by Michael Roberts
The Greeks are having another election on 17 June. The 6 May
election was a disaster for the Troika. An anti-austerity party,
Syriza, gained the balance of power and ensured that no pro-Troika
government could be formed. Now Greece is in a limbo for another month
under a surprised premier, Panagiotis Pikrammenos, the president of
Supreme Court.
But the Greek economy is not standing still. On the contrary, the
economy is beginning to melt down. First, the austerity measures are
collapsing. In June, Greece should have improved tax collection by 1.5
percent of GDP, reduced social spending by 1% of GDP and implemented
another pay cut and reduced public sector jobs by 12%. It has not done
so. Also, unpaid debts owed by the government to third parties for
over 90 days now stand at €6.3bn euros, or 3.1% of projected GDP this
year. Athens is supposed to shrink its budget hole to 6.7% of GDP this
year based on a supplementary budget approved by parliament earlier in
the year. The EU Commission’s spring forecast sees the deficit at 7.3%.
More immediately, the Greek president announced during coalition
negotiations last weekend that deposits in Greek banks are falling by up
to €1bn a day. At that rate, the banks will be under water before we
get to the election result. The banks will have to rely on emergency
lending assistance (ELA) from the Greek central bank. But that requires
collateral and Greek banks are running out of those too.
Worse, the ECB is not willing now to take collateral from some Greek
banks because they have not yet restructured their balance sheets since
private sector involvement (PSI) bond swap, which required them to
recapitalise. Recap funds from the EFSF have been delayed because of
the political impasse and the ECB wants to wait for that funding. So,
in the meantime, the banks must again rely on ELA from the central
bank. All these demands for ELA will drive up the central bank’s
liabilities to the Eurosystem (already at €125bn) to new heights. So a
financial crisis is brewing in Greece while its politicians start an
election campaign.
It seems that Mrs Merkel and other Euro leaders still do not get it.
A Greek default is seen as a ‘one-off’ without serious consequences for
the rest of the Eurozone. But that’s wishful thinking. I have
estimated the exposure of other Eurozone states (and their taxpayers) to
a disorderly Greek sovereign debt default. Adding up what the Greek
government owes to other EU governments from the two bailouts, what the
central bank debts are to the Eurosystem and how much the ECB has
already lent to Greek banks and holds in Greek government debt, we find
that the Eurozone is exposed to around €500bn of potential losses, or
near 5% of Eurozone GDP.
Germany and France alone are exposed to around €150bn each. And this
is just exposure to sovereign debt. If the Greek private sector should
also default on its loans, French and German banks will take a
sizeable hit (French banks have about €25bn lent to Greek companies.
When you add all this in, the total exposure is closer to €750bn.
The Germans and other Euro leaders seem unwilling to renegotiate the
bailout package to reduce Greek public debt and reverse the austerity
measures as any Syriza-led government will demand. That poses the
likelihood that the Euro leaders will force Greece out of the euro by
cutting off funding to the government and to the banks from the ECB.
The Greek government only has cash to last until the end of June to pay
for public sector salaries and services. With the ending of Troika
money, it will default on its debt obligations. Then the Euro leaders
can expel it from the euro system, even if the Greeks go on using the
euro for money. The IMF reckons that this will cause a 10% contraction
in Greek real GDP over the next year and with a 50% devaluation in any
new Greek currency, inflation would jump to 35%. Credit for companies
and households would disappear, so bankruptcies will mushroom. The
Greek government would have to act to nationalise the banks, impose
capital controls on any flight of money out of Greece and also take over
major companies.
The rest of the Eurozone and Europe will not escape from the
consequences of a Greek exit. The whole of Europe would be plunged into a
deeper recession, probably contracting the European economy by up to 5%
in one year, while inflation would rise too. So the Germans and the
other Euro leaders will have to decide what to do or the euro itself
could head towards break-up before the year is out. The firewalls
against ‘contagion’ are not adequate. The new European Stability
Mechanism (ESM) is still not in place and its effective functioning
could be delayed until the autumn while the German parliament gets round
to ratifying it. The ECB does not appear willing to consider any more
extraordinary measures for liquidity support to the PIIGS. And the Euro
leaders are bickering about austerity or growth.
And austerity is not working. The irony is that before the crisis,
fiscally-prudent Germany saw public spending rise at a much faster rate
than in Greece or Spain, but since the crisis, it is Greece that is
taking a truly humungous hit to public services and conditions.
There is a way out of this. But it’s not on the basis of the
pro-banking, pro-capitalist policies of the Euro leaders. Greek state
finances would be fine if the richest Greeks paid taxes and did not
spirit their money offshore to buy property in Kensington, London or
Monaco, with the connivance of Greek banks and politicians granting
their wealthy friends and multinationals all kinds of tax advantages and
favours that have diluted tax revenues to the point where there is not
enough in the kitty to maintain public services. According to the Tax
Justice Network, over a trillion dollars lie in offshore banks and
companies in tax havens (not all Greek money of course). Recover this
money and governments could not only reduce their debts but pave the way
for a lowering of taxes across the board to encourage investment and
growth and increase spending power for the majority.
Capital controls, public ownership of the banks and major corporate
sectors to organise a plan for investment and growth: this is not just
an alternative programme for Greece but for all of Europe.
No comments:
Post a Comment