Last Friday, February 20, Greece’s Syriza government agreed to a four month extension of the current debt package that has been in effect since Greece’s last debt renegotiation in 2012, thus agreeing to the main demand of the Troika that it do so as a condition for further negotiations. Some have read this as a ‘sell-out’ by Syriza of its election promises to reject the austerity measures the Troika established in 2010 and 2012, which have kept Greece in a condition of perpetual economic depression for the past half decade. By agreeing to continue current debt arrangements for another four months, critics say Syriza has also reneged on its promise to reject the Troika’s previous debt deal. The same critics argue that Syriza should have simply declared ‘no’ to extending both the current debt package and related austerity measures by the February 28 expiration date. And if the Troika didn’t like it, so be it; Greece should just leave the Euro currency zone.

But these criticisms and the alternative recommendation to just leave the Eurozone are premature and ill-conceived. And the alternative of leaving the Euro by the February 28th expiration date (or soon after) would have been a disaster for Syriza and Greece, both economically and politically. By agreeing to a very temporary four month extension, Syriza has tactically made the smart move. Here’s why.

From the very beginning the Troika’s primary objective has been to extend the current debt and austerity terms ‘as is’, i.e. in perpetuity. That would mean leaving Greece in depression in perpetuity, and having to revisit and renegotiate Greece’s massive debt load of $270 billion (more than its annual GDP) repeatedly every few years, resulting in the piling of still more debt on existing debt and requiring even more austerity.

Even if the Troika’s representatives know this arrangement is unsustainable in the long run, which many no doubt do know and some have publicly even expressed so, they had little choice but to have continued to do so by the February 28th deadline date of the old agreement. With the Eurozone economy in deep trouble, with its widespread economic stagnation, its continuing slide into deflation, the still massive debt owed by its other periphery economies, the rising populist parties on the right and left, growing negative effects on it created by US-induced sanctions on Russia, and the prospect of a bottomless black hole of debt and bailouts in the commitments it has made to lend money to the Ukraine—unilateral reductions in prior Greek debt at a single stroke by the Troika are not a prospect the Troika could even begin to publicly consider by February 28 or even any date in the foreseeable future.

The Troika’s Cliff

The Troika would have instead allowed the Eurozone to ‘go over the cliff’ after February 28 and let Greece leave the Eurozone, thus dragging Greece over the cliff with it had Greece rejected an extension outright and left the Euro on March 1.

February 28 was simply not enough time for the complex bureaucratic political and banking interests behind the Troika to agree to anything representing fundamental change in Greece’s debt and austerity measures. Nor was it enough time for Greece itself to prepare for the worse—i.e. an exit—or to develop a more effective strategy in confronting the Troika by seeking allies and support within the Eurozone and within the global community as well. The timing was not right. Principles are important in negotiations; but so is strategy and timing. And declaring an end to debt payments, to austerity in general, and exiting the Euro in turn would have been committing a fundamental error of confusing a tactic (leaving the Euro) with a strategy (ending austerity).

Had Greece left the Euro, the economic effects of that precipitous move were already becoming apparent: capital flight out of Greece was already accelerating, pressures for a run on Greek banks within days were growing, rates on Greek debt were escalating rapidly, and prospects of runaway inflation rising. All the above would have intensified post February 28th. Unknown political consequences would undoubtedly have arisen. It’s not unlikely that the USA and Europe would have unleashed their NGOs and other forces of political destabilization, which we have seen in recent years has become a standard practice everywhere, to effect a political crisis and regime change in Greece. It is well-known that USA Treasury Secretary, Jack Lew, in the week preceding February 20 made direct personal calls to Syriza. No doubt veiled threats, economic and political, were made on behalf of the USA’s banker-political allies in the Troika. These are realities Syriza no doubt had to consider, along with the obvious severe economic impacts of a precipitous and ill-prepared decision to exit the Euro on February 28. The economic crisis would have meant a much worse immediate economic environment for the Greek people, at least in the short run.

Greece’s choice was: precipitate a crisis on February 28 by declaring an exit from the Euro, without having prepared effectively politically and economically for the exit in the brief time it has had to do so; or get whatever minimal concessions it can from the Troika on February 28th, agree to what it must temporarily agree to for the shortest possible period, and buy time—to properly prepare for a possible Euro exit and line up alternative sources of credit should the worst occur, to prepare the public for the consequences, see what ‘splits’ can be wedged in the Troika opposition (which had begun to appear) during the negotiations over the four month extension period, and, in the interim of the four months, maneuver to implement whatever initial rollbacks of austerity might be possible as a first step toward a more aggressive later program.

Whose United Front?

With regard to the question of Greece possibly leveraging potential differences within the Eurozone, during February some Euro ‘soft-liners’ had already floated the idea of allowing Greece to swap old bond debt for what is called ‘GDP or growth bonds’. In the latter, debt payments would only be made if Greece grew economically in real terms. If no growth, then no debt payments, and suspension of debt payments technically means more funds to reduce austerity.
Of course, all that needs still to be negotiated, and the ‘hardliners’—Germany, its central bank allies, the IMF, were opposed to such debt payment adjustments. They know a bond debt swap agreement opens the door to negotiations on some austerity suspensions since it reduces the debt repayments. It is perhaps notable that the Eurozone Commission, and a number of Euro country finance ministers are not as hardline as the German central bankers, IMF and ECB, who had gained the upper hand within the Eurozone in the closing weeks of February.

But as they continued their hardline opposition, within the Eurozone other’ softliners’ were suggesting other ideas aside from ‘GDP bond debt swaps’ designed also to lower debt payments by extending the loans by decades, to 50 years, or even in perpetuity. That too would lower annual debt payments and take some pressure off of austerity in the short run. And others were suggesting converting the bonds’ current principal and interest payments to interest payments only, with the same potential result. So there is no united front within the Eurozone. But precipitating a final clash with the hardliners on February 28 would not have given Greece the opportunity to explore leverage in negotiations with the softliners. Extending the agreement for another four months provides that option at least, even if it is not guaranteed to produce results favorable to Greece.

Minimizing or somehow postponing debt payments by any of the above adjustments raises the possibility for austerity roll backs. Opening the door wider to enable even more rollbacks is also potentially possible if Greece can negotiate a reduction in the stringent national budget surplus now dictated by the current agreement.

With regard to this latter point, several Eurozone countries and their current centrist social democratic parties, specifically France and Italy, have been themselves campaigning for a reduction in their annual budget surplus targets their previous even more pro-banker governments had agreed to. That surplus, of 3% to 4% or so, in effect meant France-Italy would have to cut government spending at a time, today, during which their economies are stagnating or in recession. Both therefore want to increase government spending to generate more growth. But they recognize that is not possible without a reduction of their current budget surplus target. But if France and Italy prevail in reducing their target, then why not Greece? And why not Greece seek allies and support from France and Italy in a joint effort? Reducing Greece’s budget surplus target would, in effect, free up more government revenues to spend to reduce austerity—by hiring back government workers, not cutting or even restoring pensions, improving health care services, not having to privatize electricity services, and so on.

Greece therefore needed time to ‘court the doves’ in the Eurozone centrist governments and to encourage allies willing to propose alternative measures that would reduce debt payments. That time would have been forfeited and lost if Greece had declared an exit on February 28 and/or not agreed to a four month extension.

Greece also needs time to line up possible supporters within the broader global community—both political and potentially economic support. In the meantime there is nothing to stop Greece from maneuvering with a scalpel to cut back ‘this or that’ austerity measure. All these strategic opportunities would have been closed off to it if Greece had rushed to leave the Euro on February 28, declared it was not going to pay any debt any longer and discontinued all prior austerity measures overnight.

The trade-off before it on February 28 was economic chaos and potential severe political instability vs. the possibility to negotiate debt reduction based on one of the possibilities above and to roll back austerity, albeit in stages or phases rather than all at once overnight.

If the Troika’s number one demand has always been to extend the past agreement of debt terms and austerity ‘as is’, then Greece’s number one demand has been to roll back austerity. The bargaining clash between the Troika and Greece leading up to February 20th was about which demand would be primary. Who’s agenda would drive negotiations. The Troika saw austerity as a necessary outcome of its primary objective of ensuring debt repayment; Greece sees debt repayment as the unnecessary requirement preventing its primary objective of austerity roll back. For the Troika, it’s about continuing debt payments and then talking about austerity changes; for Greece, it’s negotiating austerity changes first and then adjusting debt payments to accommodate those changes.
Greece’s Debt Extension Acceptance Letter of February 23

So, post-February 28th, whose primary position is now at the top of the negotiating agenda? Has either side succeeded in firmly establishing its priority and now dominates the agenda? The answer is no. Although only the outlines of the extension agreement are thus far available, it appears the letter Syriza sent on February 23 include the following:

First, the Troika got its ‘as is’ extension of current terms, its primary demand, but only for four months. After that, the current debt-austerity terms may well become null and void if no further, more permanent agreement is reached. In the meantime, in its agreement letter to the Troika, Greece left hard numerical details purposely vague. It reportedly has two months to clarify the details. In the meantime, Greece buys itself time. It can proceed with rolling back austerity measures, albeit more slowly and carefully, even though it may have agreed in writing in principle not to. What is the Troika going to do about it, if Greece leaves the extension vague, giving itself room to maneuver at home to continue to reduce austerity in the interim? Will the Troika throw Greece out of the Eurozone because it doesn’t like the lack of details? Break off negotiations? That would have repercussions, both economically and politically throughout the Eurozone and the Troika knows it. They’ll bluster and complain, posture in the media, they’ll threaten not to provide the bridge loans technically due Greece even under the old terms during the four month extension, but in the end they’ll continue negotiations nonetheless. They really have no other alternative.

In the meantime, Greece will focus on and point to its aggressive efforts to raise taxes, by cracking down on the wealthy tax evaders and tax collection corruption. It will cite these aggressive efforts called for in the agreement letter of February 23, as evidence it is proceeding to implement some of the terms of the extension.

Greece’s acceptance of the extension letter also indicates it will proceed with demanded government reforms to root out corruption, make government funding projects more transparent, and reduce the influence of Greece’s economic oligarchs who have shielded themselves politically the past five years from any austerity effects while the rest of the country has bore the burden of the same. That too will be held up as evidence of compliance.

Troika demands for labor market reforms—a program the Euro bureaucrats and bankers are pushing throughout the Eurozone—are tactically addressable by Syriza as well. It can say it is refunding pensions from increasing tax collections on the wealthy that have been effectively avoiding them and by other administrative reforms. It can point to hiring back government workers by reducing pay for top government bureaucrats and managers and by other plans to ‘streamline’ government which the Troika has demanded. It can raise the minimum wage and restore collective bargaining, noting these measures affect the private sector and don’t raise government spending; in fact, rising wages mean more tax payments and therefore more potential government surplus.

Greece’s February 23 letter apparently agrees not to roll back privatizations that have been already completed or ‘under way’. But the definition of the latter is not spelled out and those projects can be effectively placed on hold for at least four months or more. And it has not agreed to continue with further privatizations the Troika wants, such as the electricity system, a project that would certainly impact households and incomes. They will be reviewed on a ‘case by case’ basis, according to the letter. That means effectively, nothing to be done for another four months. In short, no rollbacks of past privatizations in exchange for a freeze on anything further.

In its letter Greece also indicates it will proceed with promises to reduce food costs, health care services and utility services for the poorest, which now constitute a large part of Greece’s households after five years of depression. It indicates the funding for these anti-austerity measures, which amount to around $2.15 billion, will be financed from other cost savings.

Notably, much of the social benefit and program measures will be financed not by budget cuts but by finding cost savings. That means provide the benefits and then look for ways to cut costs. That’s a dramatic departure from the Troika’s procedures of cut first and then adjust the benefit levels.

In the days following Greece’s acceptance letter, the hardliners within the Troika—Germany, its northern Europe central bankers faction, together with the IMF and ECB, have continued their hard line, insisting Greece provide more details in its letter. In contrast, the European Commission and a number of finance ministers have assumed a different public line. As the European business weekly, the Financial Times, reported on February 25, “Officials at the third bailout monitor, the European Commission, said the reform list had improved on outlines discussed at the weekend and, unlike the IMF and ECB, gave it unequivocal support”. So is the IMF and ECB playing ‘hard cop’ while the EC the ‘soft cop’? Or is the fact that the EC’s $142 billion Greek debt is that which is being considered, whereas the IMF’s and ECB’s smaller debt is not even in question here? Only time will tell. But the point is that Greece and Syriza have at least bought that time to find out, to prepare, and have in the meantime not really abandoned their primary goal of rolling back austerity—even if that goal’s attainment has been, of necessity, been slowed for a temporary four months.

(For the remainder of this article, to to the author’s website: http://www.kyklosproductions.com/articles.html.)

Jack Rasmus is the author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, by Clarity Press, 2015, and the prior book’s, ‘Epic Recession: Prelude to Global Depression’, 2012, and ‘Obama’s Economy: Recovery for the Few’, 2012. He has been a local union president, negotiator and representative for several American unions. His blogs at jackrasmus.com.

(The following is an interview of Jack Rasmus by Taylaln Tosun, published in the February 15, 2015 issue of TeleSUR English Edition)

Taylan Tosun:

Dr. Jack Rasmus, as you know, there is a strong discourse in the mainstream economy and finance media claiming that US economy is on a sustainable road to recovery. Pundits in the mainstream media claim that main indicators such as non-farm payrolls data, monthly job growths and workers’ hourly wages are all indicating a sustainable recovery for the US economy. Do you think that these claims are true? US economy is on the road to a sustainable recovery at last?

Jack Rasmus:

Every year for the past four years, pundits, media, government officials and even a good number of mainstream economists have said the USA economy is on the path of a sustained recovery—and every year they’ve been proven wrong. They focus on this or that economic indicator that may show a short term surge due to special temporary reasons, and then simply extrapolate from that, calling it a forecast, and predict a recovery. This year it’s the third quarter 2014 GDP growth surge of 5%, which will almost certainly revert back to 2.5% or so in the last quarter of 2014 and, I predict, even less in the current 1st quarter of 2015.

None of the major determinants of that 5% are long term and permanent, however. And that has been the case with these ‘one-off’ temporary surges in single quarter GDP data, which by the way are typically followed by single quarter, temporary collapses in USA GDP which have happened three times now since 2010. So the USA economy shows a pattern of ‘stop-go’, as I call it. It appears to recover with an above average GDP growth for a single quarter that then reverts back to a longer term sub-par historical average of around 2%. Actually, the 2% is less by several tenths of a percentage, when the GDP numbers are adjusted for the redefinition of USA GDP that occurred in 2013 which artificially boosted USA GDP by 0.2% to 0.3% percentage points. It’s even less if one adjusts for the underestimation of USA inflation which always occurs. The lower the inflation rate, the higher the real GDP number. So the USA economy is really growing longer term, at about 1.5%-1.8% on average, which is about half its past normal historical growth rate.

Looking at the 5% specifically, that was the product of a grouping of temporary factors that are now moderating. There’s the shale gas/oil boom that significantly boosted industrial production and related industry and therefore GDP. That boom began to end by late summer 2014 as global oil prices began to collapse. There was the one-time surge in health care spending that boosted US consumption as the Obama health care program sign ups surged for the first time for a full year. That has leveled off now. Falling oil prices in the second half of 2014 resulted in a sharp decline in US imports, which had the effect of increasing the contribution of ‘net exports’ to US GDP. Oil prices appear now to have stabilized somewhat. There was the increase in business inventory spending in anticipation of consumer spending escalating during the fourth quarter holiday season. But consumer spending was flat or well below predictions. All the hype int he press and by economists about lower oil and therefore gasoline prices resulting in more consumer spending simply didn’t materialize. Consumers mostly pocketed the savings, which I predicted would be the case. Spending on autos did increase in 2014, in part due to the lower oil prices, but that too is coming to a slowdown, I predict, as the auto sector becomes saturated after four years of growth. Then there was the surge in government defense spending in the 3rd quarter, which always occurs right before a national election in the USA, which occurred last November. That too will now slow, unless of course Obama gets his wish to spend another $64 billion on another war in the middle east, this time against ISIL.

So if one looks beneath the surface at the real trends what appears is that several temporary factors converged in the 3rd quarter to generate a temporary boost in GDP, and that GDP is again reverting back to longer term growth trends of 2% or less.

With regard to talk about USA jobs growth and wage growth about to boost consumption and GDP, I’m not impressed with the argument. First of all, much of the job growth is low pay, part time and temp jobs. And the so-called wage growth is really being over-hyped. It’s mostly concentrated at the ‘top’, among managers, professionals, and the higher paid workforce. It’s data reflecting full time employed as well, not the more than 50 million part time-temp workers in the USA today or the median family, whose income has been declining 1%-2% per year now since 2010. And as the recent oil-gasoline price decline shows, an increase in real spendable income does not necessarily translate into more spending and consumption. Given that the vast majority of households in the USA are still overwhelmed by debt, and still fearful of a weak economy, much of any wage-income increase is not spent but saved right now.

What all this suggests is that the USA economy is still on a stop-go trajectory longer term, or what I have called an ‘Epic’ recession, in which there are periods of brief, small recoveries followed by short, shallow downturns. This trajectory for the USA is occurring in the 1%-2% range, due to factors specific to the USA—like defense spending, US dollar as reserve and trading currency, influence over global money supply, and so forth. For Europe and Japan, it is occurring in the -1% to 1% range. But this does not represent a sustained economic growth by any means.

I would add that not only have the temporary factors behind the USA 3rd quarter GDP growth surge begun to dissipate, but that new negative drags on the USA economy are coming in 2015. The US dollar will continue to rise as other economies drive down the value of t heir currencies with QE and defacto currency devaluations. And the USA central back will raise interest rates, which will slow the US economy faster than they think, while driving the dollar still higher and choking off more exports’ contribution to US GDP.

Taylan Tosun:

If the recovery of US economy is not sustainable, that is, if all these indicators show only a temporary improvement which will not last long, what will this mean for the global economy and global recession?

Jack Rasmus:

On the one hand, the rising dollar—which may accelerate even more when the US central bank raises interest rates—will make emerging markets’, Europe’s, and Japan’s currencies more competitive and therefore potentially boost their share of global exports. But there’s a currency war underway now, set off by the big QE programs introduced by Japan and the Eurozone in 2013-2014. So it is likely that the Euro and the Yen will benefit the most from the rising dollar, at the expense of currencies of emerging market economies. Whether the gains in Europe-Japan at the expense of emerging markets has a global net positive effect on global growth remains to be seen. Emerging markets may lose more than Europe-Japan gains. Or the negative effects on the USA economy may more than offset the Europe-Japan export gains. It remains to be seen what the net total effect will be in 2015. But some things are clear: interest rates and the US dollar are going to rise further. That will result in more capital flight from emerging markets to the higher rates of return in the USA, as well as to Europe and Japan stock and capital markets to take advantage of the QE-induced rise in financial asset prices there. So, in net terms, it appears emerging markets will lose the most. I am personally of the view that the projected rise in USA interest rates will have a much greater negative effect on the USA economy than most economists are assuming. I think the elasticities will be great, of a negative impact on growth of a rise in rates. Just as the lowering of rates had virtually no effect on growth since 2010, conversely the rise in rates will have a major effect. The reasons for this apparent anomaly lie in the conditions of debt and fragility in the USA economy, which I won’t go into here but I explain in my forthcoming book, ‘Systemic Fragility in the Global Economy’ that will be available later this spring.

Taylan Tosun:

We know from economic theory that if a recession continues long enough and a sustainable recovery can’t be attained, then sooner or later we will face with a depression. The Euro zone and Japan economies are already in recession, it seems that the slowdown of Chinese economy is not temporary phenomenon, Russia is heading to a serious crisis and emerging markets’ economies (EME’s) are all entering in a period of steady slowdown. Do you think is it probable that these state of affairs will lead to a worldwide depression?

Jack Rasmus:

No, not a depression but rather a long term drift toward stagnation in the global economy, where major economies fluctuate, entering and exiting recessions or growing barely. This is the ‘stop-go’ or epic recession phenomenon that characterizes the current global economy long term: Short shallow recoveries followed by relapses to zero or negative growth (recessions). We see this in Europe and Japan, where last years return to recessions are now apparently transitioning to very low but positive growth of less than 0.5%. The USA is slipping back to its 1.8% average longer term GDP. China is slowing, now probably at around 5% GDP. And emerging markets are going to experience the brunt of the current slowdown, as their currencies collapse, exports continue to slow, and capital reverts back to the north. Both the USA rise in rates and the value of the dollar will suck capital out of the emerging markets. So will QE induced stock and bond market recoveries in Europe and Japan, at least temporarily for 2015. But this all reflects an uneven drift toward global stagnation as a whole. Depressions are precipitated by financial instability events and crashes, that drive the real economy down faster and deeper than normal recessions. We haven’t had that again yet, but will. A period of extended stagnation leads to banks’ growing weaker and more investing shifting to financial assets and speculation, which is occurring. At some point it becomes unsustainable and a financial crisis occurs. When that happens again, and it will, the crash will occur on a much weaker global economy that existed in 2008-09. So the impact will be much more severe. A bona fide depression could occur at that point. But we’re not there yet. We’re in a phase of the global economic crisis where global growth is drifting toward stagnation, disinflation and deflation is occurring, real asset investment is in decline everywhere, incomes are falling for wage earners, and governments’ fiscal and monetary responses are becoming increasingly ineffective in generating sustained economic growth.

Alternative Visions – The 2nd Ukraine-IMF Deal + Updates on Greece Debt Negotiations – 02.14.15

To listen to or download this 55min. Alternative Visions Radio Show podcast, go to



Jack Rasmus provides updates on the continuing negative effects of the Eurozone QE announced last month, the Greek Debt-Troika negotiations over the past week, and details on last week’s announced IMF-Ukraine bailout #2. In the first half hour, Jack describes how the Eurozone QE is intensifying currency wars and forcing other Euro countries into introducing negative interest rates, which will have major negative economic effects. Then an update on how the Greeks are succeeding to push the Troika closer to their (Greek) bargaining position, to provide them bridge loans and renegotiate the debt based on an ending of austerity. In the second half of the hour, Jack provides details on the 2nd IMF bailout deal for Ukraine also just announced this past week. How the bailout package has risen from $17.1 last April 2014 now to $40 billion—now approaching Jack’s forecast last April that Ukraine would need a minimum of $50 billion. Jack’s 2014 forecast of a collapse of Ukraine’s GDP of 10%, of its currency, and other indicators are now also realized. The second IMF bailout will not stop the decline of the Ukraine economy either, Jack argues. The show concludes with an analysis of the ‘Grand Strategies’ of the USA, Germany-France, and Russia with regard to the Ukraine, the conflict over which has always been a proxy for a larger strategic fight between the USA and Russia, over the future of Europe it self and which way Europe will orient economically in the decades ahead.

Listen to my Feb. 7 Alternative Visions Radio show on the Progressive Radio Network, discussing the events of the past week of Greek Debt negotiations between the new Greek Syriza Party government and the Troika of Eurobureaucrats in the ECB, IMF, and Euro Commission. The hour long show is accessible or downloadable at:


and at:



Alternative Visions – ‘Troika v. Greece Debt Negotiations, Week One’ – 02.06.15

Feb 7th, 2015 by progressiveradionetwork

‘Jack Rasmus provides a recount of negotiations between Greece’s Syriza party and new government with northern Euro bankers, the ECB, and Euro Commission in Brussels during the past week. What’s at stake for the Troika (ECB, IMF, and European Commission) in the current negotiations and why they are playing ‘hard ball’ during the first week of negotations. Greek president, Tsipras and Greek finance minister, Yani Varoufakis’, tours of European capitals last week and the outcome of their meetings is discussed. Tsipras’ modest successes talking to France and Italy politicians, Renzi and Holland. Varoufakis’ less than productive meetings with European Central Bank chair, Mario Draghi, on Feb. 4, and German finance minister, Wolfgang Schauebel on Feb. 5. Draghi’s refusal to continue providing ECB loans to Greek banks as a punishment for Greek refusal to simply extend the bailout program as is with austerity past Feb. 28. Schaubel’s refusal to agree to any changes. Syriza’s strategy: lift austerity first and discuss debt over next several months; Troika strategy: continue austerity first, agree tp extend bailout, and then discuss changes—maybe. Potential for a run on Greek private banks if Greece’s central bank runs out of money to lend its banks. That will mean Greek exit, and unleash many unknowns for Greece, the Euro and Eurozone future. (Read Dr. Rasmus latest published article on the topic on the PRN website). Next week: the ‘Dud’ (part 3 of ‘The Bomb, the Fuse, and the Dud’ series). What’s the Dud? Tune in and find out on Feb. 14’s show.

(For my recent, and forthcoming, published articles on the topic for the teleSUR TV media network in Latin America, go to my website, articles tab at:

http://www.kyklosproductions.com/articles.html )

published teleSUR TV English Edition, 2-4-15

“After barely a week following the Greek elections and Syriza’s victory, negotiations between the EU’s “Troika” of debt collectors — the International Monetary Fund (IMF), European Central Bank (ECB), and the European Commission (EUC) — and Syriza’s representatives have already begun to intensify.

Even before the elections and Syriza’s victory, threats were flowing from the Troika warning Syriza to abandon its demand that the Troika write off up to one-third of Greece’s 317 billion euro debt; that it continue with the Troika’s previously imposed debt payment structure agreed to by Syriza’s predecessor government; and that austerity programs continue to be implemented regardless of the hardship imposed on the Greek people after five years of economic depression.

The Troika are desperate. The northern European bondholders, investors, central bankers, and Euro bureaucrats that are the true faces behind the Troika, whose policies directly represent their interests, are confronted by a serious democratic challenge by the new Greece and Syriza government. A challenge that could spread like political wildfire throughout Europe if not contained.

That democratic challenge comes at a time when the Eurozone economy continues to weaken, deflation has set in, more northern and eastern European economies are slipping into recession, bond rates and yields are turning negative throughout the EU, currency instability is rising, USA demanded sanctions on Russia are biting deep into Euro business profit margins, the Ukraine is in economic collapse and demanding billions more in IMF and EC bailouts, and the war in Ukraine is intensifying again. Not a small short list of major problems, by any means.

And now Syriza and Greece, threatening to upset what the Eurobankers and Eurocrats had thought was a stabilized Euro government debt repayment system, paid for by austerity plans that they thought were safely assured for years to come!

The core problem with the Greek debt issue is that Greece’s current 317 billion Euro government debt is unsustainable and effectively condemns Greece and its people to a state of perpetual economic depression for decades to come should it remain in place. At 317 billion, the Greek government debt is nearly twice the GDP of Greece — officially 177 percent. No matter that 270 billion (85 percent) of the 317 billion euros are owed directly to the Troika itself — i.e. official agencies that could, if they wanted, write off much of the debt. No matter that Syriza’s position is that its demand for one-third write off does not include the 24 billion owed to the IMF and another 54 billion owed to the ECB, but is targeting the 142 billion Greece owes to the European Commission and its European Financial Stability Facility (EFSF) fund. And no matter that, even as Greek-Troika negotiations begin, the European Commission is approving debt write-offs for Croatia while refusing to do so for Greece.

Although there is no crisis deadline for a negotiated settlement until the end of February, at the earliest, the Troika nevertheless is adamant on refusing to forgive any Greek debt. To do so would open a pandora’s box of potential problems, as they see it. And that may be true.

Here’s why: should the Troika agree to a partial Greek debt forgiveness — aka a write-off or haircut involving debt restructuring — it would set a dangerous (for them) precedent elsewhere. A write off would immediately result in not only a surge in Greek bond debt interest rates, which had already begun with Syriza’s election, but would undoubtedly set off bond rates rises in Italy, Spain, and elsewhere. If they write off Greek debt, they would have to deal with demands for other debt write offs as well. Bond values would plummet across Europe — and thus register significant paper losses for wealthy bond holders, both public and private alike. A collapse of government bonds would likely spill over to corporate bonds, and then possibly to Euro stock markets in turn as well. The chain reaction would largely negate the Eurozone’s recent move to inject $1.3 trillion in quantitative easing money into the Euro economy — itself designed primarily to boost Euro investors financial profits and capital gains. A Greek debt write off, in other words, could reverse other efforts to boost investors’ profits across the continent. So write-offs are the Troika’s “red line,” as they say.

The Troika faces other dangers in the Greek debt negotiations as well. A Greek debt agreement, write offs or no, raises the potential that other rapidly growing left and right political parties will be energized politically by any success Syriza may have in rolling back debt payments and/or stopping austerity policies imposed by the Troika in Greece and elsewhere. Not just the new Podemos party in Spain, but the right wing National Front in France, which would win national elections if held tomorrow in that country, or the UKIP party in the United Kingdom with elections there imminent, as well as other parties in Eurozone countries coming up for election. No doubt Euro politicians outside the Troika are keenly aware of the potential political consequences of the Greek debt negotiations and are whispering in the ears of the Troika’s bureaucrats as they head into negotiations with Syriza.

Then there’s another “economic front” that has the Euro bankers and Eurocrats currently on the defensive: that’s the growing movement within the Eurozone for not only a reversal of austerity programs, but for a new initiative for government infrastructure investing. The country bastions of the Eurobankers — i.e. Germany and Netherlands — have attempted to co-opt this movement for more government investment by proposing what is called the “Juncker Plan” — i.e. a token limited government program of government spending. By agreeing to a Greek debt write-off, the Troika would give impetus to growing demands within Europe that governments step up their infrastructure and government spending in lieu of continuing austerity programs.

And there’s yet a fourth problem the Troika now faces: the Euro-wide business-driven initiative to force government to introduce structural reforms, in the form of so-called “labor market” restructuring. Those reforms directly target working class jobs, wages and benefits — as a way to boost worker productivity, the benefits of which would accrue almost totally to Euro businesses. Should too many Troika concessions be made in current Greek debt negotiations, the drive for structural/labor market reforms may slow as well, as working classes throughout Europe realize the Syriza example shows that resistance is not futile any longer.

But there are write-offs and there are write-offs. There are direct public declarations that part of the debt need not be repaid, i.e. is forgiven. And there is financial “smoke and mirror” engineering that amount to de facto write-offs in the long run, even though it appears write-offs are not taking place in the short run. And that’s where negotiations most likely could be headed.

Syriza’s pre-election position was always that one third of the Greek debt should be written off, targeting the European Commission’s (Brussels) EFSF’s 142 billion euro holdings of Greek debt. Writing off IMF and/or ECB debt has never been proposed by Syriza. Its leaders are savvy enough to know the Eurocrats at the IMF and ECB could never agree to write-offs. To do so would almost certainly implode the Eurozone financial system itself. But the European Commission and its EFSF is another story.

Syriza’s program also includes halting the firesales of Greek public investments to predatory Euro and American vulture investors; raising the minimum wage back to pre-2010 debt levels, hiring back 10,000 needed government workers, stopping further cuts to pensions, and going after the tax fraud and avoidance by Greek businesses and investors which is notoriously rampant. In just the first week in office, Syriza has begun to reverse all the preceding elements of its austerity program, with more no doubt to come.

In other words, for Syriza, reversing austerity is the key strategic objective, even more important than immediate debt forgiveness. Only reversing austerity raises the possibility of a return to economic growth — which in the long run is the only way out of Greece’s current perpetual debt trap. The debt restructuring is secondary; the end of austerity is primary. The former can be obtained via “smoke and mirror” financing; the latter must be real since the Greek people will immediately know if they are being “gamed” again by yet another political party. Syriza’s political instincts are therefore correct to focus on dismantling austerity as primary.

At the beginning of this past week, Yanis Varoufakis, the new Finance Minister in the Syriza government, signaled to his Troika counterparts that debt forgiveness was not a priority — at least according to the business press. This immediately resulted in stock and bond markets recovering the major losses of the previous week when it appeared Syriza and Varoufakis were taking a hard line and that debt forgiveness was a prerequisite, a sine qua non, for negotiations. If true, as the business press reports, that Syriza and Varoufakis have dropped the debt forgiveness demand, what’s the significance of this apparent basic shift in Syriza positions?

Last week Varoufakis toured the financial capitals of Europe, demanding a Europe wide conference of governments to address the Greek Debt problem, declaring it a problem not just for Greece but for all of Europe, which of course it is. He called for a Euro wide public infrastructure investment program — referring to the 1953 London Conference that wrote off Germany’s war debts (ironically). He declared Syriza was not interested in just another “roll over” of existing debt. Nor was Greece interested in an extension of the current debt and austerity arrangements past the February 28 coming deadline. He declared he would refuse, if necessary, to negotiate with Troika representatives, indicating meetings should be with European heads of state. And he repeated Syriza’s pre-election policy of debt write-offs. A definite hard line position across the board, signaling to the Troika that two could play the threat game.

So what’s changed at the beginning of week two in negotiations? Why has Varoufakis and Syriza backed off the hard line? Or have they?

Publicly, the Troika continues to float various unofficial proposals by means of leaks to the press: i.e. to lower Greek debt repayments by extending the maturity of the debt from current 30 years to up to 50 years, if necessary; to lower interest rate payments; to pay Greece the 4 billion Euros that the ECB had already earned by holding Greek bonds; to extend the current bailout arrangements for six more months after February 28. Others less official are suggesting the Troika might even consider suspending principal and interest payments for a period, or set up an entire new debt arrangement with the European Stability Mechanism (ESM), another debt bailout fund. All the preceding likely represent the Troika’s opening bargaining position.

Meanwhile, on Monday, February 2, France offered to step in to mediate the upcoming negotiations between Greece and the Troika — no doubt thus offering to play “soft cop” to Germany’s “hard cop” in the negotiations to come.

It was also on February 2 that Greek Finance Minister, Varoufakis, reportedly backed off Syriza’s demand for debt forgiveness. But he then offered a new proposal that was significant: to swap old debt for new Greek bonds that would be linked to economic growth. What the latter proposal represents is no debt repayment if there’s no Greek growth — and that means an end to austerity programs that the Troika has insisted on for years as a condition of past loans and debt to Greece. The substitute proposal reveals clearly that Syriza’s primary objective is to roll back austerity first. Then restructure debt.

So Varoufakis and Syriza have cleverly turned the Troika’s formula of more austerity in exchange for more Troika loans on its head. Now its end austerity if you want any repayments of debt!

Henceforth, in Syriza’s view negotiations are not about how much more debt will be given Greece in order to roll over past debt and continue making payments, as previously has been the case since 2010. Now the negotiations will focus first on ending austerity, on restoring growth and incomes of the Greek people, and the extent of that restoration will determine how much debt is repaid and when.

So the positions of the parties at the negotiating table are: continue Greece’s austerity and economic depression in order to make debt payments ad infinitum (Troika position) vs. end austerity first and grow out of the debt trap imposed by the Troika (Syriza position).

But the negotiations have only just begun. It will be interesting to see if the Troika buys into the new formula proposed by Syriza and agrees to lift austerity now in order to receive some kind of debt repayment in the future. If so, the tough negotiations will be over how much of prior austerity is ended, how fast, how much debt repayment is tied to economic growth and how is that growth estimated.

The next milestone in negotiations arrives on February 4, when the ECB decides whether to provide more interim liquidity assistance to Greece. If the ECB, a Troika member, balks, that will be a sign the Troika has not yet bought into the new formula proposed by Varoufakis and Syriza.

Another important milestone will occur on February 12, at the next meeting of European Union leaders in Brussels.

If the Troika and Europe’s leaders recognize that the old Troika formula of more austerity in exchange for more debt is an economic dead end, and that Greece may well exit the Euro if it insists on continuing that old formula, then that recognition will mark the beginning of the end for austerity in Europe.

But if they don’t, and they continue to adhere to that dead-end policy, it will set Europe on a path of not only a Greece exit from the Eurozone, but an eventual collapse of the Euro itself. And that will mean even more massive losses for investors, and an almost assured descent by Europe into a deep and sustained recession.

It will be interesting, to say the least, to watch the coming weeks of negotiations between Greece and the Troika. Greece may be small in size and economically, but right now it is the lynchpin for the economic future of Europe. Syriza and Greece are in a good bargaining position. It remains to be seen how well they play their cards.”

(Listen to my Alternative Visions Radio Show this coming week, February 7, for more on the latest in the Greek debt negotiations, live at 1pm eastern at: http://prn.fm/shows/alternative-visions/

and available on podcast after at: http://www.alternativevisions.podbean.com)

Jack Rasmus is the author of the forthcoming book, “Systemic Fragility in the Global Economy,” Clarity Press, 2015; and Epic Recession: Prelude to Global Depression and Obama’s Economy, both by Pluto Press, 2010 and 2012. His blog is jackrasmus.com and website http://www.kyklosproductions.com.

Alternative Visions Radio Show


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Jack Rasmus continues the three part series (last week: the ECB’s QE ‘Bomb’), this week focusing on last week’s election of Greece’s Syriza party, which has promised the Euro ‘Troika’ (IMF, ECB, European Commission-SFSF Fund) forgive at least a third of Greece current 317 billion Euro debt.

How is it that Greece ended up with 317b of debt? Why is 270b of that (85%) in hands of the public entities, i.e. the Troika, and only 15% held by private investors? How did Germany, Holland, and northern Euro banks benefit the most from creating the debt? And why have they been insisting on continued austerity, and therefore depression, in Greece?

Jack explains how the origins of Greece’s debt lie in policies that followed the creation of the Euro currency union in 1999 and how that union specifically benefited the northern Europe economies at the expense of Greece and the rest of the Eurozone periphery. The arrangements, Jack explains, constitute Eurozone’s version of Neoliberalism, a now failing caricature of the USA created global neoliberal policy answer to the crisis of the 1970s. The USA’s ‘twin deficits’ and global money capital circular flow neoliberal solution after 1980 was replicated in Europe on a smaller scale after 1999, but Eurozone neoliberalism began to fail after 2010, as Germany and northern Europe abandoned providing capital to Greece and the Eurozone periphery in favor of focusing on China and emerging markets after 2010. The residue left is unsustainable debt levels in Greece and elsewhere and the prospect of never ending austerity that ensures decades more of a debt driven depression in Greece.

The current negotiating positions of the northern Troika and banks vs. Greece’s new Syriza government are explained, and possible scenarios in coming weeks. Meanwhile the ‘fuse’ is lite in Greece for the Euro economy, as a 10 billion euro payment comes due in 90 days. Which side will ‘blink’? How will the standoff be resolved? Listen this week’s show for some possibilities to come.

(Next week, 2-7-15 listen to part 3 of ‘The Bomb, the Fuse, and the Dud).

(NOTE: Listen to Part One of the 3 part series, on the Eurozone’s QE from last week’s 1-24-15 show, at the same access urls)

On January 22, 2015, European Central Bank chairman, Mario Draghi, planted a bomb in global financial markets. After much pushing and shoving by global bondholders, Draghi announced a Quantitative Easing (QE) program that will inject 60 billion euros a month, roughly equivalent to US$69 billion, over the next 18 months.

QE means the ECB and the Eurozone country member central banks will essentially print money and then buy bonds from investors, including government bonds, asset backed securities (ABS), and what are called ‘Coco’ or covered bonds in Europe.

The Eurozone QE will inject about US$1.3 trillion into the Eurozone economy with the purchases, give or take a hundred billion dollars or so depending on how low the euro currency slides. Since many of the bondholders who will benefit nicely from the QE are outside the Eurozone, not all the money injection will actually go into the Eurozone economy – now hovering at or in its third recession since 2008-09 and now experiencing deflation as well.

The Eurozone’s US$1.3 trillion QE follows Japan’s 2013 US$1.7 trillion QE experiment, the UK’s US$600 billion QE, and the USA’s US$3.7 trillion. That’s more than US$7 trillion in printed money injections that flowed into the global economy in recent years to purchase financial assets only – an unprecedented massive injection of liquidity globally that has clearly failed so far to generate real growth, to stop the global slide to deflation, or to generate jobs or raise wage incomes. What QE has done is stimulate financial asset inflation and bubbles, accelerate capital income growth, and worsen global income inequality.

The QE bombshell just laid by Draghi will provide another big windfall for global bondholders. Bond prices in the Eurozone region, and throughout the world, immediately surged after the January 22 announcement. So did stocks, especially in Europe, but elsewhere globally as well. Other financial securities asset classes will no doubt benefit in the wake of the stock and bond surge nicely as well. So investors—especially the super-rich individual speculators, shadow banks like hedge funds, and other financial institutions who cleverly and quietly moved their investments around in the pre-knowledge and anticipation of the ECB’s announcement, will now reap big capital gains profits immediately from Draghi’s QE. And they will continue to do so in the days to come as Eurozone stock and bond indexes continue to rise.

What the ECB announcement shows, yet again, is that QE programs and policies are always and primarily about boosting financial investors’ incomes.

QE’s Sorry Historical Track Record

The official ideological cover for QE is that it will stimulate the real economy, lead to investment in real goods and services, create jobs, and raise wage incomes. But there is absolutely no empirical evidence or support for such claims anywhere in the world where QE has been introduced since 2008. Not in the United States. Not the UK. Not Japan. Nor will there be in the Eurozone.

In April 2013 Japan introduced its own massive QE money injection, an enormous 200 trillion Yen program, equal to around US$1.7 trillion. Its stock market shot up 70 percent immediately. But real investment continued to slow and real wages continued to fall in 2013-14. The Abe government today, nearly two years later, continues futilely to exhort Japan employers to raise wages. In reply, however, they keep ‘thumbing their noses’ and saying ‘no way.’ Nor did employment levels change in Japan in the wake of QE. And the economy a year after QE was introduced then slipped back in early 2014 into its 4threcession since 2008.

But what about inflation, some ask? Doesn’t massive money injections lead to inflation? Only if you’re a neoclassical economist and believe the myth. In so far as the magic 2 percent national inflation goal is concerned – i.e. the ‘target’ and presumed indicator of QE success – after a recent high of only 1.7 percent inflation Japan recently lowered its estimate of annual inflation to 1 percent. Japan once again is on its way to the chronic deflation that has plagued its economy for decades.

The UK introduced a US$600 billion dollar equivalent QE in 2009-12. Its policy set off a financial asset bubble in its real estate sector – i.e. stimulated property-based financial asset inflation. UK real estate inflation bubble then QE sucked in more foreign capital to speculate in London and the surrounding housing and commercial property markets, pushing its financial asset bubble further. But wages and job creation lagged. And now even the UK real estate bubble is receding, and UK economic growth rates once again. But London bankers did well and capital gains income rose, from property speculation in particular.

If there was any doubt that the primary purpose of QE programs is to promote financial asset markets and capital gains from asset inflation, one need only look at the USA during its massive US$3.7 trillion QE money injection program from 2009 through October 2014. The USA version of QE came in three iterations, QE1, QE2, and QE3 – the latter initially a US$85 billion a month purchase by the USA central bank, the Federal Reserve (Fed), of government bonds as well as near worthless sub-prime mortgage bonds from investors caught holding the bad debt in 2009.

The direct correlation between QE money injections by central banks, and the subsequent boom in financial market profits, is revealed in the highly correlated surge in USA stock prices with each of the three iterations of QE in the USA since 2009. With each QE announcement in the USA since 2009, stock markets took off. When spending for each QE was completed by the Fed, stocks retreated. That led to another QE, another take off, and another retreat. Stocks continued to rise through 2014 until QE3 was concluded, and have leveled off since—as capital flows from emerging markets and Europe flowed back into the USA replacing the QE injections.

With QE1 the USA central bank justified the trillions of dollars it gave to investors, shadow bankers, and speculators by claiming QE would generate economic recovery in the USA. But USA economic growth rates throughout the QE1-2 period only rose at an average annual GDP rate less than half of normal. Periodic surges in quarterly GDP were followed by quarterly collapses of GDP on three separate occasions.

With the advent of QE3, the Fed changed its tune: More QE would reduce unemployment and create jobs. Unemployment in the USA came down, but due largely to 5 million workers giving up on finding decent paying work and dropping out of the workforce. And jobs that were created were mostly part time, temporary, and thus low paid jobs. 60 percent of the jobs lost after 2009 were high paid; 58 percent of the jobs created were low paid. So wage incomes continued to fall during the QE period. Real median wage incomes dropped 1-2 percent every year during the QEs in the USA. So much then for justification of QE not only as a means to generate economic growth, but also as a job creator and a way to raise wage incomes.

By 2014 central bankers abandoned pretenses that QE had anything to do with generating real growth, reducing unemployment or raising wages. The remaining justification the argument that QE raises the general price level to a 2 percent target and thus prevent the slide into deflation.

But the historical record here refutes that justification as well. Japan’s price level is back to 1 percent and falling, despite a US$1.7 trillion QE injection. Prices are slowing again in the UK. And even in the USA, at the end of 2014 and after US$3.7 trillion QE, prices for goods and services slipped to their lowest level since the 2008-09 crash. Consumer prices slowed to 0.4 percent in December 2014, and only 0.8 percent for the entire year. Producer prices were zero for the year. The declines, moreover, were across the board and not due only to falling oil prices.

What the experiences with QE in the USA, UK and Japan all show conclusively is that QE clearly stimulates prices for financial assets of all kinds, thus boosting capital gains and capital incomes for the 1 percent and their corporations. But QE has virtually no net effect on the prices for real goods and services or the slide toward deflation. In fact, an argument can be made that QE redirects money into financial speculation – at the direct expense of investment that would otherwise create jobs, potentially raise working class wages, or raise the price level for goods & services.

Draghi’s announcement of the Eurozone’s QE last week was packaged with the same old false ideological claims, justifications, and cover for the real goals behind QE. QE does not stimulate growth or recovery, will not create jobs and raise incomes for most, and will not save anyone from the bogeyman of approaching deflation. It boosts financial asset prices, the capital incomes of the finance capital elite, and leads to destabilizing financial asset price bubbles.

How the Eurozone QE Will Make Things Worse

(for the remainder of this article, go to the author’s website at http://www.kyklosproductions.com/articles.html.)

Jack Rasmus is the author of the forthcoming book, ‘Transitions to Global Depression’ by Clarity Press, Spring 2015, and the preceding ‘Prelude to Global Depression’ and ‘Obama’s Economy’, by Pluto Press, 2010 and 2012. His website is: http://www.kyklosproductions.com.


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