domingo, 21 de junio de 2015

domingo, junio 21, 2015
Greek central bank is playing with political fire

Threats that Greece will be forced out of the EU and spiral into economic collapse without a rescue deal are crude intimidation

By Ambrose Evans-Pritchard

8:17PM BST 17 Jun 2015


It is not true that Greece would "most likely" be forced out of the EU following a return to the drachma Photo: EPA
 
 
Greece's central bank has issued a last plaintive scream before the axe falls, as if delivering an Aeschylean curse.

The plagues of the earth will descend upon the Greek people if the radical-Left Syriza government of Alexis Tsipras persists in defying Europe's creditor powers and opts for default.

They will eat dirt for the rest of their lives. They will freeze in rags. They will moan and wail, forever.
 
"Failure to reach an agreement would mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and – most likely – from the European Union," it asserted.
 
"A manageable debt crisis would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. The ensuing acute exchange rate crisis would send inflation soaring."
 
The central bank did not present these as potential dangers in a worst case scenario - something we might all accept - it asserted that they would occur unless Mr Tsipras agrees to terms imposed by Brussels before the Greek treasury runs out of money.

"All this would imply deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership. From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South."

Never before has such a "monetary policy" report been published by the central bank of a developed country, or indeed any country. It is a political assault on its own elected government.

Zoe Konstantopoulou, the speaker of the Greek parliament, rejected the document as "unacceptable". Furious Syriza MPs called it an attempt to strike terror.

Yannis Stournaras, the central bank's governor, is not a neutral figure. He was finance minister in the previous conservative government. His action tells us much about the institutional rot at the heart of the Greek state, and why a real revolution is in fact needed.

Where does one begin with the clutter of wild assertions in his report? It is not true that Greece would "most likely" be forced out of the EU following a return to the drachma. Such an escalation is extremely unlikely, despite a chorus of empty threats along these lines by Brussels.

The decision would be taken on political and geo-strategic grounds by the elected leaders of Germany, France, Britain, Italy, Poland, and their peers in the European Council, with Washington breathing down their necks.

If they want to keep Greece in the EU, they will do so. European treaty law does not give categorical guidance on this issue. It is famously elastic in any case.

The Swedes, Poles, and Czechs remain outside EMU, though "legally" supposed to join. The issue is finessed in perpetuity by a vague promise to join when the time is right. The same can be done for Greece, with a flick of the fingers.

There may be some in the EMU power structure who wish to make life hell for Syriza in order to show that no country can buck the EU power structure and get away with it, or to scotch their own rebel movements, above all Spain's far-Left Podemos.

Bitter recriminations will certainly fly if Greece defaults on $340bn to EMU governments and institutions, inflicting direct losses on the peoples of Lithuania, Latvia, Slovakia, Slovenia, and Portugal - all in varying degrees of trouble themselves.

This is the moral choice that Syriza has to make. It is the poisonous legacy of the EU-IMF Troika bail-out in May 2010, when EMU leaders roped in their own taxpayers to bail out German and French banks and save the euro.

The transaction was disguised as a loan to the Greek state, by then bankrupt. This fatal decision - amplified by a second botched bail-out in 2012 - transformed a conflict between Greece and north European banks into a fratricidal conflict between the EMU nations themselves.

So yes, it is possible to imagine the worst. Yet if Europe was to act on this punitive impulse, it would compound the disaster. As Mr Tsipras warned two weeks ago, the creditors risk setting off a process that may "entirely transform the economic and political balances throughout the West."

Interpret that as you want. It sounded to some like a warning that Greece would shift into Russia's orbit if pushed too far. The south-Eastern flank of the Nato military alliance would unravel, just at the moment when Vladimir Putin is redrawing borders by force and shattering the post-War order of Europe.
 
It may also be the moment when Nato must invoke its Article V solidarity clause in the Baltics to defend the very states pushing for the harshest treatment of Greece. Do the Baltic finance ministers and defence ministers actually talk to each other about their Greek NATO ally?

"If some think or want to believe that this decision concerns only Greece, they are making a grave mistake. I would suggest that they re-read Hemingway’s masterpiece, “For Whom the Bell Tolls”," he said.

Throwing Greece to the wolves altogether would inflict incalculable damage on the European Project, its solidarity creed exposed as humbug. "Nobody would have any more faith in Europe if we break apart in the first big crisis," said Germany's vice-Chancellor, Sigmar Gabriel.

Such folly could happen, but I doubt it as long as Chancellor Angela Merkel remains the leader of Germany and pre-eminent statesman of Europe. It is a fair bet that she would go to great lengths to keep Greece in the EU family, inside the euro or out, knowing just how enormous the stakes really are.

As for the mechanical claims of the Greek central bank, they are fatuous. Grexit might "send inflation soaring", might lead to an "exponential rise in unemployment", and might lead to a "collapse of the Greek economy", (as if the latter two had not occurred already), but there is no necessary reason why any of this should happen.

The claim that all Greece's gains since joining the EU in 1981 - whatever they may be, measured against the counter-factual - is so preposterous that one can only laugh.

The fall-out from Grexit would depend entirely upon the policies pursued by Syriza, the European Central Bank, the EU powers, the US, and the IMF, after the event.

If it were a "velvet divorce" along the lines advocated behind closed doors by German finance minister Wolfgang Schauble, the outcome might be benign. Under such a plan the ECB would stabilise the drachma at an equilibrium level, perhaps 20pc below the current real effective exchange rate (REER). There would be a 'Marshall Plan' to refloat the economy and reverse the collapse in investment.

A study by Panteion University in Athens concluded that even if the drachma devalued by 50pc it would not in itself trigger an inflation spiral. Trade competitiveness would recover quickly.
 
Claims of runaway inflation are invariably made by defenders of the status quo when fixed exchange systems break down. It was the mantra of 1931 before Britain left the Gold Standard, and again in 1992 before leaving the Exchange Rate Mechanism. It was eyewash on both occasions.
 
Gabriel Sterne at Oxford Economics says capital flight from Greece has reached 60pc of GDP. Much of this is sitting in foreign accounts, waiting to return once the devaluation risk is out of the way.

"The first few months would be chaotic but the money would come back. Greece is probably economically better off outside the euro, so long as it pursues sensible policies," he said.

What is clear is that current state of affairs is intolerable. Mr Tsipras lashed out at the creditors this week for "pillaging" his country, and accused the IMF of "criminal responsibility". This was a step too far, but he was right to protest that the current demands on Greece are the worst of all worlds.

"We find ourselves in a situation where the IMF prevails when it comes to strictness of austerity, but the EU prevails on the refusal to accept debt restructuring," he said. This is the nub of the matter. It is IMF austerity without the IMF cure.

There may be many powerful reasons why Greece should stay in the euro - I neither advocate for, or against - but these have nothing to do with economics. They are political, almost spiritual. They hang on an existential debate about the country's proper home: is it fully part of the West or should be looking to its Eastern, Orthodox, "Byzantine" roots, as so many of its greatest artists suggest.

The relevant question is whether can Greece pursue its own course within the euro, or whether tragic events have shown that it should retreat to drachma for the sake of its sovereign soul.

Greece's endgame: timeline of upcoming events
June 5
IMF loan repayment: €305m (missed)
June 10
Greece due to sell €1.6bn in Treasury bills to refinance maturing debt
June 12
IMF loan repayment of €312m due
June 16
IMF loan repayment of €573m due
June 18
Eurogroup Meeting in Luxembourg
June 19
IMF loan repayment of €343m due
June 19
Greece owes €85m to the ECB for bonds the central bank bought
June 19
European Union finance ministers meet
June 25 and 26
European Union leaders Summit in Brussels
June 30
Greece due to pay €1.5bn wage and pensions bill by month-end
June 30
Greece’s current bail-out deal expires
Greece must also make all its IMF payments by this date or it will be in arrears to the Fund

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