Thursday 22 February 2018

Signs are that the Greeks will eventually get a deal

If a deal is struck with Greece, Ireland will be left in the middle, playing 'me too' in a game in which it chose to stand aside from, while Greek prime minister Alexis Tsipras (pictured) and finance minister Yanis Varoufakis did all of the heavy lifting
If a deal is struck with Greece, Ireland will be left in the middle, playing 'me too' in a game in which it chose to stand aside from, while Greek prime minister Alexis Tsipras (pictured) and finance minister Yanis Varoufakis did all of the heavy lifting

Ray Kinsella

So far, the efforts of the anti-austerity Greek government to renegotiate a restructuring of its suffocating debt burden and an alternative to the Troika - and its programme of continuing austerity - have been rebuffed by the ECB and by Germany. In particular, the proposal for a eurozone debt conference has been nixed. For a moment, it looked like the Irish Government would support the idea of a conference to examine and reset the debt burden that is the most obvious indicator of the failure of austerity. Ireland too could benefit from a conference to establish what is fair and sustainable -and what is unfair and should be written-off.

Then, it would seem, Ireland got cold feet. We preferred to continue to be the 'best boys in the class', than to side with Greece, which has suffered too much, and too long, in supporting an austerity doctrine that made no economic sense and that, in its effects on the Greek economy and the Greek people, was utterly rotten. It was a bad, and wrong, decision.

Because, despite the familiar noises from the familiar elites over the last week - "Greece must stick to the programme" - the signs are that a deal will be struck. And if that happens, Ireland will be left in the middle, playing 'me too' in a game which it chose to stand aside from, while the Greek prime minister and finance minister did all of the heavy lifting. The Government needs to gets its act together.

The eurozone elite allowed Greece to join the euro for their own good political reasons, on the basis of very problematic data. When the global banking crisis, spawned in the US (not in Athens) metastasised across the balance sheets of European banks, infecting the economies and body politic of weaker countries, they lent a ton of money to weak countries, not as an act of solidarity, but to protect the interests of the central powers who - along with their banking systems - had most to lose from the contagion.

The Troika got it wrong. The policy of austerity lacked empirical support, as Nobel prize-winner and former IMF chief economist Joe Stieglitz has long argued. The austerity adjustment model, driven politically from Germany, showed no understanding of the scale and depth of the crisis - and the corresponding need for a Marshall Plan-type approach, including significant debt write-offs, and not only in Greece. Nor did they pay regard to the possibility that ordinary people who marched in anti-austerity protests across Europe were right.

The Troika's programme imposed on Greece has simultaneously degraded the Greek economy and played havoc with its health system ( sound familiar?) while increasing the debt/GDP ratio to 175pc.

What happened next? Greek Finance Minister Yanis Varoufakis puts it best: "Europe in its infinite wisdom decided to deal with this bankruptcy by loading the largest loan in human history on the weakest of shoulders ... What we've been having ever since is a kind of fiscal waterboarding that has turned this nation into a debt colony."

It doesn't require hard maths or spread sheets to understand that this 'fiscal waterboarding" wouldn't - and couldn't - work. Greece could have defaulted and exited a blighted eurozone. The country, however, chose to stay, but on terms that made sense for its people and its economy - and for Europe. It may be that the jaded 'Schaeuble Doctrine', based on bad economics and a disregard for the lessons of history, will prevail. But German Chancellor Angela Merkel has blinked, recognising the appalling damage that would be done to the euro project, and just how the ECB's last-gasp effort to rescue the eurozone from deflation through an unprecedented QE programme would be undone by a 'Grexit'. Greece will demand a substantive debt rescheduling and other reforms - nothing less will be acceptable to the Greek people.

The reluctance of Ireland to support Greece at this critical time reflects our inability to think independently and to understand the virtue of solidarity that was once at the heart of the EU. Ireland continues to doff its cap to the authors of austerity, regardless of its effects on families at every level. Austerity, which prioritised the rebuilding of a banking model that created the crisis over the rebuilding of lives and families impacted by that crisis, never made sense.

Mr Varufakis has made that same case, in a week when yet another global banking debacle unfolded, saying: "Quite remarkably, while the insolvent states are visited upon by stern IMF and EU officials, are constantly reviled by the 'serious' press for their 'profligacy' and 'wayward' fiscal stance, the banks go on receiving ECB liquidity and state funding (plus guarantees) with no strings attached. No memoranda, no conditionalities, nothing."

Who in Ireland has not harboured such seditious thoughts?

Ireland does not do plain speaking on behalf of its own people in the councils and chancelleries of our creditors. The country's debt burden is the single biggest obstacle to a more equal and inclusive society, but what we do is 'party discipline'- there was no substantive discussion in the Dail on pretty well any of the legislation implementing austerity. We do 'diversion' that deflects attention away from the doctrine of austerity on which Greece has called time.

The ultimate irony for the political orthodoxy in Ireland is that the anti-austerity thinking is directly aligned to Pope Francis's radical social teaching on the destructive tyranny of financial and political power. What little reflective thinking there now is in Ireland has been marginalised. Common sense and the instincts of the people were the first casualties of austerity.

Why were we afraid to support a debt conference? Why were we afraid to take the side of Greece in the present negotiations for debt write-down? Ireland too has a case to make. The case has long been apparent. In 2012 at a meeting of the Oireachtas Finance Committee with the Bundestag's powerful Budgetary and Finance Committee, Peter Mathews TD set out the true scale of the private sector banking losses and the unjust manner in which these were being socialised. In the process, he called for a conference that would provide a write-down on the scale of the 1953 London Agreement, which gave Germany a 50pc write-down.

It's not too late. Ireland should support a debt conference, a debt write-down for Greece and new governance arrangements to support adjustment in distressed countries, based on new thinking. Ireland should do so in its own self-interest - but also because it makes sense. Because a sustainable agreement will wholly turn around negative expectations that haunt the eurozone economies - if Greece is sorted, if the right lessons are learned, then the eurozone will be on a completely different course.

Professor Ray Kinsella is an economist and affiliated to the International Academy of Retail Banking

Sunday Independent

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