Thursday 17 May 2012

Squandered trillions and the Greek exit

After neither the pro nor the anti "austerity" factions of the Greek legislature could form a coalition government following the elections on 6 May 2012, the global stock markets predictably went into panic mode. The new Greek election is chalked in for the 17th of June and the predictions are that the anti-austerity parties will further increase their share of the vote. The stock markets are panicking because a victory for the diverse range of anti-austerity groups would signal an end to their favoured containment policy of huge bailouts from the European Central Bank and the IMF in return for the rapid neoliberalisation of the stricken Greek economy (via mass privatisations, welfare cuts and attacks on labour rights). If the next Greek government refuses to play ball, then the prospect of a Greek Eurozone exit and a return to the Drachma would seem like the most likely outcome.

The prospect of a Greek Euro exit has further intensified the shocking level of capital flight out of Greek banks as citizens and businesses attempt to withdraw everything they can in Euros before their savings get turned into Drachmas. Estimates put the scale of withdrawals at €75 billion over the last two years peaking at €3 billion Euros in a single week in the aftermath of the election. The idea of a Greek Eurozone exit has been floated for several years, but even when I first published a blog addressing the subject back in September 2011, the view that a Greek Eurozone exit would be desirable or even possible was still being criticised as unrealistic, speculative, stupid, dangerous and absurd. By May 2012 even heads of state and central banker bosses were openly discussing the prospect of a Greek withdrawal.

David Cameron, ever the political opportunist
The UK Prime Minister David Cameron waded into the debate by trying to blame the woeful state of the UK economy on the Eurozone crisis and the threat of a Greek exit, however he failed to draw the obvious link between the £40 billion that the Tory led Coalition government had handed over to the IMF economic blackmail fund (that could have been better used to support British industry and British jobs) and the IMF imposed economically destructive neoliberalism dressed up as "austerity" that has worsened the Eurozone crisis and triggered the Greek electoral backlash.

It is the harsh economically destructive "structural adjustments" that the IMF and ECB have set as conditions on the Greek bailout deals that have intensified the Greek economic crisis and caused the huge political backlash that is panicking the global financial markets, making Cameron's comments that the Eurozone should "make up or break up" particularly hard faced, since it is the UK backed IMF and their insistence upon harsh austerity measures that intensified the crisis to this level in the first place.

The head of the Bank of England Mervyn King also joined in with the Euro doom-mongering by claiming that the Eurozone is "tearing itself apart with no obvious solution". An economic analyst called Doug McWilliams made widely publicised claims that a disorderly Greek exit from the Euro could result in a 5% drop in Eurozone output, equivalent to a $1trillion loss. Coincidentally another chief central banker Mario Draghi of the ECB has spent even more than $1 trillion in ultra-low interest "giveaway loans" to the debt riddled European banks in the last six months alone.

If nothing else, this estimate of $1 trillion in lost productivity from a "worst case scenario" chaotic initiation of the Eurozone breakup puts the vast scale of financial "support" being poured into the black holes of debt created by the reckless gambling of the neoliberalised European financial sector into perspective. Many of these reckless bets were made in Greece, hence the need for the ECB and the IMF to provide numerous huge bailouts so that the Greek government could pay out on what should have been losing bets. The whole cycle of "worsening economic conditions - bailouts - austerity - worsening economic conditions" can be seen as an exercise in protecting European banks from the consequences of their own bad Greek bets. What has made the situation so much worse than it could have been, is the insistence from the ECB, the IMF and German Chancellor Angela Merkel that ordinary Greek citizens must suffer the consequences of socially and economically destructive ideologically driven neoliberalisation reforms in order that their government can borrow money to pay out on the bad bets of the German banks.

Given the fact that the ECB's €1,000,000,000,000 in secretive LTRO loans and €100,000,000,000s more in Greek bailouts have had no discernible effect in preventing this economic chaos, surely the European Central Bank (and the Bank of England for that matter) will have to stop squandering such vast sums on propping up the dysfunctional neoliberalised financial sector and willfully inflicting economically destructive self-defeating austerity in order to pay for it.

After handing out €1tn in ultra-low interest loans to the
 the debt riddled European financial sector in the last
 6 months alone, Mario Draghi can expect them to come
squealing again in the wake of this latest "crisis".
If the central banks are going to make these kind of Keynesian style economic interventions by providing these kind of ultra-low interest loans and vast bailouts, they must provide them directly to the "real economy" of jobs, manufacturing, industry, research, modernisation, infrastructure development, education and training instead of using them to protect the parasitic European banks from the consequences of their bad Greek bets

Had the ECB intervened with direct loans to help Greek businesses to expand and modernise and to the Greek government to improve national infrastructure (instead of intervening with bailouts and punishing austerity measures), I'm absolutely certain that the situation in Greece would not have got so badly out of hand.

Even though the pan-European anti-austerity backlash has begun, I fear we're going to be stuck with this kind of privatise the profits, nationalise the losses, bailouts for the super-rich and austerity for the masses economic rubbish for a good while longer, especially in Britain where all three of the establishment parties are wedded to the ideas of "austerity" or "austerity-lite".

See also

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