<nettime> Larry Elliott: Europe's liberal illusions shatter as Greek tragedy

[Patrice Riemens <patrice@xs4all.nl>]

Save for the refugee crisis in Greece, which would be in itself enough
to bring a national government to its knees, one has not heard very
much of late of that country's pack of Elephants in the room, aka the
Bailout Charade. Well, it's back again, in full force, in case anyone
forgets. And it doesn't look good at all.

Meanwhile, in the Aegean ...


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Original to:
http://www.theguardian.com/business/2016/may/01/europe-illusions-shatter-as-greek-tragedy-plays-on-austerity


Europe's liberal illusions shatter as Greek tragedy plays on
By Larry Elliott (Economics editor)

Voters across Europe have got the message from the way in which
Greece’s opposition to austerity was crushed


Greece is running out of money. The government in Athens is raiding
the budgets of the health service and public utilities to pay salaries
and pensions. Without fresh financial support it will struggle to make
a debt payment due in July.

No, this is not a piece from the summer of 2015 reprinted by mistake.
Greece, after a spell out of the limelight, is back. Another summer of
threats, brinkmanship and all-night summits looms.

The problem is a relatively simple one. Greece is bridling at the
unrealistic demands of the European commission and the International
Monetary Fund to agree to fresh austerity measures when, as the IMF
itself accepts, hospitals are running out of syringes and buses
don’t run because of a lack of spare parts.

Athens has already pushed through a package of austerity measures
worth €5.4bn (£4.23bn) as the price of receiving an €86bn bailout
agreed at the culmination of last summer’s protracted crisis and
expected the deal to be finalised last October.

Disbursements of the loan have been held up, however, because neither
the commission or the IMF believe that Greece will make the promised
savings. So they are demanding that Alexis Tsipras’s government
legislate for additional “contingency measures” worth €3.6bn
to be triggered in the event that Greece fails to meet its fiscal
targets.

This is almost inevitable, given that the target is for the country to
run a primary budget surplus of 3.5% of gross domestic product by 2018
and in every year thereafter. This means that once Greece’s debt
payments are excluded, tax receipts have to exceed public spending by
3.5% of GDP. The exceptionally onerous terms are supposed to whittle
away Greece’s debt mountain, currently just shy of 200% of GDP.

If this all sounds like Alice in Wonderland economics, then that’s
because it is. Greece is being set budgetary targets that the IMF
knows are unrealistic and is being set up to fail. It will then be
punished further for being unable to do what was impossible in the
first place.

Predictably enough, the government in Athens is not especially
taken with this idea. It has described the idea as outlandish and
unconstitutional, but is in a weak position because it desperately
needs the bailout loan and threw away its only real bargaining chip
last year by making it clear that it would stay in the single currency
whatever the price.

So Tsipras is doing what he did last year. He is playing for time,
hopeful that by hanging tough and threatening another summer of chaos
he can force Europe’s leaders to offer him a better deal - less
onerous deficit reduction measures coupled with a decent slug of debt
relief. For the time being though, the matter is being handled by the
eurozone’s finance ministers, who want their full pound of flesh.

The mood is especially unyielding in Germany, where Angela Merkel’s
popularity has suffered as a result of her open door policy toward
refugees. Faced with growing hostility, she has concluded that this is
not the time to show any signs of weakness. She has sought to mollify
German voters by giving her finance minister, Wolfgang Schäuble, a
free hand to ratchet up his criticism of the stimulus policies Mario
Draghi is pursuing at the European Central Bank, and by insisting
that there should be no debt relief for Greece until Tsipras has done
everything demanded of him.

Merkel must pray that the lid can be kept on Greece until after 23
June, because it is hard to see how a repeat of last summer’s
argy-bargy would help keep Britain inside the EU - rather more
important to Germany in the long term than a few billion euros of debt
relief.

The reason is that David Cameron can only win his referendum by
securing the votes of non-Conservative supporters, for some of whom
the handling of Greece exemplifies everything that is wrong with the
EU - its lack of democracy, hyper-conservative economic agenda and
insistence that the single currency is a great success when in fact it
has proved to be a colossal failure. Advertisement

Greece received the first of its three bailouts six years ago, when
the terms were negotiated in the weekend following Britain’s general
election. Gordon Brown was on his way out, but the then chancellor
Alistair Darling went to Brussels to discuss the deal with fellow EU
finance ministers.

Since then, there have changes of government in all the big EU
countries bar Germany, and most of the smaller ones as well. Voters
showed their unhappiness by getting rid of the centre-right in France
and the centre-left in Spain. They waved goodbye to Silvio Berlusconi
in Italy and Mark Rutte in the Netherlands.

It has been all change at local level, but no change in Brussels
and Frankfurt, where the officials responsible for the eurozone’s
bone-headed policies carry on regardless. Voters across Europe have
got the message from the way Greece’s opposition to austerity was
crushed - you can vote for whoever you like, but it won’t make any
difference.

The revolt against the status quo explains why Spain can’t form a
government, the two parties that have dominated Irish politics since
independence could barely muster more than 50% of the vote in the
recent election, the runoff for president in Austria is between the
greens and the far right and Marine Le Pen has support in France.

To be sure, this is not a phenomenon exclusive to the eurozone. There
is marked hostility to the US political establishment, and it is clear
that many voters in the UK simply do not believe the government’s
warnings about the economic risks of Brexit.

The situation in the eurozone is worse, however, in part because the
democratic deficit is so marked, in part because economic performance
has been woeful and in part because there has been a dogged insistence
on continuing with policies that have been both ineffective and
unpopular.

As Dan Atkinson and I argue in our forthcoming book about the failure
of the single currency,* Greece was the point where progressive
illusions were shattered. Until last summer it was just about possible
to believe in a cuddly European polity dedicated to higher living
standards, full employment and more generous welfare states.

Then a gun was held to Greece’s head. Tsipras was faced with a
choice. Ignore what the people want or see your banks go bust. This
in a country which had seen the economy shrink by a quarter in five
years. Difficult to spot what was awfully progressive about sucking
spending power from an economy woefully short of demand. Then or now.

*Europe isn’t working, by Larry Elliott and Dan Atkinson, Yale
University Press



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