Rarely in modern times have we witnessed such a
display of petulance and bad judgment by those supposed to be in charge
of global financial stability, and by those who set the tone for the
Western world.
The spectacle is
astonishing. The European Central Bank, the EMU bail-out fund, and the
International Monetary Fund, among others, are lashing out in fury
against an elected government that refuses to do what it is told. They
entirely duck their own responsibility for five years of policy blunders
that have led to this impasse.
If we
want to date the moment when the Atlantic liberal order lost its
authority – and when the European Project ceased to be a motivating
historic force – this may well be it. In a sense, the Greek crisis is
the financial equivalent of the Iraq War, totemic for the Left, and for
Souverainistes on the Right, and replete with its own “sexed up”
dossiers.
It warned of an "uncontrollable crisis" if there is no creditor deal,
followed by soaring inflation, "an exponential rise in unemployment",
and a "collapse of all that the Greek economy has achieved over the
years of its EU, and especially its euro area, membership".
The
guardian of financial stability is consciously and deliberately
accelerating a financial crisis in an EMU member state - with possible
risks of pan-EMU and broader global contagion – as a negotiating tactic
to force Greece to the table.
It did so days after premier Alexis Tsipras accused the creditors of
"laying traps" in the negotiations and acting with a political motive.
He more or less accused them of trying to destroy an elected government
and bring about regime change by financial coercion.
I leave it
to lawyers to decide whether this report is a prima facie violation of
the ECB’s primary duty under the EU treaties. It is certainly unusual.
The ECB has just had to increase emergency liquidity to the Greek banks
by €1.8bn (enough to last to Monday night) to offset the damage from
rising deposit flight.
In its report, the Bank of Greece claimed
that failure to meet creditor demands would “most likely” lead to the
country’s ejection from the European Union. Let us be clear about the
meaning of this. It is not the expression of an opinion. It is
tantamount to a threat by the ECB to throw the Greeks out of the EU if
they resist.
Greece's central bank in Athens
This is not the first time that the ECB has strayed far from its
mandate. It forced the Irish state to make good the claims of junior
bondholders of Anglo-Irish Bank, saddling Irish taxpayers with extra
debt equal to 20pc of GDP.
This was done purely in order to save
the European banking system at a time when the ECB was refusing to do
the job itself, betraying the primary task of a central bank to act as a
lender of last resort.
It sent secret letters to the elected leaders of
Spain and Italy in
August 2011 demanding detailed changes to internal laws for which it
had no mandate or technical competence, even meddling in neuralgic
issues of labour law that had previously led to the assassination of two
Italian officials by the Red Brigades.
When Italy’s Silvio
Berlusconi balked, the ECB switched off bond purchases, driving 10-year
yields to 7.5pc. He was forced from office in a back-room coup d’etat,
albeit one legitimised by the ageing ex-Stalinist EU fanatic who then
happened to be president of Italy.
Lest we forget, it parachuted
in its vice-president – Lucas Papademos – to take over Greece when
premier George Papandreou merely suggested that he might submit the EMU
bail-out package to a referendum, a wise idea in retrospect. That makes
two coups d’etat. Now Syriza fears they are angling for a third.
The creditor power structure has lost its way. The IMF is in confusion.
It is enforcing a contractionary austerity policy in Greece – with no
debt relief, exchange cushion, or offsetting investment - that has been
discredited by its own elite research department as scientifically
unsound.
The
Fund’s culpability in this fiasco is by now well known. As I argued
last week,
its own internal documents show that the original bail-out in 2010 was
designed to rescue the EMU banking system and monetary union at a time
when it had no defences against contagion. Greece was sacrificed.
One should have thought that the IMF would wish to lower the political
temperature, given that its own credibility and long-term survival are
at stake. But no,
Christine Lagarde
has upped the political ante by stating that Greece will fall into
arrears immediately if it misses a €1.6bn payment to the Fund on June
30.
In my view, this is a discretionary escalation. The normal
procedure is to notify the IMF Board after 30 days. This period is a de
facto grace period, and in a number of past cases the arrears were
cleared up quietly during the interval before the matter ever reached
the Board.
The IMF could have let this process run in the case
of Greece. It has chosen not to do so, ostensibly on the grounds that
the sums are unusually large.
Klaus Regling, head of the
eurozone bail-out fund (EFSF), entered on cue to hint strongly that his
organisation would trigger cross-default clauses on its Greek bonds –
45pc of the Greek package – even though there is no necessary reason why
it should do so. It is an optional matter for the EFSF board.
He seems to be threatening an EFSF default, even though the Greeks themselves are not doing so, a remarkable state of affairs.
It is obvious what is happening. The creditors are acting in concert.
Instead of stopping to reflect for one moment on the deeper wisdom of
their strategy, they are doubling down mechanically, appearing to assume
that terror tactics will cow the Greeks at the twelfth hour.
Personally, I am a
Burkean
conservative with free market views. Ideologically, Syriza is not my
cup tea. Yet we Burkeans do like democracy – and we don’t care for
monetary juntas – even if it leads to the election of a radical-Left
government.
As it happens, Edmund Burke would have found the
plans presented to the Eurogroup last night by finance minister Yanis Varoufakis to be rational, reasonable, fair, and proportionate.
They include a debt swap with ECB bonds coming due in July and August
exchanged for bonds from the bail-out fund. They would have longer
maturities and lower interest rates, reflecting the market borrowing
cost of the creditors.
Syriza said from the outset that it was
eager to work on market reforms with the OECD, the leading authority. It
wants to team up with the International Labour Organisation on
Scandinavian style flexi-security and labour reforms, a valid
alternative to the German-style Hartz IV reforms that have impoverished
the bottom fifth of German society and which no Left-wing movement can
stomach.
It wished to push through a more radical overhaul of
the Greek state that anything yet done under five years of Troika rule –
and much has been done, to be fair.
As Mr Varoufakis told Die
Zeit: “Why does a kilometer of freeway cost three times as much where we
are as it does in Germany? Because we’re dealing with a system of
cronyism and corruption. That’s what we have to tackle. But, instead,
we’re debating pharmacy opening times."
The Troika pushed
privatisation of profitable state assets at knock-down depression prices
to private monopolies, to the benefit of an entrenched elite. To call
that reforms invites a bitter cynicism.
The only reason that the
Troika pushed this policy was in order to extract money. It was acting
at a debt collector. “The reforms were a smokescreen. Whenever I tried
talking about proposals, they were bored. I could see it in their body
language," Mr Varoufakis told me.
Yanis Varoufakis, the Greek finance minister
The truth is that the creditor power structure never even looked at the
Greek proposals. They never entertained the possibility of tearing up
their own stale, discredited, legalistic, fatuous Troika script.
The decision was made from the outset to demand strict enforcement of
the terms agreed in the original Memorandum, which even the last
conservative pro-Troika government was unable to implement - regardless
of whether it makes any sense, or actually increases the chance that
Germany and other lenders will recoup their money.
At best, it
is bureaucratic inertia, a prime exhibit of why the EU has become
unworkable, almost genetically incapable of recognising and correcting
its own errors.
At worst, it is nasty, bullying, insistence on ritual capitulation for the sake of it.
We all know the argument. The EU is worried about political “moral
hazard”, about what Podemos might achieve in Spain, or the eurosceptics
in Italy, or the Front National in France, if Syriza is seen to buck the
system and get away with it.
But do the proponents of this
establishment view – and one hears it a lot – really think that Podemos
can be defeated by crushing Syriza, or that they can discourage Marine
Le Pen by violating the sovereignty and sensibilities of a nation?
Do they think that the EU’s ever-declining hold on the loyalty of
Europe’s youth can be reversed by creating a martyr state on the Left?
Do they not realize that this is their own Guatemala, the radical
experiment of
Jacobo Arbenz
that was extinguished by the CIA in 1954, only to set off the Cuban
revolution and thirty years of guerrilla warfare across Latin America?
Don’t these lawyers – and yes they are almost all lawyers - ever look
beyond their noses?
The Versailles victors assumed reflexively
that they had the full weight of moral authority on their side when they
imposed their
Carthiginian settlement on a defeated Germany in 1919 and demanded the payment of debts that they themselves invented. History judged otherwise.
