Unbiased pros and cons of EU membership 2 : Are the EU's actions towards Greece undemocratic? Would the UK leaving the EU help or harm Greeks?

Is the EU’s treatment of Greece democratic or not though? Unelected officials from the ‘Troika’ (European Commission, European Central Bank and International Monetary Fund) were sent to oversee Greek government departments’ spending , with the stipulation that “No unilateral fiscal or other policy actions will be taken by the [Greek] authorities. All measures, legislative or otherwise, taken during the programme period, which may have an impact on banks’ operations, solvency, liquidity or asset quality should be taken in close consultation [with the troika]” (1)

The Greek electorate voted in a party – Syriza – whose manifesto included scrapping EU imposed austerity. Then they were told this would not change the agreements made with the Troika by previous Greek governments.

German and Hungarian government politicians argue that they were representing the electorate of their own countries who were paying for financial support to Greece.

The reality is a lot more complicated than that as Germany benefited most from a free trade zone and single currency with weaker economies like Greece.

Despite myths of Greeks being lazy and tax avoiders, they in fact worked longer average hours than any other country in Europe even before the crisis , with Germans working considerably less hours on average(2) – (3).

And tax avoidance by the very wealthy is hardly something unique to Greece with e.g Switzerland, Luzembourg and the British Channel Islands being notorious tax havens, and many British companies, banks and billionaires avoiding tax in tax havens.

Greeks also had the options of defaulting on their debts and dropping the Euro as a currency and going back to their own currency, so they could issue money themselves, rather than having to ask the European Central Bank to issue them with Euros.

The Syriza Finance minister Yanis Varoufakis favoured at the least threatening to do this, and if necessary, doing. However the Greek government did not do it as the majority of Greeks in polls were against it, fearing that if done during a crisis it would lead to more panic and hyper-inflation.

This is still an option for the Greek government though, if it believes the damage done by EU imposed austerity policies is so bad that the other risks couldn’t be worse.

What there can be no doubt about is that the refusal of the same 50% debt forgiveness that Greece approved for Germany after World War Two, and the austerity policies imposed on Greece are both unfair and completely counter-productive.

Severe austerity cuts on the scale imposed on Greece reduce the size of the economy as a whole by reducing demand for private sector goods and services, reduce growth, and so make paying off any of the debt impossible.

From 2008 on during protests and riots against austerity measures Greek riot police have killed dozens of protesters and rioters, starting with what seems to have been the unprovoked murder of a 15 year old boy by armed police in December 2008 (4).

The EU have demanded that Greece run a budget surplus of 3.5% of GDP by 2018, which is over five times as large as the largest budget surplus that Germany, the strongest economy in the EU has ever had, at 0.6% of GDP in 2015 (5) – (6).

Even the IMF – one part of the Troika – has now said this ridiculous and argues that debt forgiveness and a relaxation of austerity are required for Greece (7).

What they don’t say is that, as Syriza have pointed out, some of the 1 trillion euros of Quantitative Easing money which have been created by the European Central Bank to hand to private banks could be used to pay off much of Greece and Spain’s debt (8) – (9).

Some people would argue that the UK leaving the EU could lead to the collapse of the EU and that this would free Greece from EU austerity policies.

However some Greeks, like Yanis Varoufakis,  a leading critic of EU austerity policies, want the UK to stay in as an ally for reform , arguing that if the EU splits up the result will be chaos and panic, which will be even worse for Greece (10).

He has launched an EU wide movement for democracy and against austerity policies called Diem25.

And the majority of Greeks , while they are angry and unhappy at what the EU has imposed on them, believe they are not in a position to leave the EU or go back to their own currency at the moment.

(1) = Open Democracy 14 aug 2015 ‘Greece has become the EU’s third protectorate’, https://www.opendemocracy.net/can-europe-make-it/jan-zielonka/greece-has-become-eu%E2%80%99s-third-protectorate

(2) = BBC News 26 Feb 2012 ‘Are Greeks the hardest workers in Europe?’,
http://www.bbc.co.uk/news/magazine-17155304

(3) = OECD Stat Extracts ‘Average annual hours actually worked per worker’, http://stats.oecd.org/index.aspx?DataSetCode=ANHRS

(4) = BBC News 05 May 2010 ‘Three dead as Greece protest turns violent’,
http://news.bbc.co.uk/1/hi/8661385.stm

(5) = BBC News 22 Jun 2015 ‘Greece spells out terms for debt crisis 'breakthrough'’,
http://www.bbc.co.uk/news/world-europe-33228119 (scroll down to subheading  ‘Greece debt talks : main sticking points’ ‘EU officials say Greece has agreed to budget surplus targets of 1% of GDP this year, followed by 2% in 2016 and 3.5% by 2018; Greece says nothing is agreed until everything is agreed’ )

(6) = AFP 23 Feb 2016 ‘Germany notches up record budget surplus in 2015: stats office’, http://www.newvision.co.ug/new_vision/news/1417803/germany-notches-record-budget-surplus-2015-stats-office

(7) = www.guardian.co.uk 23 May 2016 ‘IMF tells EU it must give Greece unconditional debt relief’, https://www.theguardian.com/business/2016/may/23/imf-warns-eu-bailout-greece-debt-relief

(8) = Greek Reporter 28 Jan 2015 ‘Greece: This is SYRIZA’s New Government Plan in Detail - See more at: http://greece.greekreporter.com/2015/01/28/greece-this-is-syrizas-new-government-plan-in-detail/#sthash.ahNA2k1R.dpuf’, http://greece.greekreporter.com/2015/01/28/greece-this-is-syrizas-new-government-plan-in-detail/

(9) = BBC News 22 Jan 2015 ‘ECB unveils massive QE boost for eurozone’, http://www.bbc.co.uk/news/business-30933515

(10) = www.guardian.com 05 Apr 2016 ‘Yanis Varoufakis: Why we must save the EU’,
https://www.theguardian.com/world/2016/apr/05/yanis-varoufakis-why-we-must-save-the-eu

German and EU hypocrisy and short memories on Greece : Syriza aren't extremists - they're asking for the same debt relief deal Greece gave Germany in 1953. The EU is handing the banks almost ten times the amount of money Greece is asking written off in debts

Syriza extremists or unrealistic? No, moderates, asking for deal Germany got in 1953

The deal Syriza are looking for is a reasonable one. For their creditors to forgive 50% of their debts, for debt repayments to only have to be made once the Greek economy is growing again, for the EU to stop privatising Greek government assets and services by selling them off for buttons at the bottom of the market, and an end to austerity policies which prevent growth (1).

This is a plan based on the 1953 London Agreement under which Germany was forgiven 50% of its debts incurred during two world wars and from Marshall Plan aid from the US after them. The creditors forgiving half of those debts included the governments of Greece, Ireland and Spain, three of the four countries much derided as ‘PIGS’ over the debt crisis. The London Agreement also included Germany only having to pay back debts out of 3% of its export earnings, so that its creditors imported German products (2).

While saying there will be no more debt reductions for Greece, Angela Merkel and other EU government leaders have approved issuing 1.1 trillion (one thousand one hundred billion) euros of “quantitative easing” money to be handed straight to private banks (3).

How is it that there is infinite money available to the banks, but none to keep ordinary people in work? Or even on benefits while there are more unemployed people than job vacancies?

How is it that one thousand, one hundred, billion euros can be created and handed to the banks, but none of it can be used to reduce Greece’s debt of around 300 billion euros by half (150 billion)? (4)

Syriza’s proposal is that some of the QE money should be used by the European Central Bank to buy bonds not just from private banks, but from governments suffering debt crises, like Greece and Spain’s.

Some Greek and American economists are saying the only problem with Syriza’s proposals are that they’re not radical enough (5) – (6).

While many have tried to paint Syriza as being left wing extremists, mirroring the neo-nazi Golden Dawn party’s right wing extremism, in fact Syriza’s leadership are moderate left wingers. Even the Telegraph newspaper, which favours the right wing of a Conservative party whose centre is right of Thatcher, considers Yanis Varoufakis, Syriza’s Finance Minister, to be a moderate (7).

Far from being ideologically opposed to EU or Euro membership, Syriza leader Alexis Tspiras preferred a coalition with the right wing but anti-austerity Independent Greeks party to one with the radical left KKE party which wants to leave the Euro and the EU (8).

Lazy Greeks? Nope – they work the longest hours in Europe

The supposedly “lazy” Greeks work, on average, the longest hours of any nationality in the EU according to OECD figures, over 2,000 hours per year, and did so even before the crisis. The “hard working” Germans rank 33^rd at under 1400 hours a year .The average employed person in the UK works 1,600 hours a year, 400 less than the average Greek. (9) – (10)

Other studies found that Greeks work on average 38 hours a week, compared to 35 in the UK and Germany (11).

And Germans take  more days of holidays per year than Greeks too (12).

Greece allowed more tax avoidance and corruption?
There are tax havens and corruption in UK dependencies and across Europe

Tax avoidance by Greeks is also often raised to try to justify the conditions imposed by the EU. Tax avoidance is certainly a serious problem in Greece, but the idea that other EU countries have done anything to prevent it is laughable. The UK allows offshore ones in the Channel Islands and in the UK dependencies of Bermuda and Belize, as well as the main party in government in the UK getting more than half its donations to party funds from the financial sector. Both Luxembourg and Switzerland are renowned tax havens.

It’s highly likely that much of the tax money avoided by wealthier Greeks is in those tax havens in other EU countries and territories they control. Since they’re demanding a crack down on tax avoidance and evasion by the Greek government, perhaps they could help out at the other end by closing down their own tax havens?

Mark Field, the Conservative MP for the City of London & Westminster, Mark Field, boasted in 2010 about all the foreign money coming into UK tax havens (13).

Government minister Francis Maude said in 2012 that turning the UK into a tax haven is “exactly what we are trying to do” (14).

Lord Fink, Treasurer of the Conservative party, and director of three firms with subsidiaries in tax havens (the Cayman Island,s Luxembourg and Guernsey) called for the same (15).

And progress has been made towards making the mainland UK a tax haven, with many US firms now relocating their headquarters for tax purposes here (16).

Ireland’s economic “miracle” and then collapse were, like Britain’s , largely down to deregulation (though worse for Ireland as it didn’t have it’s own currency). This included Ireland slashing its corporation taxes to the lowest in Europe in order to get companies to relocate there for tax purposes (17).

That’s why Ireland was able to recover relatively fast from the crisis. But, as Greek government ministers point out, there is not room for every country in the EU to have the lowest taxes, and competition to reduce taxes results in crises for government funding in all of them.

As the firms and banks benefiting most from tax havens also tend to be big donors to party funds for the biggest parties in countries across the EU, corruption is as much a problem in the UK as in Greece, it’s just done in a more formalised way and at a higher level in Britain.
Cash in brown envelopes is for amateurs. Donations to party funds, and jobs as advisers or directors for retiring ministers for favours done in office, are preferred.

Does Greece have any choice but to do what the EU and Germany say?

Yes. It could drop the Euro as a currency and return to the drachma, or adopt another currency, such as the dollar. This would likely cause another crisis and considerable hardship, but with the austerity imposed by the EU having seen average incomes cut 40% and unemployment over 25%, most Greeks are already suffering plenty of hardship and might decide that having control of their own government and economic and welfare policy and budgets again was worth a bit more.

This would likely lead to a run on the Euro, which might well lead to Portugal, Spain and maybe even Italy also dropping the Euro as currencies. The Eurozone benefits Germany most of all. Countries leaving the Eurozone would reduce German export earnings, which have been greatly increased by the Eurozone effectively reducing the price of German exports in countries using the Euro (18).

Sources

(1) = Greek Reporter 28 Jan 2015 ‘Greece: This is SYRIZA’s New Government Plan in Detail’, http://greece.greekreporter.com/2015/01/28/greece-this-is-syrizas-new-government-plan-in-detail/

(2) = EU Observer 07 Jan 2015 ‘Europe's debt revolution: Can Syriza's plan work?’, https://euobserver.com/news/127115

(3) = BBC News 22 Jan 2015 ‘ECB unveils massive QE boost for eurozone’, http://www.bbc.co.uk/news/business-30933515

(4) Washington Post 30 January2015 ‘Greece really might leave the euro’ =
http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/30/greece-really-might-leave-the-euro/

(5) = Truthout 22 Jan 2015 ‘Economist Leonidas Vatikiotis: Syriza's Proposals Don't Go Far Enough for Greece’, http://www.truth-out.org/news/item/28661-economist-leonidas-vatikiotis-syriza-s-proposals-don-t-go-far-enough-for-greece

(6) = NYT 26 Jan 2015 ‘Ending Greece’s Nightmare’,  by Paul Krugman, http://www.nytimes.com/2015/01/26/opinion/paul-krugman-ending-greeces-nightmare.html

(7) = Telegraph 26 Jan 2015 ‘Yanis Varoufakis: Greece’s future finance minister is no extremist’, http://www.telegraph.co.uk/finance/economics/11369851/Yanis-Varoufakis-Greeces-future-finance-minister-is-no-extremist.html

(8) = Guardian 26 Jan 2015 ‘Greece: claims of a far-left victory are nonsense’,
http://www.theguardian.com/world/2015/jan/26/greece-claims-of-far-left-victory-are-nonsense

(9) = OECD Stat Extracts ‘Average annual hours actually worked per worker’, http://stats.oecd.org/index.aspx?DataSetCode=ANHRS

(10) = BBC News 26 Feb 2012 ‘Are Greeks the hardest workers in Europe?’,
http://www.bbc.co.uk/news/magazine-17155304

(11) = Busting the myth of France’s 35-hour workweek, http://www.bbc.com/capital/story/20140312-frances-mythic-35-hour-week

(12) = See (10) above

(13) = Bloomberg 03 Nov 2010 ‘Tax Havens Send ‘Massive Capital’ to London, Lawmaker Says’, http://www.bloomberg.com/news/articles/2010-11-03/tax-havens-send-massive-capital-to-london-lawmaker-says

(14) = This IS Money 07 Apr 2012 ‘Francis Maude in new row after saying it would be a compliment if Britain were seen as a 'tax haven' under coalition’, http://www.thisismoney.co.uk/money/news/article-2126452/Francis-Maude-new-row-saying-compliment-Britain-seen-tax-haven-coalition.html

(15) = Guardian 21 Sep 2012 ‘Tory treasurer wants UK to become more like a tax haven’,  http://www.theguardian.com/business/2012/sep/20/tory-treasurer-make-uk-tax-haven

(16) = Reuters 09 Jun 2014 ‘Britain becomes haven for U.S. companies keen to cut tax bills’, http://uk.reuters.com/article/2014/06/09/uk-britain-usa-tax-insight-idUKKBN0EK0BA20140609

(17) = Forbes Magazine 06 Nov 2013 ‘If Ireland Is Not A Tax Haven, What Is It?’, http://www.forbes.com/sites/taxanalysts/2013/11/06/if-ireland-is-not-a-tax-haven-what-is-it/

(18) = Business Insider 20 Nov 2011 ‘Why German Taxpayers Should Be Forced To Bail Out Italians And Greeks’, http://www.businessinsider.com/why-germany-should-bail-out-italy-and-greece-2011-11#ixzz3QRQBjDjw

Why Germany will lose export earnings if Greece leaves the Euro

German and British politicians and IMF officials are fond of talking to the Greeks as if they were doing them a favour by offering any debt write down or bail out at all, even on the extreme austerity terms they're offering - and that Greeks can take it or leave it.

The dominant view seems to be that Germany and other northern EU members were doing Greece a favour by letting it into the EU and the Euro-zone, or that Greece is so backward or corrupt that it should never have been allowed in to either. This is very far from the truth. In fact Germany gains massive amounts of trade income as a result of weaker economies' membership of the Euro.

Greek membership of the EU and the Euro-zone has actually boosted German exports to Greece and to the rest of the world massively - and if Greece leaves the Euro German exports both to Greece and to countries outside the EU will fall and so German export earnings will fall.

With Euro currency zone membership the first reason is that before the Euro was introduced as a common currency the German Deutschmark was worth many Greek drachma. This meant that German exports were too expensive for most Greeks to buy, so they would be more likely to buy cheaper products made by Greek or other producers or companies. With the introduction of the Euro the price of German exports was effectively lowered, so Greeks bought more German products, increasing German exports and export earnings.

The second reason is that the value of the Euro is based on the average economic strength of the entire Euro-zone, making it worth less than the Deutschmark, which had a value based on the very strong German economy. As a result, with the introduction of the Euro, German exports to countries outside the EU also became cheaper to buy for consumers in other countries - once again leading to an increase in German exports and export earnings.

If Greece leaves the Euro the crisis will likely spread to, at the least, Portugal and Spain - and possibly to Ireland and Italy, meaning all those countries might leave the Euro. They would then return to their own, weaker, currencies, effectively increasing the price of German exports to buyers in those countries and reducing German exports.

On top of that each weaker economy leaving the Euro will increase the value of the Euro, meaning exports from Germany and any other remaining Euro-zone countries worldwide will rise in price to buyers in other countries, reducing exports for Germany and any other remaining Euro-zone countries.

With EU membership the reason is free trade between a relatively strong developed economy and a barely developed one. German and British and French industries and companies built up over centuries of protection and subsidy before World War Two and decades of investment (including the lion's share of Marshall Plan aid) after it, are free to export to Greece and Portugal and Spain with no barriers up to protect Greek or Portugese or Spanish industries and companies or allow them to develop.

The Graph at the top of the page is from Antonio Fatas' post on Insead blog

IMF Director Christine Lagarde orders Greeks to pay their taxes while doing nothing to close down tax havens either as French Finance Minister or head of the IMF

IMF head Christine LaGarde's orders to Greeks to do their duty and pay their taxes ring pretty hollow coming from a woman who is the former French Finance minister. In that role she did pretty much nothing to close down tax havens in the EU (Switzerland, the Channel Islands, etc) or former French or British colonies and dependencies; and as head of the IMF she has done pretty much nothing in that regard either. Unless she's willing to close down the tax havens to stop the wealthiest and big banks and firms from avoiding tax, she has no leg to stand on in telling ordinary Greeks to pay theirs. Most of them already do. (1)

(1) = Guardian.co.uk 28 May 2012 'Christine Lagarde's Greek comments provoke fury', http://www.guardian.co.uk/world/2012/may/28/christine-lagarde-greek-comments-fury

Why Greece will be forced to leave the Euro unless it's offered a better deal ; the other problems with the EU and the Euro ; and the mass starvation they are distracting us from

(If this article is too long for you to read as a blog post see my website version with contents links between different sections)

Greece's keep the Euro, reject austerity option?

Greece has the option of rejecting the austerity bail-out package and disowning it's debts, while keeping the Euro as a currency, with or without remaining Euro-zone governments' permission. First Minister Alec Salmond similarly plans to keep the pound as a currency if Scotland becomes independent, based on many countries using the US dollar as their currency (1).

Despite the myth that defaulting on large debts leads to instant bankruptcy for debtor countries, South Korean economist Ha Joon Chang's book '23 Things they don't tell you about capitalism' notes numerous examples of indebted countries defaulting on their debts and immediately finding new creditors willing to lend to them (2).

This option might result in even worse austerity problems than the bail-out package in the short term though and might lead to the same end result of Greece leaving the Euro unless the bail-out package is renegotiated to reduce the austerity element, increase the stimulus element and crack down on tax havens to increase tax revenues for Greece and all other governments.

The remaining Euro zone countries could try to force Greece to drop the Euro by blanket trade sanctions, but that might lead to currency crises in Portugal, Spain and even Ireland and Italy, with the Euro zone ending up restricted to Northern and central Europe.

There is the possibility that some politicians and voters in Northern European countries might prefer this, but it would hurt their exports. Germany's exports have increased massively as a result of the Euro. This is because while the Deutsch mark was very high in value due to Germany's strong economy, making German exports expensive (as international trade involves currency exchanges), the Euro's value is based on the average strength of the economies of the entire EU and so is lower in value than the Deutsch mark. This made German exports cheaper to buy in other countries and so more competitive against their rivals exports (and against goods produced in the countries Germany exports too.) (3)

A Northern and central Europe only euro-zone, composed of stronger economies, would mean the value of the Euro would rise, making exports from Euro-zone countries more expensive for consumers outside the Eurozone (in countries using currencies other than the Euro), so reducing orders for and sales of those exports.

The problem with Greece keeping the Euro without a Eurozone agreement

More likely, Greece might run out of money if it tried to remain in the Euro without the agreement of Eurozone governments, as it's government can't print Euros - only the European Central Bank (ECB) can - and the ECB is mostly under the control of the German and French governments as the two largest economies in the Eurozone.

That could force Greece to return to the drachma as a currency.

A return to the drachma?

The drachma, based on the weak Greek economy, might well fall further in value at least in the short term due to the crisis.

This would have the effect of increasing the cost of all Greece's imports - most importantly fuel (especially oil, gas, coal and refined petrol), with Greece relying on imports for two-thirds of it's energy requirements (4).

That would certainly hurt the Greek economy, but would it hurt it any worse than EU (or Eurozone) governments' austerity measures and enforced sell-off of it's remaining assets at the bottom of the market (including state owned utilities which could bring in revenue if the economy recovered)?

A Greek government after the second elections in June might decide it wouldn't.

However it would also allow Greece to print it's own money and would make it's exports more competitive (it's problem being that it doesn't export enough at the moment and would need to export far more).

This could also (in the longer term, once it re-stabilised) allow Greece to invest more in e.g solar power to reduce its dependence on energy imports.

The need for Germany to allow Greece to re-negotiate the bail-out deal

German Chancellor Angela Merkel says agreements made must be honoured, but those agreements were made without any democratic consultation of the Greek people, with the elected Greek Prime Minister ( George Papandreou ) forced to resign when he suggested a referendum on the bail-out deal (5). He was replaced with an unelected bureaucrat Lukas Papademos, who had previously been vice President of the European Central Bank (which issues the Euro).

If there had to be referenda for countries to join the Euro, why wasn't there one an agreement to impose austerity for the majority in Greece, especially when austerity has shown itself to be counter-productive?

So why shouldn't 17% of Greeks have voted for Syriza, the Green-socialist anti-austerity coalition? And why shouldn't over 20% of them be saying they'll vote for it in the emergency repeat elections in June? (6) (Though the centre-right pro-bail-out deal New Democracy was ahead of Syriza in one poll it's apparent poll lead was within the margin of error of the poll ) (7).

Syriza may be unrealistic in demanding no austerity measures whatsoever - some cuts may be necesary - but it is right that there is no democratic legitimacy to the bail-out deal imposed by Euro-zone and EU governments so far; and right that the level of austerity demanded is counter-productive and unfair (as well as letting the richest Greeks off with tax avoidance through tax havens while the rest suffer.

Syriza has every right to use it's existing electoral mandate and any votes it gets in the new elections to demand a renegotiation of the terms of the bail-out deal. Stimulus measures such as public works and government funded infrastructure building and training programmes may well be necessary.

Austerity taken to the current extremes chokes off any chance of the economic growth that Greece requires to be able to pay off it's remaining debts. This only benefits Greece's creditors, primarily Eurozone governments and big US, British, German and French banks, who can continue to farm the Greek population for interest payments as long as they remain in debt (8). Is it a co-incidence that allowing tax havens also benefits them? Or that forcing the sell off of state utilities on the cheap benefits them and investors from Northern Europe and the US?

Given a fair deal Greeks might well be able to stay in the Euro - polls show most would prefer to.

Merkel's statements have already begun shifting towards suggesting there could be a bigger stimulus element to the bail-out package, which is encouraging (9).

(Merkel also suggested to the current caretaker Greek Prime Minister that the new Greek elections should be accompanied by a referendum on whether to stay in the Euro - which the PM said he could not as a caretaker government did not have the authority.) (10)

Why Greeks feel oppressed by larger countries :
the history

The reason that many Greeks feel oppressed by larger countries is that for centuries to present, they have been. Since gaining their independence from the collapsing Ottoman Empire in the 19th century they were invaded and occupied by German forces in World War Two.

After Greek Communist partisans kept several German divisions occupied for most of the war, the 'liberating' British forces' and regular Greek military's reward to them was to shell thousands of Communist demonstrators and partisans with artillery with Churchill's approval in 1944.

This was followed by a civil war from 1946-1949 in which the US and British governments backed the Greek military against Communist groups. Communists and suspected communists were hunted down and persecuted for decades.

Under the US backed military government of the 'Colonel's regime' from 1967 to 1974, the assassination, jailing, torture or disappearance of anyone critical of the ruling military was commonplace, with CIA assistance.

President Lyndon B Johnson responded to the complaints of the Greek ambassador to the UN about US operations in Greece and Cyprus in 1967 by saying "Listen to me, Mr. Ambassador! Fuck your parliament and your constitution! America is an elephant. Cyprus is a flea. Greece is a flea. If those two fleas continue itching the elephant, they may just get whacked by the elephant’s trunk, whacked good.… We pay a lot of good American dollars to the Greeks, Mr. Ambassador. If your prime minister gives me talk about democracy, parliaments, and constitutions, he, his parliament, and his constitution may not last long."

So many Greeks see the current crisis as more of the same - few people have been killed (some demonstrators by police), but so far they have had larger countries governments imposing 'agreements' on them without any democracy.

The myth of laziness and corruption as the causes of under-development

German, British and French politicians have found it convenient to allow the myth that Greece's debt is mainly due to Greeks being lazy or corrupt. South Korean economist Ha Joon Chang points out that in the early 19th century, when Germany and Japan were less industrialised than France or England, Japanese and Germans were seen as lazy and backward. Chang comes to the conclusion that rather than changed culture resulting in development, cultural changes come about as a result of development, which is why people in poor, undeveloped countries are stereotyped as lazy. A society riddled with bribery is similarly usually the result of poverty and lack of economic and governmental development, rather than a cause of it (11).

James Steadway, chief economist at the New Economics Foundation, found figures suggesting Greeks on average retire older than Germans - and work 50% longer hours (12).

Tax avoidance and Evasion which increases government deficits and debts is facilitated by tax havens - why no EU or member state action on this?

While there was too much tax evasion in Greece, EU member governments have not closed down the tax havens which continue to facilitate tax avoidance and evasion by big banks, firms and the wealthiest across the EU and the world. Switzerland is a favourite tax haven for wealthy Greeks and Greek companies, while Greece's creditors include banks like the US based Goldman Sachs and the British based Royal Bank of Scotland, both of which, like most of the UK's FTSE 100 companies, are heavily involved in tax avoidance through tax havens (13) - (15).

This is surely a form of corruption on a grand scale - especially when parties in government are receiving large donations to party funds for election campaigns from the billionaires, banks and firms using the tax havens - and former government ministers involved in regulating (or more often de-regulating) industries end up on the boards of companies their department or government regulated.

The need to recycle the trade surpluses of stronger economies into developing weaker ones

Many economists (e.g Will Hutton and former World Bank economist Joseph Stiglitz) say the Eurozone's major weakness is the lack of any sufficient regional development fund to even out the inevitable trade imbalances between strong economies like Germany's and weaker ones like Greece, Portugal and Spain. A sufficient fund would act to recycle a large part of the trade surplus money of countries like Germany into investment in the weaker economies like Greece (16) - (17).

The insufficiency was exacerbated by the redirection of regional development funds from Portugal, Greece, Spain and Ireland to new member states as the EU expanded eastwards, arguably too fast, without referenda in the existing member states and without any EU minimum wage.

This is just as true of the EU as a free trade area as it is of the Euro-zone as a single currency area.

The US is a huge country made up of many states with significant differences in the strength or weakness of their economies, but this is moderated by large infrastructure and investment projects in poorer states by the US Federal Government.

Why complete free trade plus a single currency across countries at hugely different levels of development can't work

South Korean economist Ha Joon Chang's book 'Bad Samaritans' has something relevant to say here too. His book takes numerous historical examples to show that the British, US and other developed economies built up key industries over centuries by subsidising them and protecting them from the imports of foreign rivals. Only once they were strong enough to defeat any competition internationally did their governments become advocates of free trade - and even now advocate it for developing countries (and make it a condition of aid and trade deals) while often subsidising and protecting their own industries. Similarly foreign investment does not create growth first, but is attracted by building up a strong economy by publicly funded infrastructure and investment (18).

So is the EU free market and Eurozone project one that makes it impossible for weaker economies to ever develop their own industries when forced to open their markets to imports from stronger economies built up over centuries of protectionism? Does the Euro make things even harder for them by making the more developed economies' exports even cheaper? Should exceptions be made on the bans on protectionism and state subsidies for some of the industries of the weaker economies in the EU (just as poorer developing countries outside it desperately need to be allowed to protect and subsidise their agriculture and industries to develop them without being penalised by losing aid or trade deals as a result)?

Without these kind of exceptions being allowed for weaker economies, their electorates may end up concluding that they will be less badly off out of both the euro currency zone and the EU itself.

Contrary to Germany's image of itself as paying to bail out irresponsible Greeks, the current system gives all the benefits to the wealthier countries in the EU and the euro-zone with the costs largely paid by the poorer ones.

While this is true of trade between relatively developed nations of different economic strengths and levels of development within the EU and the developed world, it all holds even more true for trade between the developed countries and the almost entirely undeveloped former colonies in Africa and much of Latin America and Asia.

The need to resolve the developed world crises in order to deal with much bigger ones -
the starvation, hunger and lack of clean drinking water crisis in the developing world and the energy, resource and climate change one worldwide

Germany and the other strong economies in the EU should offer these kind of concessions in order to end the crisis quickly and move on to dealing with far more serious crises - such as the hundreds of millions of people in other parts of the world who are going without enough food to eat and without clean water to drink - and the coming catastrophic energy, resource and food crisis if we don't reduce our wasteful over-use of energy and resources.

Oxfam estimate that a billion people or one in seven of the world's population can't afford enough to eat each day for themselves or their children - a problem made worse by the rising price of food partly due to the rising price of fuel for transporting it, while the UN and other experts estimate between 800 million and 4 billion (probably more like 4 billion) have no access to clean drinking water, resulting in them suffering illness and often death from water borne diseases (19).

You can sign an avaaz petition which will be handed to G8 and other government's leaders at the G8 summit demanding they act to provide food security for the growing numbers of hungry people here.

The focus on developed world debt and currency crises is distracting from the need for the upcoming G8 summit to deal with those two major problems that result in millions dying each year from starvation, under-nutrition and lack of clean water.

The developed world crisis are relatively minor by comparison and only affect the majority here due to huge inequality, plus tax havens letting the wealthiest and big banks and firms avoid paying massive amounts of tax with the collusion of governments and politicans, plus rampant deregulation and the failure to re-regulate. Even with all that few people are starving or going without clean water here, though some are going hungry or dying of cold.

Sources

(1) = Scotsman 27 Jan 2012 'Alex Salmond: ‘Chancellor would bite our hands off to keep the pound’',
http://www.scotsman.com/the-scotsman/politics/alex-salmond-chancellor-would-bite-our-hands-off-to-keep-the-pound-1-2081286 ; 'However, Mr Salmond said there were 67 countries in the world that were using another nation’s currency, “either in formal or informal monetary unions at the present moment”, while remaining independent.'

(2) = Ha Joon Chang (2010) ‘23 Things they don’t tell you about capitalism’, Allen Lane, 2010

(3) = Business Insider 20 Nov 2011 'Why German Taxpayers Should Be Forced To Bail Out Italians And Greeks',
http://articles.businessinsider.com/2011-11-20/markets/30421346_1_german-banks-german-state-eurozone

(4) = Trading Economics 'Energy imports; net (% of energy use) in Greece', http://www.tradingeconomics.com/greece/energy-imports-net-percent-of-energy-use-wb-data.html

(5) = guardian.co.uk 06 Nov 2011 'Eurozone crisis: Greek PM George Papandreou to resign', http://www.guardian.co.uk/world/2011/nov/06/greece-george-papandreou ; 'The socialist prime minister has faced growing calls to step down at home and abroad since shocking markets and world leaders with an ill-timed decision, announced last Monday, to put the 27 October bailout agreement to popular vote. After being publicly dressed down by French President Nicholas Sarkozy and German Chancellor Angela Merkel, the 59-year-old politician was forced to back down and shelve the referendum plan...'

(6) = Wall Street Journal Online 16 May 2012 'Greece's Radical Leftist Syriza Secures First Place- Poll', http://online.wsj.com/article/BT-CO-20120516-711097.html

(7) = Bloomberg 17 May 2012 'New Democracy Moves Ahead of Syriza, Greek Poll Shows', http://www.bloomberg.com/news/2012-05-17/new-democracy-moves-ahead-of-syriza-greek-poll-shows-1-.html

(8) = Bloomberg 23 Feb 2012 'European Banks Take Greek Hit After Deal', http://www.bloomberg.com/news/2012-02-23/rbs-reflects-greek-debt-damage-with-credit-agricole-days-after-aid-accord.html ; On US banks see (12) below

(9) = guardian.co.uk 17 May 2012 'German stance on Greek crisis softens as eurozone fears mount', http://www.guardian.co.uk/world/2012/may/17/germany-greek-crisis-eurozone

(10) = Guardian Business Blog 18 May 2012 'Eurozone crisis live: Row after Angela Merkel 'suggests Greece holds euro referendum'', entries for 6.15pm BST and 6.23pm BST, http://www.guardian.co.uk/business/2012/may/18/eurozone-crisis-stock-markets-greece-spain#block-31 and http://www.guardian.co.uk/business/2012/may/18/eurozone-crisis-stock-markets-greece-spain#block-32

(11) = Ha Joon Chang (2007) ‘Bad Samaritans’, Random House, London, 2008 , Chapter 9 'Lazy Japanese and Thieving Germans'

(12) = New Economics Foundation (NEF) 16 Feb 2012 'Greece should reject the Troika and default on its own terms', http://neweconomics.org/blog/2012/02/16/greece-should-reject-the-troika-and-default-on-its-own-terms by James Meadway, Senior Economist, NEF

(13) = Bloomberg 06 Mar 2012 'Goldman Secret Greece Loan Shows Two Sinners as Client Unravels', http://www.bloomberg.com/news/2012-03-06/goldman-secret-greece-loan-shows-two-sinners-as-client-unravels.html

(14) = Scotsman 18 May 2012 'Greek debt deal set to cost RBS £825 million' http://www.scotsman.com/news/international/greek-debt-deal-set-to-cost-rbs-825-million-1-2154674

(15) = Guardian 11 Oct 2011 'Tax havens and the FTSE 100: the full list', http://www.guardian.co.uk/news/datablog/2011/oct/11/ftse100-subsidiaries-tax-data

(16) = Observer 13 May 2012 'This crushing debt trap threatens to bring down the whole of Europe', by Will Hutton , http://www.guardian.co.uk/commentisfree/2012/may/13/will-hutton-euro-in-danger

(17) = guardian.co.uk 05 May 2010 'Reform the euro or bin it', by Joseph Stiglitz (former World Bank economist, also quoting nobel prize winning economist Robert Mundell) , http://www.guardian.co.uk/commentisfree/2010/may/05/reform-euro-or-bin-it-greece-germany

(18) = Ha Joon Chang (2007) ‘Bad Samaritans’, Random House, London, 2008 , Chapter 2 'The Double life of Daniel Defoe - How did the rich countries get rich'? ; also Chapters 3 & 4

(19) = BBC News 13 May 2012 'Harrabin's Notes: Safe assumptions' , http://m.bbc.co.uk/news/science-environment-18020432

Private creditors and banks' refusal to write down Greek debts likely to lead to Argentina style default

The Guardian has reported that German Chancellor Angela Merkel tried to get Greece’s private sector creditors, including the banks, to forgive some of Greece’s debts to them as part of a bail-out package for the Greek government. Some IMF and other economists argued for the same thing (1) – (2). The banks and other private creditors refused (3).

If they continue in their greed in refusing to give up any of the money owed to them Greece will most likely default on it’s debts and they will get not one penny.

French President Nicholas Sarkozy has claimed that leaving the Euro is not an option for either France or Greece as if they did their debts would still be denominated in Euros, the Greek and French currency would be worth far less than 1 euro per unit of currency and so their debt would effectively increase (4).

However if Greece has defaulted on all it’s debts this would not be a problem for them. It might affect their balance of payments negatively (i.e increase the value of what they import compared to what they export) but compared to the harsh conditions set for bail-out and the massive size of Greece’s debts this might seem like a minor problem.

The IMF and Greece’s governmental creditors in the EU have set the usual conditions of privatisation of public services and assets, sacking of public sector employees and cuts in welfare payments (5).

The privatisations demanded include the privatisation of water, which will price many of the poorest out of being able to afford water at all. Privatisation of water supplies led to cholera epidemics when it was done in South Africa as many people couldn’t afford piped water any more; and to riots in Cochabamba in Bolivia after the foreign water firms who bought up Bolivian water infrastructure started charging for the entire cost of new investments by raising prices in advance to cover the whole cost of major investments up front (6)  - (9).

They also include electricity (10). This would remove the revenues of one of the few public services that could turn a profit from government.

If the Greek government agrees to all this the likelihood is that the country will be tipped into a second even worse ‘double dip’ recession. Given that and massive public opposition to the rescue package conditions, since most Greeks don’t see why they should pay for the decisions of bankers and politicians who caused the crisis through lobbying for and implementing deregulation of the financial sector across most of the developed world, it seems likely the Greek government will either have to default, partially or entirely, on it’s debts, or else it will fall and whatever government replaces it will be forced to.

The IMF and EU conditions on the bail out are not addressing the main cause of Greece's debts either. This is tax avoidance through corruption. Many people and companies who can afford to, bribe officials or politicians to allow them to evade taxes altogether, resulting in the gap between tax revenues and government expenditure and placing the tax burden on those who can least afford it - the people and small businesses who can't afford to pay bribes (along with those who could but decide it would be wrong to) (11).

Defaulting on a large percentage of their other foreign debts did not work out badly for Argentina, in fact leading to it finally getting out of a situation of mass unemployment and massive debt. The debt default and repudiation of IMF conditions was followed by rapid growth which was interrupted briefly in 2009 by a recession caused by the global financial crisis, followed by more rapid growth. (The table on this link shows Argentina’s growth rate since 2002 if you change the start year to 2002.)   (12) – (14).

 Argentina did have help from Venezuela’s government, which had a surplus when oil prices were high due to the Iraq and Afghanistan wars and tension over whether there’d be war with Iran. Venezuela funded Argentina paying off it’s debts to the IMF. Foreign creditors were then forced to accept 25% of the money initially owed to them (15) – (16).

As a result last year Argentina was  able to pay off  it’s debts at a rate equivalent to creditors getting 51% of what was initially owed to them despite suffering a recession due to the global financial crisis and having to default on debt payments again in 2009 (17) – (18).

Development economist Ha Joon Chang has pointed out that many developing countries have defaulted on their debts without disaster ensuing in the past and they were rapidly able to get new loans from new investors (19).

The IMF is usually far more concerned with what is good for foreign creditors than what’s good for the people of countries it’s imposing conditions on for loans and grants, because it’s funded by the richest countries and they appoint it’s head.

 

(1) = guardian.co.uk 17 Jun 2011 ‘Germany climbs down over Greece bailout demands’,http://www.guardian.co.uk/world/2011/jun/17/greece-bailout-germany-private-banks

(2) = guardian.co.uk 03 Jun 2011 ‘Anger mounts in Greece as eurozone ministers edge nearer to bailout deal’,http://www.guardian.co.uk/business/2011/jun/03/greece-debt-crisis-second-bailout-talks

(3) = See (1) above

(4) = EU business 27 Jun 2011 ‘Sarkozy says France will propose new plan to aid Greece’, http://www.reuters.com/video/2011/06/27/greece-debates-new-austerity-plan?videoId=216516632

(5) = Reuters 14 May 2011 ‘EU,IMF pushing Greece to fully privatise utilities – reports’,http://www.reuters.com/article/2011/05/14/greece-economy-idUSLDE74D02920110514

(6) = See (5) above

(7) = J. Pauw (2003)‘The politics of underdevelopment: metered to death-how a water experiment caused riots and a cholera epidemic’ in  Int J Health Serv. 2003;33(4):819-30. http://www.ncbi.nlm.nih.gov/pubmed/14758861

(8) = Water Justice 19 Oct 2004 ‘The UK Government and Water Privatisation’,http://www.waterjustice.org/analysis.php?componentID=2&articleID=83

(9) = The Nation 28 Jan 2005 ‘The Politics of Water in Bolivia’,  http://www.thenation.com/article/politics-water-bolivia

(10) = See (5) above

(11) = BBC Radio 4, 11 Feb 2010 'From Our Own Correspondent - No Tax Please we're Greek', http://news.bbc.co.uk/1/hi/programmes/from_our_own_correspondent/8509244.stm

(12) = BBC News 21 Nov 2002 ‘Crisis-hit Argentina defaults on debt’, http://news.bbc.co.uk/1/hi/business/2471617.stm

(13) = Guardian 02 Apr 2009 ‘Argentina heads for return of debt default that 'left it out of the world' seven years ago’, http://www.guardian.co.uk/world/2009/apr/02/argentina-debts-economic-crisis

(14) = Trading Economics -  ‘Argentina GDP Growth rate’, http://www.tradingeconomics.com/argentina/gdp-growth

(15) = guardian.co.uk 19 Dec 2005 ‘Goodbye and Good Riddance’,http://www.guardian.co.uk/business/2005/dec/19/argentina.internationalnews

(16) = See (11) above

(17) = Guardian.co.uk 16 Apr 2010 ‘Argentina to repay 2001 debt as Greece struggles to avoid default’,http://www.guardian.co.uk/business/2010/apr/16/argentina-to-repay-2001-debt

(18) = See (12) above

(19) = Ha Joon Chang (2010) ‘23 Things they don’t tell you about capitalism’, Allen Lane, 2010

Cuts to welfare and public sector jobs ballooning out of control in Britain

The housing benefit cap and public sector sackings are unfair, un-necessary and risk increasing our national debt, unemployment and homelessness

George Osborne claims welfare spending had to be cut because it has “ballooned” and this is presumably his justification for cutting housing benefit, despite the fact that homelessness charities such as Shelter Scotland say this will increase homelessness.

Welfare spending has certainly increased over the years, but so has spending on everything else, because the economy has over-all grown a great deal over the decades and there’s also been inflation.

The website ukpublicspending.co.uk has compiled tables based on figures released by the government from 2009 on, covering the entire period from 1950 to the present.

These show annual public spending, annual GDP (the output of the economy) and how much was spent on each area of public spending.

Welfare spending as a proportion of public spending fell from 20% in 1997 to 15% by from 2005 to 2009. Compared to the 1970s and 1980s it’s actually fallen significantly from levels of 20 to 30% of annual government spending.Since there has been a recession since the 2008 credit crisis the fact that welfare spending didn't increase in 2009 suggests that, if anything, people made unemployed by the recession are not getting the benefits they need, further depressing demand in the economy and hampering a recovery.

The government’s budget is supposed to be about spreading the cost of cuts fairly, according to ability to bear them. That makes it hard to understand why housing benefit should be capped.

There is certainly waste in the housing benefit budget, but that has been created by Conservative and New Labour governments’ selling off of council housing without building or buying nearly as much new public housing. This has resulted, in a significant minority of cases, to the government paying large amounts out to private landlords, which is the fault of government, not of people who can’t afford to buy or rent their own housing. It could be solved by a mixture of buying and building more council housing and regulating private sector rent levels, rather than capping housing benefit and throwing people onto the street as a result.

Are large scale public sector job cuts necessary and are they wise?

That’s apart from the fact that public sector job cuts on this scale aren’t necessary and aren't wise. What determines the future of government revenues is mostly the performance of the economy, not whether the government is in debt. While it’s not advisable for governments to take on debts that don’t help the economy or prevent severe poverty or suffering for large numbers of people, they can operate with considerable levels of debt. (Look at the US for instance, with decades of a bloated and ever increasing defence budget leading to a vast national debt).

As many economists (and Labour MPs) have warned, sacking large numbers of public sector employees to reduce the budget deficit may actually increase it in the long run by reducing tax revenues, increasing unemployment benefit payments, reducing demand in the economy (i.e sacked public sector workers will buy less goods and services as they won’t be able to afford what they need) and making private sector employees unemployed as the reduced demand means reduced sales for private firms.

The Conservatives claim that large and immediate budget cuts are necessary in order to avoid a crisis like Greece’s, where a rise in interest rates demanded by creditors, combined with speculation by currency traders selling the euro, left the Greek government unable to pay the interest on its debts and the euro falling. Only a bail-out package from other EU members prevented this crisis spreading to the rest of the euro-zone countries.

However Britain’s debt is only 53% of it’s GDP, compared to Greece’s debt of over 110% of it’s GDP, so Greece’s public debt relative to the output of its economy is more than twice as big as Britain’s relative to it’s economy. France and Germany both have government debts of over 70% of their GDP, while Italy's, like Greece's is over 110 of it's GDP.

Osborne's claim in his budget statement that we have the highest deficit in the EU in absolute terms may be true, because we are the largest economy among those with a government deficit, but as a percentage of GDP it's not true.

This is distinct from the annual deficits – the amount being added each year to the debt due to the gap between tax revenues and public spending, – at a bit over 13.6% of GDP in Greece’s case and 11.5% in the case of the UK – i.e the debt of the UK and Greece grew at a similar rate relative to the size of their economies over the last year. However Britain came out of recession this quarter for the first time since the financial crisis of 2008. Governments routinely rack up debts during recessions and by doing so get their economies out of recession, resulting in growth, increased revenues and so the ability to pay off some or all of their debt.

What’s more, while there has certainly been a lot of wasteful spending and we did have a considerable public debt before the credit crisis, Britain’s debt is only as large as it is because of the financial crisis which was caused by a combination of deregulation of the financial sector on both sides of the Atlantic by both ‘left’ and ‘right’ wing governments in the UK and liberals and conservatives in the US.

A ‘third way’ plan by the Clinton administration to make banks and other lending companies give mortgages to people who couldn’t afford to re-pay them also played a role. This was an alternative to building more public housing, which was seen as unacceptably anti-market or socialist.

The British government bailed out the banks for hundreds of billions, took on their debts and suffered reduced tax revenues due to the recession caused by the financial crisis. While they were partly to blame for deregulating banking there was no criticism of deregulation of banking from the Conservative party in the 1990s – they supported it right up the financial crisis.

Osborne plans to cut spending further and faster than any country in the last 50 years; and to do so by sacking 500,000 public sector employees and freezing the pay of the rest, while continuing to fund a pointless war and vast taxpayer subsidies for private arms companies, PFI consortia and privatised rail firms . This looks more like the ideological opposition to public services than hard-headed realism

Other ways to reduce our debts

Of course if it’s possible we should gradually eliminate our annual deficit and start reducing our total amount of debt and annual interest payments on it. It certainly doesn’t make sense to be paying interest on debt for decades if it’s avoidable; and we don't want a continuing deficit leading to ever larger debts and interest payments on them.

However there are lots of ways we could do that without hurting the poorest or in fact anyone but the very richest.

Bringing our troops home from Afghanistan would save a lot of money and a lot of lives. Scrapping or renegotiating private finance initiatives or ‘public private partnerships’ would reduce massive annual costs that aren’t even put on the books, due to an accounting fiddle. Ending public subsidies to privatised rail companies would save even more. If they really are investing in the railways, let them do it from the profits from their fares, which have risen at well above the rate of inflation. Ending export credit guarantees for arms companies like British aerospace would also save money, as would ending military aid to governments which are either dictatorships or whose governments and militaries are involved in the drug trades and death squads (e.g Colombia).

Building more council housing would also reduce the government’s annual housing benefit costs, as maintaining a council house is much cheaper than the rents paid to many private landlords.

Cracking down on tax evasion and tax avoidance by international co-operation with the EU and the OECD to close down tax havens (and even cracking down ourselves on the Channel Islands and the Bahamas) would bring in far more revenues than cracking down on benefit fraud ever has.

Given all that putting caps – and very low caps – on housing benefit, seems downright mean, unfair; like the increase in VAT which is paid at the same rate by everyone, whatever their income.

There are a few fair and progressive elements in the budget – like raising the level of income at which people pay any income tax at all, taking 900,000 of the lowest earners out of tax; and making big cuts in the corporation tax paid by small firms. Unfortunately the housing benefit cap and the VAT rise more than cancel them out.

We’re also developing another problem – that maintaining an environment that humans can survive in reasonably well is not possible in an economic system which demands maximum profit in the short term from every company – and constant, infinite economic growth.

Greece needs a tide-over loan from the rest of the EU – not free-market fundamentalism

and harsh budget cuts there could stall economic recovery in Greece and across the EU

Strikers in Greece demonstrate against public pay freezes and public spending cuts imposed by the Greek government due to pressure from the EU and currency speculators targeting the Euro. (Photo by Petros Giannakouris/Associated Press)

With the EU currently enforcing big cuts on the Papandreou government in Greece there’s a serious risk of turning recession there into depression – and of it spreading across the EU. Sacking lots of public sector workers or cutting their pay is not going to help end the recession – and those economic problems wouldn’t just affect Greece, but the entire EU, which trades with it. What’s more the cuts may well not end currency speculation on the Euro – if they create a depression they might increase it and create another recession across the EU just when it’s economy is starting to recover.

There’s also a risk of forcing Greece to leave the Euro, as the majority of Greeks won’t back these kind of extreme cuts or the kind of economic depression likely to be caused by them.

As Nobel prize winning economist Joseph Stiglitz points out there is no danger of Greece defaulting on it’s debts and it’s government does not have significantly higher debts as a proportion of it’s GDP than the big three in the EU – Britain, France and Germany. Stiglitz also points out that France has broken EU rules on debt exceeding 3% of GDP without having the same scale of cuts enforced on it – and that a large part of the problem is speculation in currency markets on the Euro. He also points out that Greece is in no worse a position economically than the US is currently (1).

Stiglitz has also compared the speculators’ attack on the Euro to that on the pound in 1992 and on Asian currencies in the 1997 Asian financial crisis (2). The solution, he says, is for the rest of the EU to come to Greece’s assistance to ensure the speculators’ gamble doesn’t pay off and avoid a deeper recession which would also damage market confidence, possibly by changing interest rates on the loans and intervening in the stock market (3).

Update - 11th February 7p.m.:

The EU seems to have decided that their ‘aid package’ to Greece will amount to a statement saying they back the Greek government, some vague talk of ‘co-ordinated measures to defend the Euro’ and
a demand that Greek budget cuts continue, along with a suggestion that Greece go to the IMF for money. The IMF might have changed its spots, but has a history of making its loans conditional on privatisation and public spending cuts. There have been suggestions that the EU statement might mean low interest loans provided jointly by the EU and the IMF, which would be slightly more hopeful, but no-one has confirmed this (1). (4).

No wonder the speculators don’t seem to be deterred.

The EU needs to provide concrete help to Greece, possibly by new low interest loans or grants - and stop demanding budget cuts on a scale that the British, German and French governments would rightly never consider in their own countries - particularly during a recession.

(1) = guardian.co.uk 25 jan 2010 ‘A principled Europe would not leave Greece to bleed’, http://www.guardian.co.uk/commentisfree/2010/jan/25/principled-europe-not-let-greece-bleed

(2) = Telegraph 08 Feb 2010 ‘Greek crisis intensifies as Joe Stiglitz calls for Europe to 'teach the speculators a lesson'’,
http://www.telegraph.co.uk/finance/economics/7191113/Greek-crisis-intensifies-as-Joe-Stiglitz-calls-for-Europe-to-teach-the-speculators-a-lesson.html

(3) = BBC News 03 Feb 2010 ‘Joseph Stiglitz on Greece: 'Speculators pose risk'’,
http://news.bbc.co.uk/1/hi/business/8496770.stm

(4) = guardian.co.uk 11 Feb 2010 ‘EU leaders reach Greek bailout deal’,
http://www.guardian.co.uk/business/2010/feb/11/eu-summit-greece-bailout-imf