For those unfamiliar with Europe's unique take on macro-economic theory, here is a primer that attempts to explain Greek government's dilemma in dealing with its creditors; But let us put the problem in its context through the use of an extract from the end of George Orwell's 1984; O'Brien, Winston Smith's torturer and now mentor lectures him on the relationship between numbers and political reality;
“Do you remember,” he went on, “writing in your diary, ‘Freedom is the freedom to say that two plus two make four’?”
“Yes,” said Winston.
O’Brien held up his left hand, its back toward Winston, with the thumb hidden and the four fingers extended. “How many fingers am I holding up, Winston?”
“Four.”
“And if the Party says that it is not four but five—then how many?
”
“Four.”
The word ended in a gasp of pain. The needle of the dial had shot up to fifty-five. The sweat had sprung out an over Winston’s body. The air tore into his lungs and issued again in deep groans which even by clenching his teeth he could not stop. O’Brien watched him, the four fingers still extended. He drew back the lever. This time the pain was only slightly eased.
“How many fingers, Winston?”
“Four.”
The needle went up to sixty. “How many fingers, Winston?”...
“Five! Five! Fivel”
“No, Winston, that is no use. You are lying. You still think there are four. How many fingers, please?”
“Four! Five! Four! Anything you like. Only stop it, stop the pain!”
In essence these are the two choices that Greece's newly elected Syriza administration is being offered by the Troika (as it is known locally) made up of the European Union, European Central Bank and the International Monetary Fund.
Either Athens tells its creditors that with the current terms and conditions the debt load is unsustainable and that any chance of paying back in full the 317 billion euros borrowed since the first bailout deal in 2010 is, in practical terms, impossible. In which case Greeks face the possibility of being unable to access further credit and so goes bankrupt with who knows what consequences for the national economy.
Alternatively Syriza accepts the current status quo, caves into creditors demands knowing that the terms and conditions imposed are impossible to meet in the long term and in the meantime is forced to impose yet more crippling austerity measures which have gutted the economic base.
More and more serious analysts, economists and observers consider the nation's debt cannot ever be repaid yet the Troika and many of the top EU players continue to insist there can be no serious renegotiation of the debt and certainly no debt relief. Thus Europe, like O'Brien in 1984 has created an insane dilemma in which the protagonist has not only to submit no matter what logic and common sense dictate but also truly believe that this madness trumps reality.
If Greek finance minister, Yanis Varoufaki fails to pull off a Kobayashi Maru style game changer and resets the parameters of the debate as now set down then whatever Syriza chooses, their fate will be the fate of Winston Smith in 1984 and the people of Greece, like Smith will be made to suffer for believing that financial reality is more important than ideology,
Let us leave Orwell with the last word(s).
“You are a slow learner, Winston,” said O’Brien gently.
“How can I help it?” he blubbered. “How can I help seeing what is in front of my eyes? Two and two are four.”
“Sometimes, Winston. Sometimes they are five. Sometimes they are three. Sometimes they are all of them at once. You must try harder. It is not easy to become sane.”
2 comments:
Two and two only makes five because the austerity debate has been falsified. The depression in Europe has been caused because banks no longer lend to small businesses, the biggest employers and drivers of economic growth.
The real economy has little to do with government spending. This is clearly shown by the fact that Troika bailout loans to Greece have had absolutely no effect on unemployment.
One reason for the Eurozone crisis and lack of credit growth, is that banks have had to substantially increase capital reserves during an economic downturn.
The other reason is that European banks are hardly lending to Europeans at all. The ECB is easing while the FED and BOE are about to tighten. Bond yields in US Treasuries and UK gilts are assured. European banks are able to borrow funds from the ECB at almost no interest, so they are buying zero-risk US and UK treasuries, rather than purchasing high-risk European commercial bonds.
If the European banks lent to local small businesses, the European economy would grow and governments would earn enough tax revenues to pay down their debts, instead of rolling them over. But the banks are rather using ECB funding to leverage up and make huge profits from USD/Euro carry-trades.
The ECB has failed to get the banks to lend to small business: now it is attempting to flood the market with €60 billion of liquidity per month. This might do the trick. But if zero interest rates have achieved nothing, why should QE be any different.
Stimulating the Greek economy by writing off large chunks of Greek Government debt is completely fallacious. How does that get EXTRA liquidity into the Greek private sector? Bailout loans do not go into the real Greek economy - they simply go towards paying Greece's creditors. For instance the Greek government must pay off €7 billion due in 2015. The Troika is expected to lend the Greek government €7.2 billion in its next tranche of bailout money to service this debt. This Troika money completely by-passes the real economy of Greece, and at the same time makes absolutely no difference to Greece's state debt: Greece is borrowing from Peter to pay Paul
Let us say that Greece defaults on its €7.2 billion repayment, or extends the term to fifty years. So what? What difference does that make to the unemployed? Where is the government supposed to get funds to spend and create jobs for 25% of the workforce? From the tax that the 75% employed workers are paying? This is a circular argument.
Greece is bankrupt. Its only hope is to print its own money to buy its own assets, rather than selling, for example, Piraeus port to foreigners. Greece must stop financing the government with ever-increasing "foreign" debt. When the ECB prints Euros to lend to Greece, they are issued in the form of a loan from all 19 Eurozone central banks. If the Greek central bank prints Drachmas, it owes nothing to ECB members such as the Bundesbank.
Greece will take a long time to pay off its loans with its own heavily devalued currency. But the most important result of reverting to the Drachma is that Greece will immediately stop borrowing from other European lenders in order to finance the Greek state. It is this fact that is probably the biggest threat to the financial elites of Europe.
As long as Greece uses the Euro, it is forced to borrow. Greece must exit the Euro. Only then will two and two cease to be five.
I basically found your webpage page and expected that would express that I have genuinely regarded the experience of looking on the web journal areas. The latest Tweets from Celebrity birthdays with 22 million users visit our website each month.
Post a Comment