Friday, February 6, 2015

Catarina Principe — A New European Narrative

On Thursday, Germany refused any negotiations with Greece, and the European Central Bank (ECB) refused to accept Greek bonds as collateral (since there are no guarantees that the Greek government will carry out the “adjustment” plan). Although this does not amount to an immediate push to kick Greece out of the eurozone, it is certainly a threat in that direction. 
In order to understand the motivations behind this recalcitrance, and the competing interests at work, Germany’s special relationship with the euro must be understood. The eurozone’s stated goal was to create a currency strong enough to build a unified European financial bloc that could compete with the US and China. 
However, this was never the full truth. This “unified” bloc has always been composed of competing nation states, and the big, industrialized countries at the center have been keen on making the peripheral economies dependent on the core. 
With the introduction of the single currency, there was a devaluation of Germany’s deutsche mark in comparison to the other national currencies. This meant not only that labor value was diminished, but also that the country’s manufactured products became cheaper and more competitive in the world market. 
The resulting overvaluation of the southern countries’ national currencies solidified them as peripheral economies and established export markets for German products. Their productive sectors destroyed, the peripheral economies became dependent on imports, especially from Germany. 
Germany, then, clearly benefits from Greece’s presence in the eurozone; a Grexit is not in its economic interest. Nonetheless, German Chancellor Angela Merkel is sending a veiled threat that this is what might happen. Why?….
Analysis from the left.

Jacobin
A New European Narrative
Catarina Principe

10 comments:

Anonymous said...

My feeling is that Syriza actually has very little time. We have seen how short political honeymoons are in the contemporary world of rapid-fire online discussions and rapidly evolving perceptions and political consensus. Also, part of the left's base is a populist working class that does not have a sophisticates understanding of international finance and economics. All they know is that their lives now suck, and they need more jobs and a better standard of living fast.

So Syriza needs to do something to begin slashing unemployment and boosting growth right away, in a way that is clearly visible to the public. Since they are cash-strapped, they will have to pay people with some form of negotiable IOU - whether they call that IOU a "drachma" or something else. They can tell the people they are sicking with the euro, but they need to create a substitute side-currency to get moving.

They should attempt to inspire the people with a vision of a new cooperative economy, issue transferable shares in the coops that can be redeemed as payment for essential foods, medicines and social services, and are also accepted as payment in the coops themselves.

Malmo's Ghost said...

The problem is that Syriza is serving two masters with opposite agendas--those in Brussels and Frankfurt and Greek citizens themselves. Unfortunately the desire for Greeks to stay in the euro effectively handcuffs the coalition government, yet there would be no Syriza in power had it campaigned to exit the euro. If Syriza acts as Dan thinks they should then certainly Greece will be expelled by the EU. Syriza has given no indication it's going to yield to Troika demands even if they don't institute Dan's program, so it seems to me unless the northern overlords are bluffing the only possible end game will be Greece getting booted out of the euro. If they get booted out Syriza's coalition could crumble soon thereafter. If Syriza capitulates to the Troika they'll get booted out too. Really between rock and hard place here.

NeilW said...

"Since they are cash-strapped"

How are they cash strapped? When have the Greek bond auctions failed?

Governments effectively spend bonds. That's how it works - in or outside the Euro.

Ignacio said...

Indeed Merkel is an idiot (and a crook with ties to corrupt Ukraine oligarchs too apparently), but is true that there is a fear of a rise of 'leftists' governments (not faux neoliberal 'socialdemocrats'), you can pretty much feel it in the air (or reading any mainstream media).

The project of the EU was always an elitist project, if it turned democratic it would be very bad for those same elites, as the people would be co-opting it from them; which never was intentional.

I'm not fan of some of the far left parties because they come with the same old dialectics of a century ago and are economic illiterate, but if they force a change in European institutions and the EU structure they are welcome. And anyway they are not more economic illiterate than the neoliberal parties.

Ignacio said...

Malmo Germany officials have no legal rights to expel Greece from the euro. What are they, dictators? I say, go ahead! Try it bullies, we will see how well this turns on you.

Also being expelled from the euro does not mean being expelled from the EU, two different things. Oh, an EU member lending naval bases in the Aegean sea to Russia. I can visualize the faces of Merkel and Obama/Hillary.

Maybe is a gamble but Greek position is stronger than it seems, although YV has said Greece won't default... Germany govt cannot stop them from defaulting inside the euro, no matter how much they moan.

Malmo's Ghost said...

Ignacio,

Was merely using shorthand for Greece being kicked out of the EU. I get it that Germany can't unilaterally accomplish that end.

Matt Franko said...

I think if they throw them out they will be making a big mistake as Greece (perhaps the "periphery") is quickly becoming the only nation with a positive yield on their govt securities....

"the core" is quickly collapsing to negative rates...

So these entities like the ESCB, the NCBs and the IMF need positive rates in order to operate...

so if they throw out Greece or "the periphery" they will lose all of their current positive carry...

Even if they think/thought they could go negative rates on RBS they still have to buy govt securities to create the new RBS...

So if they create reserves at (to them) +0.25% but to create them they have to purchase govt securities at -0.25% then they are still not achieving a positive carry...

These entities cannot function without the interest income from the portfolio as "operating income"...

So if they throw them out they would be "bankrupting" the ESCB and perhaps the IMF....

I dont think anyone there is looking at this... certainly not someone like a Merkel...

They could really end up f-ing themselves over if they dont handle this correctly...

Malmo's Ghost said...

Matt,

How should they handle it correctly?

NeilW said...

"These entities cannot function without the interest income from the portfolio as "operating income"..."

Of course they can. They issue the money so they can fudge the accounting.

There is no overriding God figure here that strikes them down with lightning should the numbers go bad preventing any action from taking place. There is no fire and brimstone.

Always remember there is no law without enforcement. Somebody somewhere has to decide to press a button to stop a transaction completing and nobody wants their name on that action. So it never happens.

Have a look at the balance sheet of the Bank of Greece for example. Exactly what are 'remaining assets' and 'remaining liabilities'?

The European Union - 28 varieties of fudge.

Matt Franko said...

Neil yes we know that but they do not....

Mal tough question with the nascent rate collapse. ... probably I'd roll them over while play acting reluctance and feigning indignation.... that would buy you another 2 or 3 years and just use that time to stuff my pockets and hope things just turn around in the meantime. ...

Rsp