These bailouts aren't democracy. What's worse, they aren't even a rescue - TheNewTopical.com - current events, politics, culture, ethics, economics discussion forum

FredFredson · #1 (**permalink**) 17-11-11, 03:49 AM

These bailouts aren't democracy. What's worse, they aren't even a rescue
by Heather Stewart - Observer

The idea that Italy's and Greece's new technocratic governments will be apolitical is nonsense. And it's becoming clear that, in Athens, austerity is already turning a crisis into a disaster

Investors are breathing a sigh of relief after a tumultuous week, with at least a semblance of stability restored to Italy and Greece. But the past seven days have also flipped the euro to reveal a new face – and it wasn't a pretty one. The deeply undemocratic nature of the euro project had already been laid bare in Cannes by the European elite's outraged response to George Papandreou's announcement that he would hold a referendum on the latest "rescue" package for his country.

Papandreou may have had his own tactical reasons for demanding a vote. But given that the bailout package involves further hardship for an already restless populace, it didn't seem unreasonable that, in order to avoid the nation becoming ungovernable, he felt the need to ask for a fresh mandate.

Last week, it was Italy's turn to face intense pressure from financial markets – and, in turn, from its eurozone partners. As Berlusconi showed few signs of carrying out his promise to resign, France began openly calling for regime change in Rome. Now, there's no doubt that Silvio Berlusconi is both odious and ineffectual; but for Italy's neighbours to be demanding the departure of its democratically elected leader was hardly a shining moment for European democracy.

Of course, the fig leaf is that Berlusconi's Yale-trained successor, Mario Monti, will lead a "technocratic" government that will implement drastic spending cuts and necessary structural reforms to nurse the economy back to health. Exactly the same story is being told about ex-central banker Lucas Papademos in Greece. But there are two major flaws in this argument.

First, there's no such thing as a harmless, neutral technocrat; and second, the plan they are toting won't work. The recipe of privatisation, deregulation and welfare cuts that is being presented as the only solution to Italy's woes is a deeply contentious one.

Decisions on how the professions should be regulated, how easy it should be to fire staff, and how much of the national infrastructure should be owned by the state, for example, will be fiercely contested, and have profound implications for the distribution of resources in society. Sir Mervyn King may be a fine monetary policymaker, but would you want him in charge of deciding how many Sure Start centres should be shut? He would say it wasn't the kind of decision he should make.

As Peter Chowla of the Bretton Woods Project, which monitors the work of the IMF, says: "You need an understanding of what these crises mean for different segments of the population."

Older British politicians remember the humiliation of having to answer to the IMF for the Treasury's spending plans after the UK's 1976 bailout. But the austerity-plus-reform package imposed on the bailed-out eurozone members reaches far deeper into national life.

In case there was any doubt that Italy faces joining Greece, Portugal and Ireland as closely monitored protectorates of Brussels, economic and monetary affairs commissioner Olli Rehn wrote to the Italian finance minister last week, demanding details about each one of the 39 reform measures Italy has promised to take.

And it won't have gone unnoticed among the eurozone's poor relations that Germany and France haven't themselves always embraced the reforms they are now recommending. In a paper for the pro-Europe Centre for European Reform last week, Simon Tilford and Philip Whyte said: "The punishing (and self-defeating) economic adjustments imposed on debtor countries contrasts with the self-righteous complacency shown in the creditor countries."

The second problem with "technocratic government" as detailed in an excellent new report by economists from Research on Money and Finance, austerity has been comprehensively proven to fail. Greece has offered up the scalps of 30,000 civil servants, raised taxes, cut public sector salaries and put a cornucopia of state assets up for sale.

The result? A cumulative 10% decline in output through 2010 and 2011, and an unemployment rate of 18.4%. Greece's debt-to-GDP ratio has actually risen, not fallen, since the "rescue" package was implemented, and forecasts from the commission show debt hitting a Japanese-style 198% of GDP by 2013. On its own terms, the programme has been self-defeating.

Ireland is often touted as the success story among the bailed-out euro states, but critics point out that much of its growth has resulted from profits made by multinationals that base their headquarters in Ireland to take advantage of its rock-bottom corporation tax rate, but create few jobs. The Dublin government is predicting that unemployment will still be 11.6% by 2015.

As Stephen King at HSBC puts it: "Far from putting a firewall around Greece, the eurozone has instead ended up with a 'scorched earth' policy where contagion is threatening not just the periphery but the core too."

Italy is now being prescribed more of the same medicine, but with all of its euro partners tightening their belts at the same time, the end result is likely to be a long period of stagnation, high unemployment and political and social conflict over the painful reforms demanded, in what Brian Reading at Lombard Street Research refers to as "Merkozy's pound of flesh".

He rightly insists that restoring growth must come before reforms: "growth eases the passage of structural reforms that bring future benefits. Immediate and brutal retrenchment is medieval bloodletting in hope of a miraculous cure."

Barring such a miracle – or a large-scale intervention by the ECB, which still looks a long way off – there are two paths facing Italy and Greece. They could accept their penance, and effectively become protectorates of Berlin and Brussels.

Or they could seize the opportunity already hinted at by hardline northern Europeans and start to plan for a new economic life outside the single currency. It would be a painful and messy business, involving debt default and capital controls, but at least the inevitable devaluation would hold out some plausible hope of growth.

The single currency began with lofty aims of cementing political unity and building a powerful economic bloc. But far from the hoped-for convergence, the ensuing two decades have exacerbated the competitiveness gap between the wealthy core and the struggling periphery, while reckless cut-price lending by the under-regulated banks helped to paper over the cracks. The tragedy now is that living in an economy strangled by remote-control austerity might cause a resurgence of nationalism.

contracycle · #2 (**permalink**) 17-11-11, 08:14 AM

I dunno, as someone observed on Newsnight a while back, if California gets into trouble nobody suggests it should leave the "dollar zone". Now admittedly there are differences, but if Greece gets its own currency, and devalues massively, then it will still be causing huge losses to lenders if it pays in drachma, or be even deeper in debt if it pays in something else.

FredFredson · #3 (**permalink**) 17-11-11, 01:33 PM

Goldman to the Rescue!

By Bill Bonner

11/15/11 Paris, France – More pieces are coming together. Day by day, the puzzle takes shape. Not a pretty picture.
An epic battle is taking place. Between the forces of…
…inflation and deflation
…growth and depression
…credit expansion and credit destruction
…centralization and de-centralization
…politics and markets
…managed paper money and gold
…managed capitalism and the real thing
…control and wealth
…bull and bear
…greed and fear
…zombies and real working people.
Yes, dear reader, it’s quite a fight. Better than Frazier vs. Ali. And who’s gonna win?
Europe faces its “toughest hour since WWII,” says Angela Merkel. What does she propose? More centralization. Centralization got Europe into this mess — harmonizing interest rates so that the Greeks and Italians could borrow more. And now, more centralization, she believes, will get it out.

Europe is taking no chances. This debt problem is a slugger. What to do about it?
Who knows more about debt problems than anyone else? The people who cause them, of course. So, under great pressure from the centralized European authorities, Greece got rid of its Papandreou, after the man had the gall to suggest letting democracy work. He wanted the people to vote on further austerity measures. It replaced him with Papademos…a guy who won’t make the mistake of deferring to the masses. After all, he was vice-president of the European Central Bank for years. And he taught at the Kennedy School of Government at Harvard.

Meanwhile, Italy too has been forced to get rid of its popular, but difficult to control, elected leader — Silvio Berlusconi. It has put in a company man. Yes, a company man. What company? Goldman Sachs, of course. The new fellow, Mario Monti is an ex-Goldman guy. And so is the new fellow at the European Central Bank, Mario Draghi. Monti was also an EU commissioner. Draghi ran the Bank of Italy as the nation built up one of the world’s biggest piles of debt. Then, when Italy’s cost of borrowing shot over 7%, in came Monti and Draghi.

It is almost as if they planned it that way. Who’s the biggest seller of debt on the planet? We don’t know…but Goldman Sachs has to be up in the rankings somewhere. You’ll recall it was Goldman that helped Greece structure its debt so that it could abide by the letter of its treaty engagements with Europe but totally thumb its nose at the spirit of it.

And now the debt has blown up…and the Goldman boys are on the job, managing the mess they were so instrumental in creating.

What’s their solution? Oh come on…dear reader, you should know how this works by now. They propose more centralization, more management, more paper money, more debt, more inflation, more of everything you see on the right hand of our column above.
In other words, they believe that they know better than the people…or the market. They believe that their sanitized, homogenized, pasteurized Capitalism-in-a-Can works better than the real thing. Besides, they have a reason to believe it. This claptrap is the source of their power, status and money. Who knows, maybe their wives married them because it.

Rather than renounce the program on which their reputations, careers and fortunes depend, they try to shore it up. They open up the can and see what they can use. They promise to reform the system, not reject it.

But every reform — unless it merely dismantles one of their previous reforms — is a manipulation…a price fix…and a scam. For example, they are proposing tax incentives to employers who hire youths and women. Good idea? Why not just drop some of the regulations and taxes that make it so expensive to hire youths and women in the first place? Nope. Then, they’d be giving up control. They’d be letting market forces decide who gets what. Here’s another proposed reform, as reported in The Financial Times: “Wider social safety net to help those made redundant (laid off) and encourage labor mobility.” Typical rubbish. Spread a wider safety net and you discourage people from doing the hard work of finding new careers. But here’s one that will be popular with the managers: a “crackdown on tax evasion.” Are you kidding? Tax evasion is the only thing that keeps these economies going. People prevent their government from squandering their money. They spend it themselves. But the new Goldman guys won’t like it. They’ll want to get their hands on as much of that ‘black money’ as possible.

Meanwhile, what’s going on in the USA? Alas, the US economy is the hands of the same sort of people… The people who caused the mess…who did not see it coming…and who have not had a clue what to do about it. They’re still running US economic policy. These illustrious incompetents — such as Larry Summers of Obama’s National Economic Council and Tim Geithner, his Treasury Secretary — have proven that they wouldn’t know a Great Correction if it bit them on the behind..

So, they just keep adding more debt, more spending, more management, more ‘reform’ measures, and more centralization.

Ultimately, the elite managers of Europe and America all went to the same schools (Harvard, Yale, MIT…)…all read the same newspapers and magazines (The Financial Times and The Economist)…all worship the same gods (money and power)…all speak the same language (mid-Atlantic English)…and all want to control the world.

So far, they seem to be making great progress towards their objectives. They stuff the world with debt. It blows up. Then, they push out democratically-elected leaders…gain new power and authority…and take charge of the rescue.

Of course, everything isn’t smooth sailing for the manipulators. There are storms to reckon with. The Telegraph reports that there is revolution in the air. From Ambrose Evans Pritchard:
Italy’s youth are turning. Watch the footage of students chanting “democracy” and brandishing their “95 Theses” of Wittenberg revolt as poet Van Rompuy tried to speak in Fiesole.
“No to Austerity,” starts the Luther List: “Troika out of Greece”, “IMF and ECB out of Italy, Ireland, and Portugal”, it goes on.
“The EU has become ever less accountable to the people of Europe. The undemocratic structures have infiltrated the very structures of the Union,” they said.
Behold “the EU’s furious reaction to the Greek government’s effort to seek popular consent over the financial stranglehold imposed on the country. No longer are expressions of popular consent simply ignored, it is now impermissible to consult citizens.”
“The game is getting dangerous,” said Il Sole. Some suspect that the Berlusconi camp would not do too badly in snap elections, if allowed, campaigning against the “hated euro and EU bosses”. Is that why Brussels is now so afraid of Italy’s voters?
If Mr. Monti relies on the Left, how can he comply with EU orders to break the power of the trade unions and impose “Anglo-Saxon” wage-bargaining? A large bloc in parliament will die in a ditch to defend Article 18 of the labour code.
Labour minister Maurizio Sacconi warned last week that careless handling of this issue threatens to unleash another round of terrorism in Italy. It is only nine years since Marco Biagi was assassinated by the Red Brigades for threatening the sacred cows of the Sindicati.
In 2009 the European Commission praised Italy’s “spectacular job creation” and its “greater resilience to external shocks”. In 2008 in said Italy was making “good progress” on the Lisbon reform agenda. In 2007 it said Italy’s debt sustainability risk was “broadly in line” with France and Germany.
Italy’s four sets of pension reforms were held out as a shining example. Finance minister Giulio Tremonti was feted in Brussels, lauded for his iron discipline and primary budget surplus.
And now these same EU bodies tell us that Italy’s failure to grasp the nettle of reform and tackle its debts is so egregious that Europe must step in to overthrow an elected government.
Regards,
Bill Bonner
for The Daily Reckoning