Home > Greece > Greece: ECB kicks Syriza in the face; Syriza turns the other cheek

Greece: ECB kicks Syriza in the face; Syriza turns the other cheek

from Mark Weisbrot

On Wednesday the European Central Bank (ECB) announced that it would no longer accept Greek government bonds and government-guaranteed debt as collateral. Although Greece would still be eligible for other, emergency lending from the Central Bank, the immediate effect of the announcement was to raise Greek borrowing costs and squeeze its banks, and to increase financial market instability within Greece.

We should be clear about what this means.  The ECB’s move was completely unnecessary, and it was done some weeks before any decision had to be made.  It looks very much like a deliberate attempt to undermine the new government.  They are trying to force the government to abandon its promises to the Greek electorate, and to follow the IMF program that its predecessors signed on to.

Clarity is important here because the European authorities, or the troika as they are commonly called, plunged the eurozone into at least two additional years of unnecessary recession that began in 2011 because they were playing a similar game of chicken. The ECB, for its part, deliberately and repeatedly allowed the eurozone to go the brink of financial meltdown during this period. It was not because the financial markets had the power to collapse the euro when they pushed the yield on the 10-year sovereign bonds of Italy and Spain to unsustainable levels in the range of 7 percent. It was because the ECB deliberately allowed these market actors to create an existential crisis for the euro, in order to force concessions from the governments of Spain, Italy, Greece, Portugal, and Ireland.

These concessions were not just about paying off debt but also “structural reforms” that sought to remake the European welfare state in the weaker countries, including shrinking the size of the state, cutting spending on health care, pensions, and unemployment compensation, and changing labor laws that favored workers.

The European authorities were willing to take great risks in order to force these changes, and as is now widely recognized by most economists – their macroeconomic policies added additional years of unnecessary recession and mass unemployment (currently at 11.5 percent, more than twice that of the United States).

If we understand this recent history, we can see clearly what they are doing to Greece right now. The main difference is that, since the ECB reversed course and made a firm commitment to the survival of the euro in July of 2012, the blows that they are dealing to the Greek economy are much more contained. The yields on Italian and Spanish bonds have risen a bit since Syriza was elected but are still very low – 1.58 percent for Italy, and 1.47 percent for Spain.

The ECB could also stabilize Greek bond yields at low levels, but instead it chose this week to go to the opposite extreme – and I mean extreme — to promote a run on bank deposits, tank the Greek stock market, and drive up Greek borrowing costs.

Syriza’s leadership, headed by Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis, are playing it smart. They responded to the ECB’s assault without animosity or denunciations. They are not going to voluntarily leave the euro or even suggest the possibility. Like the peaceful protesters of the U.S. civil rights movement in the 1960s, they are facing down the police dogs and fire hoses with courage and equanimity.

They want the world to know who is the aggressor here, and who is being reasonable. This is important because we are witnessing a political battle for democracy in Europe, and the outcome of this chapter will be partly decided by what the troika can get away with politically. Much noise is made about German voters opposing concessions to the Greeks, but this is only possible because the whole fight has been misrepresented to them for years. The European authorities transferred massive amounts of debt from reckless private lenders to EU governments (including Germany) and at the same time increased Greece’s debt load from 115 percent to more than 170 percent of GDP by shrinking the Greek economy at a rate comparable to the worst of the U.S. Great Depression.  Most Europeans, including Germans, would not blame the Greek people for the resulting unpayable debt, if they understood what really happened.

The troika should be happy with what they have already “accomplished.” The Greek state has been shrunk by 19 percent of its labor force. Six years of depression and a 25 percent decline in living standards (actually much greater than that if you count the decline in imports) should discourage any European country from ever reaching the terrifying predicament of having to borrow from the punishers at the troika. The economic adjustment has been done: the country is running a primary (not including interest payments) budget surplus and a current account surplus.

Syriza has backed off from its initial demand that Greece’s debt stock be reduced, and is offering reasonable proposals to allow them the fiscal space to be able to recover  – i.e. a primary budget surplus of 1-2 percent of GDP rather than 4-5 percent under the troika’s program. After six years of depression, that is hardly too much to ask. Nor is reversing some of the worst abuses such as the minimum wage cuts.

The ECB should be ashamed of its latest assault on Greek democracy.  And they should not be able to get away with disguising it as anything less than that.

See article on original website.

  1. February 7, 2015 at 11:38 am

    Good analysis. But what is so typical for many of such, where is his suggested solution? He seems to think that appealing to more rational thinking can influence the Troika. In my opinion, one must by now instead look for solutions that do not depend on convincing the Troika and Merkel – a solution that can and must be implemented nationally, not on the EU level.

    • davetaylor1
      February 7, 2015 at 6:31 pm

      Good answer, Trond, and I share your opinion, so what is YOUR suggested solution?

      Mine involves making sure Syriza understands that money is no longer something with a value of its own, like gold, but merely an IOU representing a credit limit, which is of negative value in that if one it purchases anything with it from any member of the community, one becomes indebted to the community and not the bank which supplied it. Thus “money in the bank” is of no value (new ones can be “printed” as required), and “wages” are simply IOUs for services rendered. The more one has bought with these IOUs the more one owes the community which supplied them on account, until the credit limit has been restored by receipt of IOUs for services rendered in return.

      Without understanding this it may not be obvious that the monetary system can be replaced by a credit card system, in which the bank which issued the IOU’s accounts for transactions with them. Since one can already have many credit cards effectively providing different currencies, nations within the Eurozone can have not merely Euro cards but also National cards (even regional and city cards), and it is up to businesses to decide in which of these currencies they are prepared to accept in repayment: wages and business takings after all being merely in IOU’s.

      National debts, interest charges and profit taking by raising prices are in fact fraudulent insofar as money is knowingly represented has as having the same value as the goods purchased with it, and becomes counterproductive when IOUs are free but buying with them indebts the purchaser. When “the more you have, the more you owe”, the motivation for accumulating and squandering money disappears and the rationale becomes “borrow only what you need, maintain or regenerate what you use and pay generously in recognition of good work, whether in business employment or voluntary”. Accumulating debts can be assessed, and written off where there is good reason for them (e.g. ill-health or incapacity).

      Syriza needs to put this solution in the public domain, shame other EU governments for not proposing it earlier; demand the repudiation of the Greek and other national debts as fraudulent and unnecessary; reject austerity and the Troika as representing a criminal, cruel and international banking conspiracy; demand a return to the European Commission being what it was intended to be: an advisory body rather than an unelected and corruptible legislature; and, a complete rethink of the monetary system along the lines indicated. This involves businesses and individuals maintaining their own balance of payments, not off-loading it via irresponsible governments onto the citizens of nation states.

  2. February 7, 2015 at 3:08 pm

    Probably Plan A at this point:
    Either this weekend or next, redenominate bank deposits to Drachmas and impose capital and cash withdrawal controls. Keep the Euro notes and coins for cash payments. If handled well this could be done with a devaluation in the range 15%-30%, maybe less since government is now in surplus and growth is expected.

    Plan B:
    Wait until Merkel visits Obama who will presumably tell her not to destroy the European construction that America has so far shepherded. Openly discuss Greece’s choices including Eurozone membership in Greek parliament and with EU leaders next week. Hope that sense prevails.

    Plan C:
    Look for help from new and dangerous masters such as Russia, China, or the United States.

    If I were Varoufakis and Tsipras I’d cut my losses and go for plan A.

    • Helge Nome
      February 7, 2015 at 6:18 pm

      Plan D:
      Individuals create their own trading tokens (a la leather discs) and begin using them in financial transactions with others.
      In other words, hit the restart button (I’m serious)

  3. larrykaz
    February 7, 2015 at 11:59 pm

    Bill MItchell:


    > The reality is that Greece needs a public stimulus that is way beyond anything that is allowed under the current rules.
    > A balanced budget position doesn’t resolve that issue.
    > But the Greeks can fix that in a single decision – leave the Eurozone and restore currency sovereignty.

  4. davetaylor1
    February 8, 2015 at 10:36 pm

    “Syriza needs to … reject austerity and the Troika as representing a criminal, cruel and international banking conspiracy, and demand a complete rethink of the monetary system along the lines indicated.” (My comment above).

    Of course Syriza would need weighter opinion that mine to argue this, so how about that of Sir Josiah Stamp (1880-1941) President (?) of the Bank of England in the 1920s, “the second richest man in Britain”, speaking at the Commencement Address of the University of Texas in 1927. Ref: The Legalized Crime of Banking (1958) by Silas W. Adams.

    “Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits”.

    Curious that Stamp’s family home received a direct hit (by whom?) in a 1941 air-raid. Wikiquote of course rubbishes this, disputing his wealth in 1941 (by when much of it “ought to have disappeared”); also this, attributed to Mayer Amschel Rothschild (1744 – 1812), who cleaned up using pigeon post to bet before Napoleon’s defeat was known:

    “Permit me to issue and control the money of a nation, and I care not who makes its laws!”

    A suggested source of that is very interesting in its own right, given its timing and pedigree: http://en.wikiquote.org/wiki/Andrew_Fletcher. It suggests a sound psychological tactic for implementing revolution that would be fun but I would never have thought of:

    “Let me make the songs of a nation, and I care not who makes its laws”.

  5. February 9, 2015 at 6:53 am

    See also my article featuring my co-interview interview with Yaniks Varoufakis where we talk about Land Value Taxation and Sovereign Money, among other things: http://www.opednews.com/articles/Will-Greece-or-the-EU-Blin-by-Scott-Baker-Assets_Austerity_Debt_Finance-150208-883.html

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