Oxi: a political opening amid economic suffocation

This week has been a taste of what the economy would look like with a real rupture with the Eurozone: uncertainty, elite blackmail, banks teetering on the brink and the start of rationing. That the mobilization of Syriza and the left outside it has overcome this and made Oxi a possibility is impressive. Greece and its economy can expect no miracles either way Sunday’s vote goes and for quite some time afterwards, but they deserve full international solidarity.

And so on the eve of the Greek referendum, with the streets of Athens still buzzing from Friday night’s enormous Oxi!/No! rally in Syntagma Square, I’ve collected and parsed some of my notes on Greece from afar. A text on where things stand is first, then some notes on how things came to be for those not keeping close track the past few months.

Where things stand

Five months of torturous, fruitless negotiations came to a head last week when the more-or-less polite dance around the table in Brussels abruptly broke down. Whether this was a costly demobilization or a calculated strategy to demonstrate the intransigence of the Institutions doesn’t quite matter at this point. When Alexis Tspiras called a referendum on a take-it-or-leave-it offer last Friday, he precipitated a political rupture, which soon started to foreshadow the economic rupture that Greece leaving or being pushed out of the Euro would bring.

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Europe ready to kill Greece to keep TINA alive

My latest piece on Greece was published yesterday at Ricochet. In short, Europe and the IMF’s message that ‘there still is no alternative’ proves that objective of punitive austerity is political, not economic. Here it is in full:

The project’s aim is to make an example of Greece and solidify austerity as the only option within a Europe united by elite interests. Emergency summits, duelling proposals, trickles of banking system support and stern warnings create an economic veneer to paper over ultimately political aims.

Take the latest “compromise” proposal made yesterday by Greece’s ruling party Syriza. It offers a whopping additional €8 billion in austerity measures over the next year and a half. These measures amount to 1.5 per cent of GDP in 2015 and nearly 3 per cent of GDP in 2016. Rather than a compact for growth, or even stability, Europe has squeezed out yet more painful austerity that will make it much harder for Greece to escape its 21st-century Great Depression.

It is “not the right moment” to discuss debt relief, Jean-Claude Juncker, the head of the EU Commission, was quoted saying, despite the increasing concessions. This is the political, not economic, function of the Greek debt. It’s not the right moment economically to discuss the debt because Greece has long been insolvent, its debt repayments kept on track by drip-fed funding via subsequent agreements of austerity. Politically, it’s never the right moment, because each new agreement maintains austerity as the only possible option. (more…)

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Repeat after me: Alberta isn’t Greece

Last week it was Andrew Coyne; this week it’s Jack Mintz. Seems all the National Post’s favourite conservative commentators have suddenly decided to offer their Very Serious Advice™ to Alberta’s new government. While Coyne made a spurious comparison between raising the minimum wage and instituting a minimum income, Mintz outdoes him with an even more spurious comparison between Alberta and Greece.

Simply put, it is completely disingenuous to compare Greece to Alberta. Greece has seen its economy lose a quarter of its GDP since 2008 – a level of economic crisis unseen since the Great Depression. Unemployment has spiked to over 25%, youth unemployment is over 50% and poverty is widespread. While private creditors who participated in the pre-crisis boom have been bailed out, Greece has been forced into a vicious spiral of austerity driven by an unsustainable debt.

What’s the situation in Alberta? Alberta is still expected to grow, albeit very slowly, in 2015 according to most economists. Unemployment is up by 1% from a year ago, before the oil price crash. In part this is due to firms trying desperately to find efficiencies and cut costs to maintain profits. The picture is not rosy to be sure, but Alberta is in a wholly different category from Greece.

However, not only are Alberta’s problems completely unlike those of Greece, Mintz is wrong about Greece itself. Mintz joins the chorus of mystification that presents Greece as profligate rather than insolvent. It’s not the flow of “unsustainable deficits” but the stock of crushing debt and insolvency that is driving Greece deeper and deeper into crisis–one openly abetted by creditors hoping to make it an example for anyone else in Europe hoping to free themselves from the yoke of austerity. (more…)

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Magic numbers and the math stick

Economics is often associated with numbers. We are bombarded with economic data: GDP, unemployment, inflation, debt, exchange rates, market indices…the list is seemingly endless. While many of these numbers change – we are encouraged to cheer when they rise, jeer when they fall – there are others that are presented as fixed, immutable boundaries between good policy and bad. These are magic numbers that aspire to reduce economic policy decisions simple rule-following. Upon closer inspection, the magic of these numbers may turn out to be nothing but pixie dust. Breaking the illusion, however, risks a real mathematical headache.

Last week, another nail was applied to the already tightly-shut coffin of what had until recently been considered a magic number in economics. In a series of influential papers, Carmen Reinhart and Kenneth Rogoff purported to show that a country’s public debt becomes a sizeable burden on economic growth once it exceeds 90% of GDP. This 90% threshold was used by governments, international institutions, lobby groups and others to create and influence public policy across the globe. Many countries either willingly undertook or were – more or less gently – nudged into undertaking destructive austerity programs to lower debt levels below this magic threshold.

An IMF study published last week indicates that the RR studies, as they’ve come to be called, use a much too short, one-year time-frame to measure the effects of public debt on GDP growth. Taking a longer view is not only much more appropriate, it shows there to be no discernible negative effect of higher public debt on GDP growth – and certainly no clear threshold like that posited by Reinhart and Rogoff. This latest study comes on top of another published last year by graduate students from the University of Massachusetts-Amherst, which uncovered  not only serious methodological flaws in the RR studies, but also simple errors in how data was entered into Excel spreadsheets. Together, these errors were responsible for the emergence of such a clear threshold. In short, the accumulated weight of critiques of the RR studies has largely shown these studies to be…to put it bluntly, wrong. The magic 90% number turns out to truly be a conjurer’s trick. (more…)

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