by Mark
Weisbrot
There is a
tense stand-off right now between Greece's government and the
so-called troika — the European Commission, the European Central
Bank (ECB), and the International Monetary Fund (IMF). ECB President
Mario Draghi recently went so far as to deny that his institution was
trying to blackmail Greece's left-wing anti-austerity government.
But
blackmail is actually an understatement. It has become increasingly
clear that the troika is trying to harm the Greek economy in order to
raise pressure on the new Greek government to agree to its demands.
The first
sign of the European authorities’ strategy came on February 4 —
just 10 days after Greece's Coalition of the Radical Left (SYRIZA)
government was elected — when the ECB cut off the main source of
financing for Greek banks. This move was clearly made in bad faith,
since there was no bureaucratic or other reason to do this. It came
more than three weeks before the deadline for the decision.
Predictably,
the cut-off spurred a huge outflow of capital from the Greek banking
system, destabilising the economy and sending financial markets
plummeting. More intimidation followed, including a slightly veiled
threat that emergency liquidity assistance, Greece’s last credit
lifeline from the ECB, could also be cut.
The European
authorities appeared to be hoping that a shock-and-awe assault on the
Greek economy would force the new government to immediately
capitulate. It did not work out that way. SYRIZA had a mandate from
Greek voters to improve their living standards after six years of
troika-induced depression and more than 25% unemployment. The new
Greek government backed off its demand for a debt “haircut” and
made other compromises, but refused to surrender as if there had been
no election.
The European
authorities finally blinked on February 20 and agreed to grant a
four-month extension, through June, of the prior “bailout”
agreement. The quote marks are needed because most Greeks have not
been bailed out, but thrown overboard — having lost more than 25%
of their national income since 2008. It could hardly be more obvious
that recent ECB actions are not about money or fiscal sustainability
but about politics.
According to
conditions in the February 20 agreement, the Greek government would
present a list of reforms that it would undertake, which it did, and
which European officials approved. Remaining issues were to be
negotiated by April 20, so that the final instalment of IMF money —
some €7.2 billion — could be released. One might assume that the
February 20 agreement would allow these negotiations to take place
without European officials causing further immediate and unnecessary
damage to the Greek economy. One would be wrong: A gun to the head of
SYRIZA was not enough for these “benefactors”. They wanted
fingers in a vice too. And they got it. The ECB refused to renew the
Greek banks’ access to its main, cheapest source of credit that
they had before the January 25 elections. And it refused to lift the
cap on the amount that Greek banks could lend to the Greek government
— something that it did not do to the previous government.
As a result,
a serious cash flow problem has struck Greece's government and banks.
Because of the ECB’s credit squeeze, the government could soon find
itself in a situation that the 2012 government faced when it delayed
payments to hospitals and other contractors in order to make debt
payments. It could even face default at the end of April.
The amounts
of money involved are quite trivial for the ECB. The government has
to come up with approximately €2 billion of debt payments in April.
The ECB recently shelled out €26.3 billion to buy eurozone
governments’ bonds as part of its €850 billion quantitative
easing program over the next year and a half.
The ECB’s
excuses for causing this cash crunch in Greece ring hollow. For
example, it argues that banks under the previous government did not
require the limit that the ECB is imposing on banks now because the
prior government committed to a reform program that would fix its
finances. But so has this one.
It could
hardly be more obvious that this is not about money or fiscal
sustainability, but about politics. This is a government that
European authorities did not want, and they wish to show who is boss.
They really don’t want this government to succeed, which would
encourage Spanish voters to opt for a democratic alternative —
Podemos — later this year.
The IMF
projected the Greek economy to grow by 2.9% this year. Until the last
month or so, there was good reason to believe that — after years of
gross overestimates — its forecast would be on target. This growth
would likely have kept SYRIZA’s approval ratings high, together
with its measures to provide food and electricity to needy households
and other progressive changes. The ECB’s actions, by destabilising
the economy and discouraging investment and consumption, will almost
certainly slow Greece’s recovery and could be expected to undermine
support for the government.
If carried
too far, European officials’ actions could inadvertently force
Greece out of the euro — a dangerous strategy for all concerned.
They should stop undermining the economic recovery that Greece will
need if it is to achieve fiscal sustainability.
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