Will The Institutions take over Greece? They are trying…
1) Greece will, eventually, have to raise the pension age. But it’s not urgent. The real threat to pensions is the 25%+ unemployment rate of the country. Rasing the pension age won’t solve this problem. Cutting pensions will also not solve this problem – to the contrary. Though the ECB seems to think otherwise. According to the minutes of the ECB,
Swift and effective implementation of appropriate reforms in the euro area would not only lead to higher sustainable growth in the medium to long term but also raise expectations of permanently higher incomes and encourage households to expand consumption and firms to increase investment already in the near term
In Greece, ‘appropriate reforms’ seem pension cuts (again, or is it ‘again again’ already?). Does the ECB really think that taking money away from poor seventy-somethings will raise their expectations of ‘permanently higher incomes’ and will make them increase their consumption? Or do they mean that lower Greek pensions will directly induce Germans to spend more, therewith (over)compensating the drop in consumption from Greek pensioners? This is ‘rational expectations economics’ gone wild. ‘Rational expectations’ are assumed expectations which are consistent with the assumptions of the model dreamed up by the economist. Real scientists would try to estimate these expectations, to check the model. Not so in the case of economists. So, if you assume that cutting pensions will increase growth people will expect this and increase their consumption. Aside – despite reforms, consumption in Spain and Greece in reality declined, and declined and declined. And declined.
2) Considering such gibberish from an unelected body the recent Tsipras op-ed in Le Monde about The Institutions is a welcome albeit chilling change: factually right and politically insightful (fortuntely, at least some people finally start to understand that he has been consistent, coherent, reasonable and credible as well as the prime minister of an independent country right from the beginning):
“The proponents of this strategy begin with the assumption that it is not possible to demand that the new Greek government follows the course of the previous one – which, we must not forget, failed miserably. This assumption is the starting point, because otherwise, elections would need to be abolished in those countries that are in a Program. Namely, we would have to accept that the institutions should appoint the Ministers and Prime Ministers, and that citizens should be deprived of the right to vote until the completion of the Program. In other words, this means the complete abolition of democracy in Europe, the end of every pretext of democracy, and the beginning of disintegration and of an unacceptable division of United Europe. This means the beginning of the creation of a technocratic monstrosity that will lead to a Europe entirely alien to its founding principles. The second strategy seeks precisely this: The split and the division of the Eurozone, and consequently of the EU. The first step to accomplishing this is to create a two-speed Eurozone where the “core” will set tough rules regarding austerity and adaptation and will appoint a “super” Finance Minister of the EZ with unlimited power, and with the ability to even reject budgets of sovereign states that are not aligned with the doctrines of extreme neoliberalism. For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Mandatory austerity. And even worse, more restrictions on the movement of capital, disciplinary sanctions, fines and even a parallel currency. Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim. To some, this represents a golden opportunity to make an example out of Greece for other countries that might be thinking of not following this new line of discipline. What is not being taken into account is the high amount of risk and the enormous dangers involved in this second strategy. This strategy not only risks the beginning of the end for the European unification project by shifting the Eurozone from a monetary union to an exchange rate zone, but it also triggers economic and political uncertainty, which is likely to entirely transform the economic and political balances throughout the West. Europe, therefore, is at a crossroads. Following the serious concessions made by the Greek government, the decision is now not in the hands of the institutions, which in any case – with the exception of the European Commission- are not elected and are not accountable to the people, but rather in the hands of Europe’s leaders. Which strategy will prevail? The one that calls for a Europe of solidarity, equality and democracy, or the one that calls for rupture and division? If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake. I would suggest that they re-read Hemingway’s masterpiece, “For Whom the Bell Tolls”.
The Hemingway reference is for a country like Greece, which used to be a neighbour of Yugoslavia, not as far fetched as it might seem to people from Germany, France, the Netherlands or the UK.
3) Anyway, Greece can’t pay as nominal income keeps decreasing (graph). Real production has bottomed out and is in fact increasing, albeit at a very slow rate. But nominal income still decreases – which makes it even more impossible to pay back the debts.