To listen to my 8-28-15 Alternative Visions Radio Show on recent US GDP April-June revisions, and Greece-Ukraine Debt Deals, on the Progressive Radio Network, go to:


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Aug 28th, 2015 by progressiveradionetwork

Jack examines the big swing in the revised GDP figures for the 2nd quarter, and raises questions about the US Government’s ability to adjust for seasonality in the figures. How is it that every year for the past four years, the US economy (and GDP numbers) collapse to near zero or less in the winter and then surge above average in the spring-summer? Can it be just coincidence, occurring now four times? How reliable are GDP numbers, in the US and globally (China, India, Europe?). Jack then looks at the details of the recent revision, concluding that business inventories, net exports, and commercial building number swings have good reason to doubt the veracity or continuity of the numbers. In the second half of the show, the recent debt restructuring deals just concluded in Greece and Ukraine in recent weeks indicate a new kind of colonialism may be emerging in the periphery of Europe, where debt is used as the ‘product’ by the colonizers to extract wealth and an income stream from the ‘colony’ by means of financial asset transfer instead of direct low wage and low cost production of goods—as in the case of past forms of colonialism. Jack reviews in detail the recent Memorandum signed by Greece and the Troika, which not only reveals even more austerity but now a direct management of the Greek colony economy to ensure payments on the $400 billion plus debt continue to be made. Direct management is a new feature of the new ‘inside’ colonialism. Direct management is even more blatant in the case of the Ukraine deal, Jack explains, where former US and EU shadow bankers now run Ukraine’s economy on a day to day basis. Depressions will get worse in both countries and more debt restructuring are inevitable.

A new form of colonialism is emerging in Europe. Not colonialism imposed by military conquest and occupation, as in the 19th century. Not even the more efficient form of economic colonialism pioneered by the U.S. in the post-1945 period, where the costs of direct administration and military occupation were replaced with compliant local elites allowed to share in the wealth extracted in exchange for being allowed to rule on behalf of the colonizers.

In the 21st century, it is “colonialism by means of financial asset transfer.” It is colony wealth extraction by colonizing country managers, assigned to directly administer the processes in the colony by which financial assets are to be transferred. This new form of colonialism by direct management plus financial wealth transfer is now emerging in Greece and Ukraine.

Behind the appearance of the recent Greek debt deal is the reality of European bankers and their institutions — the European Commission, European Central Bank, IMF, and European Stability Mechanism (ESM) — who will soon assume direct management of the operation of the economy, according to the Memorandum of Understanding, MoU, signed August 14, 2015, by Greece and the Troika. The MoU spells out direct management in various ways. In the case of Ukraine, it is even more direct. U.S. and European shadow bankers were installed by U.S.-Europe last December 2014 as Ukraine’s finance and economic ministers. They have been directly managing Ukraine’s economy on a day to day basis ever since.

The new colonialism as financial asset transfer takes several practical forms: as wealth transfer in the form of interest payments on ever rising debt, in firesales of government assets sold directly to the colonizer’s investors and bankers, and in the de facto takeover the colony’s banking system and bank assets in order to transfer wealth to shareholders of the colonizing country’s private bankers and investors.

The Case of Greece

The recent third debt deal signed August 14, 2015, between Greece and the Troika of European economic institutions adds another $98 billion to Greece’s debt, raising Greece’s total debt to more than $400 billion. Nearly all the $98 billion is earmarked for debt payments and to recapitalize the Greek banks. Wealth is extracted in the form of Greeks producing more, or cutting spending and raising taxes more, in order to create what’s called a primary surplus from which interest and principal is to be paid.

The Greeks aren’t going to have their goods produced and sold cheaper to Germany to re-export at higher price and profit — i.e. 19th century colonialism. Multinational corporations aren’t going to relocate to Greece so they can pay cheaper wages, lower costs, and then re-export to the rest of the world for profit — i.e. U.S. late 20th century colonialism. The Greeks are going to work harder and for less in order to generate a surplus that will return to the Troika institutions in the form of interest payments on the ever-rising debt they owe. The Troika are the intermediaries, the debt collectors, the State-Agency representatives of bankers and investors on behalf of whom they collect the debt payments. They are supra-state bodies and the new agents of financial wealth extraction and transfer.

The Greek-Troika MoU defines in detail the direct management as well as what and how the wealth will be extracted and transferred. The MoU begins by stating explicitly that no legislation or other action, however minor, by Greece’s political institutions can be taken without prior approval of the Troika. The Troika thus has veto power over virtually all policy measures in Greece, all legislative or executive agency decisions, and by all levels of government.

Furthermore, Greece will no longer have a fiscal policy. The Troika will define the budget. It will oversee the writing of a budget. The MoU calls for a total restructuring of Greek taxes and spending that must occur in the new budget. Greece gets to write its budget, but only if that budget is the budget the Troika wants. And Troika representatives will monitor compliance to ensure that Greece adheres to the Troika’s budget. Every Greek agency and every Greek Parliament legislative committee will thus have its ‘Troika Commissar’ looking over its shoulder on an almost daily basis.

The MoU states the Troika also has the power to appoint “independent consultants” to the Boards of Greeks banks. Many old bank board members will be removed. Troika appointees will now manage the Greek banks on a day to day basis, in other words. Greek bank subsidiaries and branches outside Greece will be “privatized,” i.e. sold off to other Euro banks. The Greek banks are thus now Greek in name only. They will become appendages and de facto subsidiaries of northern Euro banks working behind the veil of the Troika and at the shoulder of their Greek banker counterparts.The several tens of billions of dollars allocated to recapitalize the Greek banks will reside in Luxembourg banks, not in Greece. Greece no longer has a monetary policy; the Troika has.

The World Bank will redesign the Greek welfare system and a new social safety net system. New appointees to run the Labor Ministry, after approved by the Troika, will “rationalize the education system” (i.e. teacher layoffs and wage cuts). The new, Troika vetted Labor Minister will implement the proposals of Troika “independent consultants” to limit “industrial actions” (i.e. strikes) and collective bargaining and will, following consultants’ recommendations, institute new rules for collective dismissals (i.e. mass layoffs). Pensions will be cut, retirement ages raised, workers’ health care contributions increased, Local governments made more efficient (layoffs, wage cuts), and the entire legal system overhauled.

The $50 billion Privatization of Greek Government Assets Fund will remain in Greece. However, it will operate “under the supervision of the relevant European institutions,” according to the MOU. The Troika will decide what is to be privatized and sold at what (firesale) price to which of its favored investors. In the meantime, privatization sales in progress or identified will be accelerated.

The Case of Ukraine

In Ukraine’s case, only once U.S. and Euro bankers were installed as Ministers of Finance and Economics last December 2014, were more loans promised to Ukraine. The U.S. and EU put in another $4 billion in January, and the IMF quickly announced the new $40 billion deal in February. After the $40 billion, Ukraine’s debt rose from $12 billion in 2007 to $100 billion in 2015. The new $100 billion debt will mean a massive increase in financial wealth extraction in the form of interest payments on that $100 billion.

Another form of transfer will occur in the accelerating of privatizations. No fewer than 342 former government enterprise companies are slated for sale in 2015, including power plants, mines, 13 ports, and even farms. The sales will likely occur at firesale prices, benefiting U.S. and European “friends” of the new US and European ministers. So too will the sale of Ukraine private companies approved by the new Ministers. One of every five are technically bankrupt and unable to refinance $10 billion in corporate junk bond debt. Many will default, the best scooped up by U.S. and EU shadow bankers and multinational corporations. What both Greece and Ukraine represent is the development of new more direct management of wealth extraction, and the transfer of that wealth in the form of financial assets. In past government debt bailouts, the IMF and other institutions set parameters for what the bailed out country must do. But the country was left to carry out the plan. No longer. It’s now direct management to ensure the colony does not balk or delay on the transfer of financial assets enabled by ever rising debt.

This content was originally published by teleSUR at the following address:
http://www.telesurtv.net/english/opinion/The-New-Colonialism-Greece-and-Ukraine-20150829-0012.html”. If you intend to use it, please cite the source and provide a link to the original article. http://www.teleSURtv.net/english

The following is a podcast recording of my radio show, Alternative Visions, of last friday, August 21. For follow up to events of this week, listen live to the forthcoming August 28 show at 3pm NY time at: http://prn.fm/category/archives/alternative-visions/

The August 21 show is available now for download at:


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Dr. Jack Rasmus looks at today’s, and this past week’s, plunge in global stock markets from Shanghai to New York and beyond. What’s driving the rout, which recorded nearly 10% drop in stock values in just one week? Jack explains the causes behind the stock bubbles’ rise before this summer, focusing on China’s 120% bubble in 2014-15, now sharply contracting by 35%, and the bubble in US stocks that have risen 180% since 2010, and are now about to follow China’s stock contraction. Europe and other Asian markets are following the China-US connection in turn. Jack explains how the stock bubble in the US has been a consequence of the US central bank pumping $15-$20 in excess liquidity into the economy since 2009 via its zero rate and QE programs. In China, the shift to a monetary first policy in 2013 has caused excess liquidity on a similar scale. China’s real economy has been slowing since 2012. To offset the slowdown, China policy makers focused on stimulating stocks for various reasons: to quell other bubbles in housing and industrial debt, to shift toward more private sector driven growth, and to attract more foreign money capital. How China lost control of its stock bubble is explained, as well as the failed attempts since June to control the stock collapse and restimulate its real economy. Jack predicts the troubles in the global economy are about to get even worse in coming months.

China vs. the IMF

(This article was published August 19, 2015 by teleSUR Media)
copyright Jack Rasmus 2015

The global economy is slowing, and with it the volume of world trade. In response to the negative effect of the global trade slowdown on its own exports and economic growth, last week China introduced a 2.8% reduction in its currency exchange rate, the Renminbi-Yuan.

The move had immediate repercussions throughout the global economy. Currencies fell. Stock markets retreated broad and deep. Speculation grew whether the US central bank would indeed raise interest rates next month or whether Japan would launch another round of quantitative easing (QE). Not so speculative, however, was the crescendo of complaints and charges against China raised from Washington to London to Tokyo within just hours of China’s currency move.

Especially from the ‘west’, and in particular from US politicians, business press pundits and editorialists, China was castigated for daring to make such a move without a pre-announcement. Long standing threats from the US Congress claiming that China manipulates its currency to the disadvantage of US manufacturers and producers—and therefore should be somehow punished economically— were loudly revived by the circus of US politicians running for office in 2016. ‘How dare it manipulate its currency, in violation of free market principles’ was the indignant collective chant. ‘It should allow the currency to fluctuate according to market forces’, was the general media message. Behind this ideological spin, however, lay the real message: ‘How dare China try to take back our share of the shrinking global trade pie’.

Hypocrisy, Inaccuracy and Ideology

The complaints against China by the US and its key global partners—Europe and Japan—are as hypocritical as they are inaccurate, however.
How inaccurate is revealed by the fact that China has actually allowed its currency to appreciate not depreciate—i.e. allowed it to rise—over the past decade, 2005-2015, making it and China’s exports actually less competitive against the dollar and other currencies.

Here’s some data in support of this point:

China’s currency over the past decade has actually risen, i.e. appreciated in value. From an exchange rate of 8.3 to the US dollar in 2005 it rose to 6.2 to the dollar as of August 10, 2015 (note: A fall in the number represents a ‘rise’ in the exchange rate. Because China’s currency buys fewer dollars, its value has risen). That 6.2 exchange represents an almost 25% ‘rise’ of the Renminbi-Yuan to the dollar. If China has allowed its currency to rise against the dollar over the past decade, it has in effect allowed its exports to become less, not more, competitive in relation to US producers. US manufacturers and exports have been allowed to become more competitive, not less. So where’s the manipulation of its currency at the expense of US producers that US politicians so often complain about? Just the opposite has been happening. Of course, ideological arguments need not be based on fact.

Once the US and UK discontinued their own QE policies by 2013, and thereafter allowed their currencies to drift upward in relation to other currencies, it was the Yen and Euro—not the China Yuan— that depreciated against the US dollar. Japan and European exports thus did gain a competitive advantage against US producers. The US said and did nothing in reply.

In short, the Europeans and Japanese were allowed to do what China was supposed to have done. Did the US complain and castigate Japan and Europe? No. Even though they, Japan and Europe, did what the US complains China did, but actually didn’t.

For example: since 2008 the European currency, the Euro, has depreciated by 18% against the US dollar. Most of that has occurred this past year, after Europe’s introduction of its QE program in early 2015, designed in part to ‘manipulate’ its currency to lower rates compared to the dollar. The US not only did not oppose it. They actually encouraged it. And since Japan introduced its QE in 2013, the Yen has depreciated by 23% to the US dollar. No complaints by the US there either.

So it’s ok for Japan and Europe to do what China hasn’t. Conversely, China is criticized sharply for something it hasn’t done but the Europeans and Japanese have. Such is the world of ideological—in contrast to policy—manipulation.

China has not only not depreciated its currency against the dollar, it has allowed other currencies to depreciate against its currency, the Yuan, by even more than the US has allowed the Euro-Yen to depreciate against its dollar.

For example: since 2013 the Yen has depreciated by no less than 30% to the Yuan, and the Euro by 32%. Other currencies have also been allowed to depreciate similarly against the Yuan since 2013. For example, the Indonesian Rupiah, by 30%. South Korea’s Won by 10%, and so on.
Facing the reality of a shrinking global trade pie and having allowed its own competitive position to decline relative to other currencies, China last week, August 10-14, allowed its currency for the first time in years to ‘adjust’, i.e. to decline—by a whopping 2.8% to the dollar. The Yuan officially fell, from 6.2 to 6.4 to the US dollar. What manipulation! What an affront to the rest of the global trading community!

Of course, a mere 2.8% depreciation is not going to result in China taking back from the Europeans, the Japanese, and even the US producers the share of global exports it allowed them to claim in recent years by their manipulating QE their own currencies by 20% to 30%.

So what then is behind the China move? And what does China’s devaluation have to do with the IMF? Furthermore, why is the US really upset with China’s recent token currency devaluation move last week?

The China-IMF Negotiations

In the days immediately leading up to China’s decision to devaluate its currency last week, confidential negotiations were intensely underway between China and the IMF. The issue was China’s request that the IMF declare the Yuan-Renminbi as a global reserve and trading currency—like the US dollar, UK pound, Euro, and the Yen. After all, China is the second largest economy in the world; the first if one adjusts output to world price differences. Its manufacturing output is as large as the US. And it is the number one trading country in the world. It is therefore quite appropriate—and inevitable—that its currency becomes a reserve trading currency alongside the others.

The IMF refused China’s request in early August. But it left the door open for possible future granting of reserve currency status to the Yuan. The IMF used as its excuse that China needed to allow its currency to fluctuate more according to market forces. So China last week cleverly responded to the IMF’s rejection by adjusting its band to allow market forces to lower its currency’s value.

Technical means by which it did this aside, in simple terms it merely allowed the currency to fluctuate, as it always had, slightly differently within the ‘band’ or range it had always been allowed to change. So, it actually followed the ‘market forces’ to devalue by 2.8%. By adopting a method that relied on market forces, China in effect eliminated the charge by US politicians that it was not allowing market forces to determine its currency’s value, that it was therefore manipulating the market. It achieved a modest devaluation of 2.8% by also satisfying the IMF’s requirement that it let market forces determine its currency exchange rate as a precondition for IMF granting it reserve status. All of which proves, perhaps, that if one is sufficiently clever, even ideological manipulation at times may itself be manipulated.

China, IMF and Economic Power

Behind the IMF’s decision to refuse China’s currency reserve status is US commitment to protect its hegemonic role in the global economy. The US is opposed to allowing China’s currency reserve status and it is the US, with its allies, who control the majority votes in the IMF and determines what decisions it makes. That US control was ‘baked into’ the IMF at its creation in 1944. Together with its key allies in the IMF (UK, Japan, Germany, France, Canada) the US retains a very safe ‘control’ of the IMF’s majority voting rights and thus its decision making. The IMF’s director, Christina LaGarde, is employed at their pleasure. So the IMF does whatever the US voting bloc tells it to do. It’s not by accident the IMF was and remains located in Washington D.C.

The US has thus far been opposed for several reasons.

The Yuan as an official global trading currency would grant China yet another big ‘win’ in terms of growing global economic influence. China recently pulled off a major ‘economic coup’ earlier this year with the launch of its Asian Infrastructure Investment Bank (AIIB) that caught the US by surprise.

The AIIB represents a direct institutional challenge to the sister institution of the IMF, the World Bank, that was also created in 1944. Both have functioned as key vehicles of US economic global hegemony in numerous ways since 1944. China’s launch of the AIIB—which many US allies participating in the World Bank-IMF also quickly joined contrary to US requests at the time—in effect set up a challenge to the World Bank-US dominance.

Having suffered a major loss with the AIIB v. World Bank affair just months ago, the US and key allies don’t want China to have more influence within the IMF as well. And to have granted reserve status to China’s currency last week might have jeopardized US current efforts to quickly close the Trans Pacific Partnership (TPP) free trade deal now in sensitive, final negotiations. It would certainly have encouraged the Asian region’s potential TPP members to demand more last minute concessions from the US.

China has made a number of significant gains in influence in the global economy in recent years. It has provided significant loans and capital to African economies. It has begun penetrating Europe with financial assistance and investments, in the Euro periphery as well as to UK infrastructure and commercial real estate. It is now one of Germany’s major trading partners. China launched the BRICS group, a BRICS bank, and has initiated non-dollar trading between the BRICS economies—i.e. a long run threat to US dollar reserve and trading dominance. China also recently closed a 10 year $40 billion energy trade deal with Russia, just as the US was attempting to tighten sanctions on the latter. It has plans to establish an overland ‘Silk Road’ rail link directly to Europe, one of the largest global infrastructure projects in decades. All these developments, when combined, represent a rising economic challenge to US global economic hegemony.

So, within just months from China’s big ‘win’ in the launch of the Asian Infrastructure Investment Bank, the AIIB, there was no way the US was going to allow the IMF to grant reserve status to China’s currency. At least not yet. The US is not about to allow the IMF to simply ‘give away’ another economic benefit in the form of reserve currency status to China. It will demand something in return from China of equivalent importance to the US. Time will tell what that is. In the meantime, the US can’t keep China at bay and its currency from achieving reserve trading status forever. To do so would encourage China to try to form yet another competitive global institution—next time as a direct alternative to the IMF itself. And it may come to that. That’s perhaps why the IMF has left the door still open to further negotiations.

Jack Rasmus is the author of the forthcoming books ‘Systemic Fragility in the Global Economy’ by Clarity Press, September 2015, and ‘The Rape of Greece and the New Financial Imperialism’, by Clarity Press, October 2015. He blogs at jackrasmus.com and his website is http://www.kyklosproductions.com.

Listen to the follow up Alternative Visions radio show by Dr. Jack Rasmus on 8-8-15 on the topic of the state of the global financial economy, from China to Europe and beyond, at:


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Jack Rasmus follows up the previous show on the global economy with an assessment of financial instability that appears to be growing globally as well. Jack briefly discusses how excess debt and income decline and stagnation basically cause financial instability, and explains how the new 200,000 or so global finance capital elite continue to create financial asset bubbles worldwide and how those bubbles appear to be converging. Financial bubbles that appear most unstable include China’s stock markets (Shanghai and Schenzhen), but also global oil and commodity futures, emerging market equity and bond markets, US and global bond ETFs sold by mutual funds, the US and Euro corporate junk bond markets, tech stocks, Eurozone banks, and currency exchange markets that are becoming much more volatile. Also noted are potential serious secondary effects of a lack of liquidity in bond markets in general and effects on US repo markets in turn. The show concludes with a in-depth look at causes behind the current China stock market collapse which, Jack argues, has yet to run its full course and could destabilize financial markets worldwide in the near future. The role of China government policies in causing a runup of 120% in China stocks in just one year is explained, as well as government measures introduced since June 12 of this year to stop the stock slide.

The following podcast, ‘Is the Global Economy Recovery or Slowing?, is my Alternative Visions radio show presentation of July 25. It may be downloaded from the Progressive Radio Network at the following urls:





To read the public and business press, it appears the US economy is about to accelerate, the Federal Reserve will soon raise interest rates, unemployment is at pre-recession lows, wages are about to rise, housing is recovering. Meanwhile, Europe is growing again now that the Greek crisis is resolved; China has stabilized its stock marke;, and the rest of the world is on a recovery path. But this public spin to the current US and global economic scene does not conform to reality. Jack Rasmus takes listeners on an ‘economic tour’ of the realities in the US and global real economy, where the US continues on a sub-par ‘stop go’ recovery, where China is really growing at 4-5% GDP, not the announced 7%, where China’s stock market collapse, begun in June, has only paused before another turn lower, where Europe QE is failing to generate a sustainable recovery and the ‘Greek Crisis’ is far from over, where Japan’s real economy has stalled (again for the fifth time since 2008), and where emerging markets from Indonesia to Brazil to Turkey are slowing and slipping into recessions. The global oil deflation is entering another decline, global commodities prices and sales are falling further, currency instability is rising, and money capital is flowing back to the US from everywhere, raising rates in the US and slowing economies elsewhere as the US dollar rises. (Next week: ‘Is the Global Economy Heading for Another Financial Crisis?

With Greece having agreed late last week to virtually all the Euro finance ministers’ prior demands for concessions, Euro ministers meeting in Brussels over the weekend, July 11-12, were expected to focus on discussing the terms for Greece’s debt restructuring in exchange for the latest Greek concessions. That is what Greek negotiators apparently expected—i.e. before the ministers’ hardline German-led faction raised further demands on Greece and ‘moved the negotiating goalposts’ yet again, to use a sports analogy, by proposing even more onerous requirements for a deal at Saturday’s July 11 finance ministers meeting.

On July 11 with Euro finance ministers arguing ‘violently’ with each other, according to the business press, the ministers meeting broke up. A tentative plan for Euro Union government heads to meet on Sunday to endorse a deal was cancelled. But that was followed by another last minute intervention by the French late Sunday, July 12, and French president, Holland, German Chancellor, Angela Merkel, and Greek prime minister, Alexis Tsipras, worked out another compromise to the hardline German plan in the early hours of July 13. That compromise adopted much of the German hardliners proposals, except for the demand that Greece exit the Eurozone for a temporary five year period.

As the negotiating dust cleared Monday morning, July 13, here’s what appears to have happened over the weekend, leading to the tentative agreement between the Troika and Greece’s negotiators. The deal must now be approved by Greece’s parliament by Wednesday, followed by the other Eurozone parliaments by the weekend.

Greece’s Concessions

Just prior to last weekend’s negotiations, Greece conceded on July 9 to virtually all the Troika’s prior demands to continue austerity, in the apparent expectation of achieving some kind of debt relief and restructuring from the Troika in return. Greece moved off nearly all its prior major positions with regard to concessions and agreed to Troika demands for increases in the sales (VAT) tax. It accepted all the Troika’s demands concerning the VAT, including no discounts or breaks for services or the tourist dependent Greek Islands. Greece also dropped its proposal to implement a 12% business tax on medium and large businesses, again in agreement with the Troika position. It agreed to pension cuts demanded by the Troika, the implementation of labor market reforms, and a broader and faster privatization and sales of Greek economic assets to private buyers—again demanded by the Troika. Greece’s position on concessions and austerity is now essentially the Troika’s. It had hoped by agreeing to such concessions, it would open the way to negotiations on restructuring its debt and some kind of debt relief. No such luck.

The Tsipras concessions of last week, which were offered to the finance ministers before they met this past weekend, were apparently worked out behind the scenes between Greek prime minister and the French government. This unofficial joint Greek-French offer to the ministers was supposed to pave the way to a quick agreement at the ministers’ Saturday meeting this past weekend, by agreeing to continue Greek austerity in exchange for some token debt restructuring while allowing Greece to stay in the Eurozone. But it didn’t.

The hardliners’ faction among the ministers at the Saturday ministers meeting then moved to scuttle that French-Greek deal, in what was reportedly an acrimonious nine hour long debate in Brussels. Led by Germany’s Wolfgang Schaubel—with his Baltic, Finnish, and east European allies whose economies are dependent on Germany financial assistance themselves closely in tow—the hardliners intensified their demands over the weekend. Schaubel and friends shifted the debate from ‘concessions for substantial debt restructuring‘ to ‘more concessions plus debt pre-payment or else Grexit’. In other words, the German-led faction raised new even more onerous demands on the Greeks. Demands so insulting the Greeks would have no alternative but to Grexit perhaps—that is, a final solution that Schaubel and the hardliners have always wanted as far back as 2012.

Schaubel’s ‘New Demands’

What were the hardliners new terms? First, they demanded there be no new loans for Greece. And no debt forgiveness as part of any restructuring deal. Greece’s request for some debt forgiveness and new loans in exchange for all the concessions was rejected outright—a position even to the ‘right’ of the IMF’s of a week ago where it was acknowledged some kind of adjustment of debt levels was needed. What the hardliners only ‘suggested’ (i.e. did not even officially propose) in Schaubel’s ‘internal document’ released only to the finance ministers was maybe, only maybe, the term of the current debt might be extended, from 20 and 30 years to 40 years.

Second, the Schaubel document demanded new provisions to ensure Greek debt payments in the future will be on time. In what is one of the most ironic statements to come out of the last four months negotiations, the hardliners insisted that ‘Greece could not be trusted’ to make its payments even if a deal were signed. Therefore, the German led faction demanded that a special Trust Fund be set up for Greece. Greece would ‘deposit’ $55 billion worth of Greek assets in the fund. (Read: virtually all its public goods, utilities, airports, ports, parks, enterprises, etc.). Debt payments would be made from the sale of those assets. (Read: the fund’s managers would sell the assets at whatever below market price to whatever Euro investors they decided. The Eurocrats would approve the checks). Greeks would no longer determine what would be ‘privatized’ or sold off to whom, when, or at what price; the Eurocrats would do that. Public assets would be sold no doubt at ‘firesale’ prices to big banker and investor friends elsewhere in the Eurozone. What that all amounts to is ‘privatization on steroids’.

In other words, in a move more akin to 17th century conquistadores confiscating Incan and Aztec gold, the economic raping of Greece would shift to an even higher level than it has since 2010 and 2012. And the Greek parliament’s independence on economic matters and policy would thus be severely limited. Not only would Greek economic assets be seized, ‘stripped’ and sold off as they decided, but so would Greek sovereignty and democracy be shredded. It all looks somewhat like the Euro-IMF solution for Ukraine, where in exchange for more debt the Euro and US bankers have been put in direct control of day to day management of the economy there. Is some kind of new form of Neoliberal colonialism thus emerging, one wonders?

Third, and still more onerous, was the Schaubel document’s proposal that Greece ‘temporarily’ exit the Eurozone for a period of five years, after which time it could petition for its re-entry. In other words, the latest deal offered the Greeks is: agree to all our demands, implement all the concessions now, turn over all your assets to us to sell, then we’ll talk about debt terms. And if you don’t like it, you are suspended by our ‘Euro School’; you can leave for five years and think about it.

‘Temporary’ here is just a tactical ploy by the Schaubel faction. There’s no such thing as a temporary exit. Should Greece leave the Euro and then its economy does better, why would it ever consider going back to the Euro? And if it left, and it did worse, why would the Euro ministers, Germans in particular, want to accept back after five years a country and economy even worse than it is today? Schaubel and friends know this full well. ‘Temporary’ is just a sop to public opinion and a way around Eurozone’s own rules to make it look like the Eurozone is not throwing Greece out.

Merkel Chooses German Politics

The apparent strategy of the Greek-French crafted deal last week was to enlist the ‘soft’ liners among the Euro finance ministers to join France and Greece. As a group together they would then appeal to German leader, Angela Merkel, to join them in preventing the breakup of the Eurozone. Merkel was thus maneuvered by Schaubel and company into a lose-lose situation, caught between the Schaubel faction and German public opinion, on the one hand, and the French compromise proposal and Euro unity on the other. Which way she might ‘fall’ in terms of throwing her support was last week’s strategic question. But no longer.

Following the Saturday, July 11, ministers meeting, Merkel came down on the side of Schaubel and German public opinion, which has been whipped up in recent weeks and months by the hardliners and their media friends in a move designed to make it impossible in terms of German domestic politics to oppose any change in the Greek debt structure. Merkel reportedly agreed, therefore, that the Greeks must legislate and implement all the hardliner ministers concessions within 72 hours. Only then might the Troika agree to start negotiations on debt restructuring.

By supporting the Schauble demands, Merkel bought into the idea that Greeks should give up any little leverage in negotiations they might still have left, and then the Troika will talk about debt. It’s like saying in labor contract negotiations: ‘end your strike, agree to our concessions, come back to work, sign the agreement on our terms, and maybe then we’ll visit the topic of a wage increase.’ Merkel now has clearly come down on the side of German politics at the cost of Euro unity.

By Sunday, July 12, Schaubel and company appeared to have prevailed within the finance ministers group, as well as within German domestic politics. The new Troika proposals appeared so onerous that Greece could not agree to anything but Grexit; that is, what Schaubel and friends have always wanted. The more interesting question is why?

Why Hardliners Prefer Grexit

It is a known fact that Schaubel and the ‘right wing’ of Euro bankers and ministers have wanted to eject Greece from the Euro since 2012. In that prior debt restructuring deal, private bankers and investors were ‘paid off’ and exited the Greek debt by means of loans made by the Troika, which were then imposed on Greece to pay. 2012 was a banker-investor bailout, not a Greece bailout. What was left was debt mostly owed by Greece to the Troika, more than $300 billion. Greece’s small economy of barely $180 billion GDP annually can never pay off that debt. Even if Greece grew at 4% GDP a year, an impossibility given that Europe and even Germany have been growing at barely 1% in recent years, and even if Greece dedicated all its surplus GDP to paying the debt, it would take close to a half century for Greece to pay off all its current debt.

Schaubel and the northern Europe bankers know this. In 2012, in the midst of a second Eurozone recession and financial instability, it was far more risky to the Euro banker system to cut Greece loose. Today they believe, however, that the Eurozone is stronger economically and more stable financially. They believe, given the European Central Bank’s $1.2 trillion QE slush fund, that contagion effects from a Greek exit can be limited. Supporters of this view argue that Greece’s economy is only 1.2% of the larger Eurozone’s.

What they don’t understand, apparently, is that size of GDP is irrelevant to contagion. They forget that the Lehman Brothers bank in 2008 in the US represented a miniscule percent of US GDP, and we know what happened. Quantitative references are meaningless when the crux of financial instability always has to do with unpredictable psychological preferences of investors, who have a strong proclivity to take their money and run after they have made a pile of it—which has been the case since 2009. Investors globally will likely run for cover like lemmings if they believe as a group that the global financial system has turned south financially—given the problems growing in China, with oil prices now falling again, with commodity prices in decline once more, with Japan’s QE a complete failure, and with the US economy clearly slowing and the US central bank moves closer to raising interest rates. Greece may contribute to that psychological ‘tipping point’ as events converge.

But there’s another, perhaps even more profitable reason for hardliners and Euro bankers wanting to push Greece out. And that’s the now apparent failure of Eurozone QE (quantitative easing) policies of the European Central Bank to generate Eurozone stock and asset price appreciation investors have been demanding.

Unlike in the US and UK 2009-2014 QE policies that more than doubled stock prices and investors’ capital gains, the ECB’s QE has not led to a stock boom. Like Japan recently, the Eurozone’s stock boom has quickly dissipated. The perception is that stock stimulus from the Eurozone’s QE, introduced six months ago, is perhaps being held back by the Greek negotiations. Euro bankers and investors increasingly believe that by cutting Greece loose (and limiting the contagion effects with QE and more statements of ‘whatever it takes’ by central banker, Mario Draghi) that Grexit might actually lead to a real surge in Euro stock markets. Thus, throwing Greece away might lead to investors making bigger financial profits. In other words, there’s big money to be made on the private side by pushing Greece out.

The Holland-Merkel July 13 Deal

With France and ministers from Italy, Austria and a few others not wanting to face the prospect of even a potential Euro crisis, political and economic, a last-ditch effort to forge another compromise was made early into them morning of Monday, July 13. The deal basically called for the Schaubel proposals, minus the temporary Grexit suggestion. All the Troika’s original ‘Plan A’ concessions on the table for the past four months were raised again, plus additional onerous demands, including the $50 billion ‘Privatization Trust Fund’ idea of the hardliners. $25 billion of the fund would be earmarked to refloat the Greek banks. Another $23 billion to pay for past debt. And $2 billion left for Greece to spend. Reportedly the Greek banks were exposed to billions of derivatives financial products issued by Euro banks. If the Greek banks failed, so too might other Euro banks in a development similar to the Lehman Brothers-AIG collapses at the core of the US crisis in 2008. But the Greek people would now have to bail out the Greek banks, in order to prevent the crisis spreading to the Euro banks.

It is quite possible that even the $25 billion will not be sufficient. Although not publicly reported, it is still possible that the bank bailout may look like the EU imposed bailout of Cyprus banks a few years ago. In that affair, average depositors savings in those banks were ‘bailed in’, as they say. Their cash savings were converted in part to buy stock in the failing bank. That is still a possibility for Greece. But no mention will be made of that before all the Parliaments vote on the proposed latest settlement.

All other prior Troika concession demands, and hardliners’ additional concessions demanded on July 11, were included in the latest deal—i.e. pension cuts, public jobs, labor market reforms, sales tax hikes, defense spending, and so on. In addition, the Greek parliament had 72 hours to legislate it all or no deal.

Greece as Eurozone’s ‘Economic Protectorate’

That settlement, should the Greek parliament vote to approve, will result in Greece not only losing control of its currency and monetary policy, as it did by joining the Eurozone. It will mean another deep loss of economic and political sovereignty. Like the terms of a treaty, the parliament will not be able to legislate changes later. The Privatization Trust Fund will remain in control of Eurozone bureaucrats who will oversee the management of the fund, make its decisions, and sign its checks.

Greece will have become a new form of economic protectorate under the ultimate economic control of Eurozone technocrats of the Troika. It will become something similar to US protectorates in the Pacific islands. Or like Japan immediately after the second world war. Or like native American nations on reservations in the US today.

Jack Rasmus is the author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, by Clarity Press, September 2015, and the subsequent book later this year, ‘Europe’s Greek Tragedy’, also by Clarity Press. His blog is jackrasmus.com and website, http://www.kyklosproductions.com.


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