last bout of austerity” and I still think I was right. I only wish this decision would have been taken differently.

The referendum called upon by the Greek government is a complete sham. It has been decided in a night and scheduled in six days. Upon announcing it, the government has asked to vote No, threatening resignation, collapse of national dignity, and various other disasters. The official website of the referendum does not provide any balanced information on the context, the franchise, and the procedures for voting: instead, it provides plenty of arguments for voting No to a question which is about a bail-out plan that does not exist any longer. In any case, it is not clear what would happen should voters decide for Yes or No. Meanwhile, the government continues to negotiate, thus changing the context surrounding this decisive vote.

Under these conditions this is not a referendum: it is a plebiscite. It doesn’t take an expert to recognize that such consultations fall way short of the most basic international standards. The last vote of this kind has been held in Crimea in 2014: that referendum has been deemed as “unacceptable” by all 28-EU States. There is no reason why this should be treated differently.

Through these fields of destruction

I have been silent on the solvency crisis of Greece for years because I did not have a clear opinion on it. This weekend I finally took the time to read the statements of the Eurogroup and the conditions offered to the Greek government; I watched the televised address by Greek’s Prime Minister Alex Tsipras; and I had a look at the economic data on the Greek economy. My final opinion is also largely informed by a series of articles I read, most notably those of the Guardian. So this is what I think.

1. Austerity is harmful. It is now obvious that the Greek economy won’t benefit from another round of austerity. The stated intention at the start of the austerity package in 2010 was to restore order and balance in the accounts of the country in the long run. Since the imposition of austerity, however, the Greek GDP has fallen by 25% and unemployment rate has gone up to 25%, with youth unemployment over 50%. Happiness measures has also collapsed and now the Greeks are the most miserable in the Organisation for Economic Co-operation and Development. Austerity has badly harmed Greece: this is an economic fact.

2. The troika has waged a moral crusade against Greece. So the question is twofold: (1) why does the troika insist with austerity and (2) what is the point of reducing this country to rubble? Nobel economics laureate Joseph Stigiltz has written about Greece for Project Syndicate. He believes “it is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned“. However, although austerity does not work for the economics of Greece, it has served as a collective punishment of the Greeks. Indeed, with austerity the troika have been offering not an economic solution but a political narrative: the Greeks are in this situation because they were lazy, selfish bastards. Austerity is the instrument to discipline them and inflict some punishment for their misconduct. Ask people in the street and they will likely support this narrative.

3. The Greek government had no choice but to reject the last bout of austerity. A few months ago Syriza won the elections under a specific commitment: ending austerity. The new government’s promise to the Greek people was to speak truth to the troika plainly to convince them to drop austerity. If the government were simply fulfilling its campaign promises, it would already have rejected the proposal. Now it is clear that they failed: the EC/ECB/IMF’s final offer to Greece is pure neo-liberal austerity based on new taxes, higher VAT, cuts on pensions, privatizations. No wonder the Greek government opposed it. On Saturday the Eurogroup broke with its tradition of unanimity, issuing a statement “supported by all members except the Greek member”. As reported by the Guardian, the Greek finance minister Yanis Varoufakis sought legal advice on whether the group was allowed to exclude him and received the extraordinary reply: “The Eurogroup is an informal group. Thus it is not bound by treaties or written regulations. While unanimity is conventionally adhered to, the Eurogroup president is not bound to explicit rules.” Or, to put it another way: “We never had any accountability in the first place, sucker.” So now it is also crystal clear that the Greek concern for popular legitimacy is incompatible with the politics of the eurozone. At this point, with the Greek government unable to dismiss austerity, it is my opinion that had a clear political mandate by the people who put them in power in the first place to reject the last austerity bout.

4. How things could have gone differently. We all know that if Greece were outside the euro, the advice of external institutions would be different. Most people would be telling Greece to devalue its currency and stuffing investments. While the former option was not a possibility in this context, the latter option has not been made available to Greece either. Why? A reform agenda for Greece could have emulated the kind of public sector reform and investment strategy that characterizes many of the competitive powerhouses of northern Europe – including Germany. The Guardian suggests that “Greece should not do what Germany says it does (austerity), but what Germany actually does (invest)”. In practice, negotiations should have focused on stuffing an investment strategy to kickstart public investments rather than more cuts. Unfortunately they have not: now Greece represents an existential crisis for the eurozone. I will once again quote another Guardian’s article for a rather apocalyptic ending punch: “It will be said in response that Greece is a small, insignificant country and that the single currency has much better defences than it had at the last moment of acute trouble in the summer of 2012. Diplomats in Europe’s capitals took very much the same view in late June 1914”.

Germania, matrigna o guida?

La campagna elettorale italiana ha visto come convitato di pietra la Germania di Angela Merkel, tirata in ballo dall’imbarazzante propaganda berlusconiana ma anche dalle critiche di alcune parti della sinistra, avverse alle politiche rigoriste imposte dall’Europa per affrontare la crisi. La nostra immagine della Germania è conforme alla realtà? È certo che per capire il contesto odierno – e quindi per orientare con consapevolezza le proprie scelte anche al momento del voto – occorre guardare oltralpe senza pregiudizi ma pure senza sconti. Leggi tutto il mio articolo di oggi su Unimondo.

E grazie a Letizia, che mi ha spinto a indagare questo tema affascinante.

Mario Draghi: the modern-day Mephisto

Wolfgang Münchau is one of the wisest economic experts we have in Europe. He was really concerned with the euro crisis, or what he now calls “the certain debasement of the euro”, starting from 2010 already. Still, he is against the “creeping euroscepticism” that is on the rise everywhere in Europe, and especially in Germany – and yes, he is German. This article is a beautiful op-ed.

Whatever you need to know about Germany, you will probably find it somewhere in Goethe’s Faust. But it is rare that wisdom is found in part two of the tragedy, one of the most revered and least read books in all of German literature. Someone who managed to dig up something truly remarkable from it was Jens Weidmann. The president of the Bundesbank cited Mephisto’s advice to the Emperor that the simple solution to a lack of money is to print it.