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^ People in South America seen that movie before. That's why I was saying that Greece should've exited then.
While the fund’s actions were understandable in the white heat of the crisis, the harsh truth is that the bailout sacrificed Greece in a “holding action” to save the euro and north European banks. Greece endured the traditional IMF shock of austerity, without the offsetting IMF cure of debt relief and devaluation to restore viability.
A sub-report on the Greek saga said the country was forced to go through a staggering squeeze, equal to 11pc of GDP over the first three years. This set off a self-feeding downward spiral. The worse it became, the more Greece was forced to cut – what ex-finance minister Yanis Varoufakis called "fiscal water-boarding".
“The automatic stabilisers were not allowed to operate, thus aggravating the pro-cyclicality of the fiscal policy, which exacerbated the contraction,” said the report.
The attempt to force through an "internal devaluation" of 20pc to 30pc by means of deflationary wage cuts was self-defeating since it necessarily shrank the economic base and sent the debt trajectory spiralling upwards. “A fundamental problem was the inconsistency between attempting to regain price compe iveness and simultaneously trying to reduce the debt to nominal GDP ratio,” it said.
The IMF thought the fiscal multiplier was 0.5 when it may in reality have been five times as high, given the fragility of the Greek system. The result is that nominal GDP ended 25pc lower than the IMF’s projections, and unemployment soared to 25pc instead of 15pc as expected. “The magnitude of Greece’s growth forecast errors looks extraordinary,” it said.
^ People in South America seen that movie before. That's why I was saying that Greece should've exited then.
http://michael-hudson.com/2016/10/re...-chalice-2016/Galbraith expressed his “epiphany” already in 2010 that a “market-based” solution was a euphemism for anti-labor austerity and a reversal of political democracy. “In a successful financial system, there must be a state larger than any market. That state must have monetary control – as the Federal Reserve does, without question, in the Untied States.” That was what many Europeans a generation ago expected – for the EU to sponsor a mixed public/private economy in the progressive 20th-century tradition. But instead of an emerging “European superstate” run by elected representatives empowered to promote economic recovery and growth by writing down debts in order to revive employment, the Eurozone is being run by the troika on behalf of bondholders and banks. ECB and EU technocrats are serving these creditor interests, not those of the increasingly indebted population, business and governments. The only real integration has been financial, empowering the ECB to override national sovereignty to dictate public spending and tax policy. And what they dictate is austerity and economic shrinkage.
In addition to a writeoff of bad debts, an expansionary fiscal policy is needed to save the eurozone from becoming a dead zone. But the EU has no unified tax policy, and money creation to finance deficit spending is blocked by lack of a central bank to monetize government deficits under control of elected officials. Europe’s central bank does not finance deficit spending to revive employment and economic growth.
“Europe has devoted enormous effort to create a ‘single market’ without enlarging any state, and while pretending that the Central Bank cannot provide new money to the system.” Without monetizing deficits, budgets must be cut and the public domain sold off, with banks and bondholders in charge of resource allocation.
As long as “the market” means keeping the high debt overhead in place, the economy will be sacrificed to creditors. Their debt claims will dominate the market and, under EU and ECB rules, will also dominate the state instead of the state controlling the financial system or even tax policy.
On the surface, the troika’s “solution” – paying creditors by bleeding the economy – seems obviously self-defeating. But this seeming failure appears to be their actual aim: foreclosure on the assets of the indebted economy’s public sector under the banner of its version of R2P: Responsibility to Privatize. For Greece this means its ports, islands and tourist centers, electricity and other public utilities.
The ECB and IMF accelerated Greece’s economic collapse by demanding a rise in the VAT from 23 percent, making tourism in the islands more expensive. “The plain object of the creditors’ program is therefore not reform,” Galbraith points out. Instead of helping the economy compete, “Pension cuts, wage cuts, tax increases, and fire sales are offered up on the magical thought that the economy will recover despite the burden of higher taxes, lower purchasing power, and external repatriation of profits from privatization.” Privatized public utilities are turned into “cash cows” to enable buyers to extract monopoly rents, increasing the economy’s cost of living and doing business.
The IMF, ECB and EU bureaucracy have acted together to collect the bad debt left over from their reckless 2010 bailout of French, German, Dutch and other bondholders. In behavior reminiscent of Allied demands for unpayably high German reparations in the 1920s, their demands for payment are based on predatory junk economic theory claiming that foreign debt of any magnitude can be paid by imposing deep enough austerity and privatization sell-offs.
The euro’s creation can best be viewed as a legalistic coup d’état to replace national parliaments with a coterie of financial managers acting on behalf of creditors, drawn largely from the ranks of investment bankers. Tax policy, regulatory and pension policies are assigned to these unelected central planners. Empowered to override sovereign self-determination and national referendums on economic and social policy, their policy prescription is to impose austerity and force privatization selloffs that are basically foreclosures on indebted economies. Galbraith rightly calls this financial colonialism.
If European Left does not succeed in creating an alternative to eurozone austerity, right-wing nationalists will lead a withdrawal campaign.
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