Greece: the bail-out troika tries to kill a dead man
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By Richard Cottrell Contributing writer for End the Lie The famous troika who is responsible for restoring the health of the Greek economy reminds me of a group of mad doctors trying to revive a dead man with a sledgehammer. Take Jean-Claude Junker, the Luxembourg pocket state prime minister and chairman of the so-called Euro Group which is responsible for supervising the policies of the eurozone. It is clear that he does not dwell in the real world along with the rest of us. This is why he says that it may now be necessary to organize a third bail-out for Greece, although no-one is precisely clear as to what happened to the first, let alone when the second is supposed to be finally in place. Junker knows perfectly well that so far as the eurozone is concerned, Greece is a lost cause. She will in the end default entirely, which was evidenced by last week’s sudden downgrade of the nation's credit rating. Overnight this prevented the country’s banks from borrowing against Greek government bonds. This was in turn provoked by the 53% haircut imposed on private holders of Greek debt by the Greek government. The markets reacted badly, so the European Central Bank turned to the stop tap and halted the flow of cash in the form of borrowing capacity. The rating agencies regard this is as a selective default. In all likelihood it is a prelude to the full default which is parked like a huge boulder, just out of sight around the next hair pin bend. Commissar Junker knows this perfectly well, so he now conjures up the mystical vision of a 3 rd bail-out to prevent a full scale default. And after that bail outs numbers 4, 5 and 6 ad infinitum. The downgrade threw the whole Greek banking sector in a tail spin, causing the Bank of Greece to intervene with the necessary liquidity to keep the financial system functioning on a short term basis. Think of this as a blood transfusion applied to a patient who is continuing to suffer a massive on-going hemorrhage. In other words, it is absolutely pointless. In one end, and out the other. This says very bad things about the fiscal health of Greek banks, although of course we should have expected nothing less. But now read this. The European Central Bank – which is a member of the troika – actually provoked the latest crisis by temporarily suspending the eligibility of Greek bonds for use as collateral in its funding operations. Is Junker on speaking terms with Signor Mario Draghi, the ECB’s chairman? How are we to logically understand why the ECB whisked the lifeline away just when the Greeks – and the wretched bail-out gang, including themselves – most needed it? This is Alice in Wonderland economics, a never-ending Mad Hatter’s tea party. The answer is concealed in the interesting use of the phrase ‘disorderly default’ in an interview that Junker gave to Al Jazeera on Tuesday this week. At all costs, he said, this had to be prevented. So the alternative is an ‘orderly default’? Right on, that’s where Greece is heading. The ECB is increasingly reluctant to throw bad money after bad, and Draghi wants Greece to default so that he can sleep at night. So does Junker, when he is not talking to Al Jazeera. The stumbling block is the German chancellor, Angela Merkel, who thinks that a Greek default would wreck the eurozone and thus prevent future Germans from raising statues to her greatness and glory. She is incapable of understanding that a Greek default would be the best thing that could happen to the Euro Zone. Strangely enough it would make defaults by other dodgy economies such as Portugal, Ireland, Italy, Belgium and Spain somewhat less likely, although there may be a big question mark concerning Spain’s ability to overcome her current massive economic problems. Spain is one badly sick country. I am really rather tired of journalese shorthand lecturing ‘Greece’ to do one thing or another. Greece is a place where Greeks live. The personality of Greece is not represented by the self-serving political classes or the one-percenters who cling to some misplaced idea of belonging by right to the big boys’ club. Greece belongs to the Greek people and their voice is being heard, loud and clear. To hell with the ‘troika,’ the EU and Wall Street. Let us never forget that Wall street firms like Goldman Sachs cooked the books back in 2000 in order to push Greece into the eurozone, or that Lukas Papademos, who is now the EU-nominated gaulieter, was himself a key member of the negotiating team, and thus knew exactly what was going on. If he didn’t then he has no right to call himself an economist. The Greek economy is rapidly sliding into suspended animation. The Purchasing Managers’ Index fell to a record low of 37.7 points in February, a figure unseen since PMI records first started up in 1999. Purchasing activity also fell at a faster rate than any previously recorded. Companies cannot extract money from banks, so investment has dried up which of course provokes further job losses on top of those which were cut already. The PMI index measures business activity in the manufacturing sector. Readings above 50 indicate an expanding sector while readings below 50 demonstrate that it is rapidly shrinking. At this rate of fall, where is the bottom? Zero? We are in uncharted territory. Cuts in production output and the disappearance of new orders have never been as severe in the thirteen years that the annual report has been complied. On the consumption side, sales of all goods saw a dramatic drop as well, both in the domestic and foreign markets, while new export orders fell for the sixth month in a row, at the fastest rate recorded since May 2010. The rate of fall will accelerate because if supply and demand both decline at the same time, then eventually the given economy will collapse altogether. To add to this Pandora’s Box of woes, shorter working hours served to further reduce output, even where demand existed, while job losses across the market were the highest recorded since March 2009. To round things off, supply inventories also dropped significantly in February. If Greece were simply regarded as laboratory experiment, then we should find that the results confirm the analysis of John Kenneth Galbraith in his famous book The Affluent Society back in 1958. He was thinking about the great pre-war depression when he wrote that if both production and employment are racing to the bottom, then investment stalls and so does consumer demand, both domestic and corporate. I don’t imagine for a moment that Galbraith ever entertained the bizarre notion that anyone would seek to enforce this kind of monetary madness deliberately. Of course the very mention of his name is anathema to Austrian School monetary fiscal policy wonks like Mario Monti in Italy and Papademos in Greece. These eggheads, utterly out of touch with reality, have been given permission to run an economy in the same way that they scratch theoretical models on the blackboard. What they are doing is breaking the oldest and simplest law of economic thinking, namely, that by imposing direct controls on labor, output, demand, investment and production you put the good old market out of business altogether. This was a chain of analysis that connected such diverse economic thinkers as Karl Marx, J.K. Galbraith, John Maynard Keynes, and even Friedrich August Hayek, who is generally regarded as a hitch-hiker with the Austrian School. What you can count on in return is a command economy, just like that of the Soviet Union and Germany under Adolf Hitler. No country where such a monetary policy has been applied (Argentina, Chile, Thatcher’s UK in the early 1980s, the whole of Eastern Europe post the fall of communism) has emerged unscathed. Greece will be no exception. I have been writing on End the Lie that the EU is in headlong pursuit of centralized monetary policy which will resurrect the Soviet – or Mussolinist – state corporatist model. If proof is needed, just look at the scorched earth policy inflicted on Greece. The Greek people are being looted to pay back money borrowed by corrupt Greek politicians from Wall Street and EU banks. The price that they must pay is the progressive destruction of their standard of living, their jobs, and the abandonment of social safety nets, health services and education. Then we have the likes of Führerina Merkel lecturing the Greeks that they ‘must do better,’ ‘swallow the medicine’ and so forth. What should they do next Frau Merkel? Roll over and die in the streets? The last count in November 2011 assessed unemployment at a smidgeon under 21%, the highest in modern recorded Greek history. The previous record was 12.4% in 1999. Remember this is a small, compact country of with10.7 million inhabitants. Once juveniles, retirees and those on permanent stipends like the military, police and so forth are stripped out, then ‘real unemployment�