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Friday 30 September 2016

European 'alliance of national liberation fronts' emerges to avenge Greek defeat

Ambrose Evans-Pritchard

Published 30/07/2015 | 12:02

Podemos ('We can') Secretary General Pablo Iglesias speaks during a meeting in Oviedo, Spain, May 17, 2015. The Spanish municipal elections will be held at once across all of Spain on May 24, while regional elections will be held the same day in 13 of the 17 autonomous communities. REUTERS/Eloy Alonso
Podemos ('We can') Secretary General Pablo Iglesias speaks during a meeting in Oviedo, Spain, May 17, 2015. The Spanish municipal elections will be held at once across all of Spain on May 24, while regional elections will be held the same day in 13 of the 17 autonomous communities. REUTERS/Eloy Alonso
Queues outside an Athens bank yesterday

It has come to this.

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The first finance minister of a eurozone country to draw up contingency plans for a possible euro exit is under investigation for treason.

Prime Minister Alexis Tsipras rubs his eyes as the Greek parliament debates the new legislation into the early hours of the morning
Prime Minister Alexis Tsipras rubs his eyes as the Greek parliament debates the new legislation into the early hours of the morning

Greece's chief prosecutor is examining criminal charges against a five-man "working group" in the country's finance ministry for the sin of designing a "Plan B", a parallel system of euro liquidity and bank payments that could - in extremis - lead to a return of the drachma.

It is hard to see how a monetary union held together by judicial power, coercion and fear in this way can have a future in any of Europe's ancient nation states.

The criminalisation of any Grexit debate shuts off the option of an orderly return to the drachma, even though there is a high probability - some say a near certainty - that the latest EMU loan package for Greece will prove unworkable and precipitate the country's exit from the single currency within a year. As a matter of practical statecraft, this is sheer madness.

The Greek newspaper Kathimerini - the voice of the oligarchy - reported that the charges would include "breach of duty, violation of currency laws and belonging to a criminal organisation", as well as violating data privacy by hacking into the Greek tax base.

European Union Commission President Jean-Claude Juncker
European Union Commission President Jean-Claude Juncker

The prosecutor appears to have latched onto a legal suit by a private lawyer accusing Yanis Varoufakis of treason. It is nothing less than an attempt to destroy the mercurial former finance minister, lest he return as an avenging political force.

The Greek "Plan B" was approved from the outset by prime minister Alexis Tsipras. It was designed originally to create an alternative source of euro liquidity if the European Central Bank cut off emergency funding for the Greek banking system.

The ECB did in fact do exactly that - arguably violating the ECB's Treaty to uphold financial stability, and acting ultra vires in a purely political move as the enforcer of the creditors - when the Syriza government threw down the gauntlet with an anti-austerity referendum.

Mr Varoufakis insists that his plan was based on California's IOU scheme in 2009 to cover tax rebates and to pay contractors when liquidity dried up after the Lehman crisis. His purpose was to reflate the economy within the eurozone, not to leave it. Yet it had a double function, and there lies the alleged treason. "At the drop of a hat it could be converted to a new drachma,” he said.

Wolfgang Schauble
Wolfgang Schauble

Pablo Iglesias, the pony-tailed leader of Spain's Podemos movement, has drawn his own conclusions after watching Europe's first radical-Left government in modern times brought to its knees by liquidity asphyxiation, and then further crushed by internal forces within Greece.

He accused Germany of imposing a Carthaginian settlement as punishment for daring to call a referendum, and warned that the "limits of democracy in Europe" are now brutally clear.

The lesson to be learned is that if Podemos is elected in Spain it must expect a trial of strength ("medir fuerzas") and make sure it takes power in the fullest sense. You can interpret this how you will, but there is a hint of Leninist defiance in these words, a warning that Podemos may feel compelled to launch pre-emptive strikes against the entreched positions of the Spanish establisment, in the media, the judiciary, the security forces and the commanding heights of the economy.

The fate of Syriza has clearly tainted the radical-Left brand. The EMU creditor powers have shown all too clearly that if you buck the system, your country will pay a bitter price. It is hard to explain to Spanish voters - or indeed to anybody - how Mr Tsipras could accept a package of draconian demands rejected by the Greek people in a landslide vote just a week earlier.

Podemos has lost its electoral lead and has dropped to 17pc in the polls, trailing the Socialists by a wide margin. But it would be premature to conclude that this is the end of the story. The deeper message - still entering the collective consciousness - is that no Leftist government can pursue sovereign policies within the constraints of EMU.

Professor James Galbraith from Texas University - who played a key role in the Greek plans and is now himself under fire - said Syriza's experiment over the past five months has demonstrated for all to see that it is impossible for a state on the EMU periphery to change the policy regime by force of argument alone, even if the prescriptions of debt-deflation and fiscal overkill imposed upon them have been self-evidently calamitous.

Finance Minister Michael Noonan (centre) speaks to fellow ministers in Brussels yesterday
Finance Minister Michael Noonan (centre) speaks to fellow ministers in Brussels yesterday

Speaking to the Left, prof Galbraith said Spanish voters should not delude themselves that they would secure better terms merely because their country is bigger. The creditors have shown themselves to be fanatically rigid, insisting on the exact terms of their Memorandum regardless of economic science and common sense.

For Spain, there would be the same sudden-stop in capital flows from EMU banks, leading to the same liquidity rationing by the ECB, the same internal bank-run, ending in the same "death spiral".

Personally, I doubt that radicals will sweep Spain (or Portugal) in elections later this year. It is too soon. The country is enjoying a cyclical upswing, creating an illusion of recovery even as the current account deficit creeps up again. The worry is what will happen in the next global downturn when the Spanish people discover that they were never really cured.

Italy is another matter. There is no such mini-boom. Output is still 11pc below its pre-Lehman peak. It has dropped back to the levels of 2000. This is far worse than Japan's Lost Decade, or Italy's own experience in the 1930s. It is unprecedented in a large modern economy, and it stems from an irreversible loss of labour competitiveness in the early years of EMU.

Stefano Fassina, the ex-deputy finance minister in the ruling Democratic party of Matteo Renzi, is already proposing a "controlled disintegration of the eurozone" to break free from what he calls a neo-liberal mercantilism imposed by Germany. "We are at a historical watershed. The choice is dramatic," he said.

"Syriza and the Greek people have the undeniable historical merit of having ripped away the veil of Europeanist rhetoric," he said

Evoking the language of guerrilla warfare, Mr Fassina is calling for "an alliance of national liberation fronts" on the Left, acting in concert with "souverainist" parties on the democratic Right.

"We need to admit that the Left loses its historical function as a force committed to dignity and social citizenship in the neo-liberal cage of the euro. It is dead. The irrelevance and collusion of the European socialist parties are manifest," he said.

Beppe Grillo, the leader of Five Star Movement and still a major force in Italian politics, has long been equivocal about Italy's euro membership. Disgusted by events in Greece, he has issued a full-throttle "Plan B" for a return to the lira.

"It is hard to defend the interests of the Greek people more destructively than Tsipras has done. Thinking he could break the link between the euro and austerity, he has ended up consigning his country like a vassal into the hands of Germany," he said.

The lesson for Italy - he argues - is that it must draw up its own battle lines to prevent neo-colonial occupation and seizure of its national assets. It must take the fight pre-emptively to the creditors and force an exit from the euro on Italian terms.

This ideological rearmament is the unintended result of the eurozone's refusal to seek any modus vivendi with Syriza even where there was plenty of common ground. They were so determined to chastise Greece for lese majeste that they completely lost sight of the greater European interest.

Donald Tusk, the EU president, concedes that a pre-revolutionary mood is taking hold across much of Europe, comparing it to the Left-Right alliances of the late 1930s. “It was always the same game before the biggest tragedies in our European history," he told the Financial Times.

Yet he could not bring himself to admit that the root cause of the populist uprising is the deformed structure of monetary union that has led to six years of mass unemployment and incubated this new tragedy. Nor could he admit that the deal he himself brokered after "water-boarding" Mr Tspiras in Brussels for 17 hours perpetuates the same vicious cycle.

So we now have a Europe where the political temperature is rising to boiling point: where the EMU elites are refusing to shift course; and where mischievous lawyers are concocting criminal charges against anybody daring to explore a way out of the trap.

This is a recipe for a European civil war.

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