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Jul 5, 2015

Michael Hudson — On the Delphi Declaration


Many readers of the European and American press must be confused about what actually is happening in the negotiations between Greece (Alexis Tsipras and Yannis Varoufakis). The European Troika (the IMF, European Central Bank and European Council now object to the name and want to be called simply “the Institutions”) have stepped up their demands on Syriza. What is called “negotiation” is in reality a demand for total surrender. The Troika’s demand is to force Syriza to go back on the campaign promises that it made to voters who replaced the old right-wing Pasok (“socialist”) and Conservative New Democracy coalition, or else simply apply the austerity program to which that coalition had agreed:cutbacks in pensions, deeper austerity, more privatization selloffs, and a tax shift off business onto labor. In short, economic suicide. 
Last weekend a group of us met in Delphi to discuss and draft the following Declaration of Support for Greece against the neoliberal Institutions. It is now clear that finance is the new mode of warfare. The creditors’ objective is the same as military conquest: they want the land, the natural resource rights and monopolies, and they want tribute (in this case, debt service). And they don’t want sovereign Greece to tax the economic rent from these assets. In short, the negotiation between The Institutions and Greece is a bold exercise in rent extraction....
Counterpunch
On the Delphi Declaration Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, and Distinguished Research Professor of Economics at the University of Missouri, Kansas City

Martin Armstrong: "Their delusion of one government will end war in Europe is fostering the very premise they claim to be trying to eliminate"




To all the Greeks sending emails my criticism of your government is they lack any understanding of who their opponent really is. This is World War III with a pen, but they are trying to amass a European Army so they can police the people of all member states.

The Greek government’s mistake was assuming they could negotiate with people who were trying to take over Europe. They were out of their league. The only way Greece could have proceeded was to immediately announce that they were suspending payments on all debt. Only then could they have achieved the upper hand. As long as Greece accepts handouts, they should count their fingers after shaking hands. This has turned into precisely what Margaret Thatcher warned about and why she kept Britain out of the Euro. You are dealing with a political drug dealer who hopes you will surrender everything to get the next fix and become dependent upon Brussels. Their delusion of one government will end war in Europe is fostering the very premise they claim to be trying to eliminate.

The new government should have immediately printed drachma. That would have sent a signal to Brussels play fair or cry at the foot of your bed for your dream of European domination ends here. Greece would have seen their own people return by truly reforming government and the way it interacts with society would have set the example that Democracy just perhaps can rise from the ashes.

Metapolitefsi!





By Vassilis Paipais

greek-debt[1]
Since almost the outbreak of the Greek debt crisis in 2009, speculation began as to whether this would be a turning point announcing the end of one of the longest periods of peace, stability and democratic normality Greece ever witnessed in its near 200 years history; a period that goes by the name ‘Metapolitefsi’ (regime change). The latter term designates the period from the restoration of democracy in the summer of 1974 until…well, it seems that until now we were not sure of its end date. However, in all probability we now know -to paraphrase John Lewis Gaddis- that we are experiencing the death of a regime that promised to deliver a great deal but eventually led to Greece’s ruin and appears likely to go down in infamy, disgrace and national humiliation.
 
Things did not look so gloomy in the summer of 1974 when Constantinos Karamanlis arrived in Athens’ airport invited by the military junta in a desperate effort to avert a looming national disaster. The tragedy eventually did happen: one third of Cyprus succumbed to the Turkish invasion, with Karamanlis being unable to do much about it. The period that was inaugurated by the voting of a new constitution in 1975 marked the beginning of a new era and a new ethos in Greek politics. The Greek Communist Party (KKE) was legalised, Greek political exiles were able to return and the country set out to restore political unity, re-establish democratic rule, and heal its wounds. Despite the favourable omens, however, the new regime established by Karamanlis, suffered from constitutive deficiencies that undermined its long-term prospects and its ability to progress into a mature democracy with strong institutions, healthy fiscal practices and consensual political culture. Karamanlis himself recognising the polarised nature of Greek politics and the deeply-ingrained populist sentiment of self-victimisation pervading Greek society adopted a bifurcated strategy that revealed both his vision as well as his political Machiavellianism. On the one hand, he went to great lengths to secure the country’s accession to the EU in 1979. To his mind, that would ensure both democratic stability and political legitimacy for the new regime, not to mention the prospects of economic prosperity and geopolitical security that the entry to the EU promised. At the same time, however, mindful of the dynamics of Greek politics and the lack of a mature political culture, he did not refrain from the old die-hard populist practices that would become endemic in Greek politics in the years to follow. In an effort to secure absolute control on the country’s politico-economic establishment and avert the rise of populist Pasok, he nationalised Greek public service companies and inaugurated the habit of hiring party members or party favourites in sensitive public sector positions. The seeds of what would become the scourge of Greek political life, clientelism, cronyism and petty-party politics, were quite early sown.

Andreas Papandreou, a phenomenal demagogue and charismatic popular leader, had only to take advantage of those structures already in place to impose the first fully populist regime in Greece that openly operated on the basis of extreme party polarisation, vindictive rhetoric and open favouritism. Papandreou took advantage of the abundance of free-floating sovereign investment funds in the ‘80s (mostly pouring out of a stagflating Japanese economy) to introduce a rentier state-sponsored economy that thrived on parasitism and a cartel-run domestic market. At the same time the flux of EU money and the almost total absence of effective EU monitoring allowed the creation of an army of rentiers, cronies, praetorians and oligarchs of the new populist regime that almost threatened the Greek economy with a spectacular bankruptcy in the beginning of the ‘90s. In the meantime, the country’s constitutional situation was deteriorating as the 1985 constitutional amendment removed any checks and balances and granted almost untrammelled power to the ruling majority and practically to a close circle of party aids and magnets around the prime minister (the trivialisation of the constitution culminated in the 2000 amendment). The anaemic and half-hearted efforts by the following governments, including Papandreou’s second administration (1993-96), to save the day through emergency austerity measures only perpetuated the deadlocks and veiled the embeddedness and widespread appeal the culture of populism enjoyed in Greece post-1980s.

In fact, as a result of the rising living standards financed by foreign loans and perennial fiscal deficits, rentocratic populism infiltrated all the strata of the Greek political system across the spectrum rising to the status of political and fiscal orthodoxy representing, in a perverse Orwellian twist, the hallmark of progressive politics (!).

The Greek Bluff In All Its Glory: Presenting The Grexit "Falling Dominoes"

From ZeroHedge,

Earlier today, Yanis Varoufakis reiterated his core thesis driving the entire Greek approach from day 1 of its negotiations with the Eurogroup: "Europe [stands] to lose as much as Athens if the country is forced from the euro after a referendum on Sunday on bailout terms."
This is merely a recap of what we said 4 years ago when in July of 2011 we explained "How Euro Bailout #2 Could Cost Up To 56% Of German GDP", recall:
the bottom line is that for an enlarged EFSF (which is what its blank check expansion today provided) to be effective, it will need to cover Italy and Belgium. As AB says, "its firepower would have to rise to €1.45trn backed by a total of €1.7trn guarantees." And here is where the whole premise breaks down, if not from a financial standpoint, then certainly from a political one: "As the guarantees of the periphery including Italy are worthless, the Guarantee Germany would have to provide rises to €790bn or 32% of GDP." That's right: by not monetizing European debt on its books, the ECB has effectively left Germany holding the bag to the entire European bailout via the blank check SPV. The cost if things go wrong: a third of the country economic output, and the worst case scenario: a depression the likes of which Germany has not seen since the 1920-30s. Oh, and if France gets downgraded, Germany's pro rata share of funding the EFSF jumps to a mindboggling €1.385 trillion, or 56% of German GDP!
Several years later, in anticipation of precisely the predicament Europe finds itself today, the ECB did begin to monetize European debt, which has since become the biggest European risk-shock absorber of all, and the one which the ECB is literally betting the bank on: just count the number of times the ECB has sworn it has the tools and can offset any Greek risk contagion simply by buying bonds.
Unfortunately, it is not that simple.
The reason is precisely in the contagion threat inherent in Europe's alphabet soup of bailout mechanism as we explained four years ago in the post above, and as Carl Weinberg of High-Frequency Economics did hours ago in today's edition of Barrons. Here is how the Greek contagion would spread, laid out in all its simplicity, should there be a Grexit, an outcome which the ECB could catalyze as soon as Monday in case of a "No" vote by raising ELA collateral haircuts:
The [Greek] government appears ready to renege on its debt obligations. So Greece’s creditors are going to lose money—a lot of money. Since these creditors are public entities, the losses will be borne, initially, by the public.

This crisis is about managing the resolution of bad Greek assets in a way that inconveniences creditor governments the least, forcing the least net new public borrowing, and minimizing financial system risks. The best way to do that is to avert a hard default, even if it means kicking the can down the road.
That, once again, is the Varoufakis all-in gamble, a gamble which assumes the ECB will be rational enough (in a game theory context) to appreciate the fallout of a Grexit on Europe's creditors. Here is a qualitative determination:

Jul 4, 2015

The $100 Trillion Bond Bubble Just Burst

From ZeroHedge,


The big story in the world is the bond bubble.

For over 30 years, sovereign nations, particularly in the West have been buying votes by offering social payments in the form of welfare, Medicare, social security, and the like.

The ridiculousness of this should not be lost on anyone. Politicians, in order to be elected, promise to allocate taxpayer funds on social programs that will benefit said taxpayers down the road (we’re simply talking about social spending, not infrastructure or other costs.

The concept that taxpayers might simply just keep the money to begin with never enters the equation. And because everyone believes that they are somehow spending someone else’s money, they play along.

When you believe that you are spending someone else’s money, it’s very easy to write a blank check, which is precisely what Western nations have been doing for years, promising everyone a safe and secure retirement without ever bothering to see where the money would come from.

When actual bills came due to fund this stuff, Governments quickly discovered that current tax revenues couldn’t cover it… so they issued sovereign debt to make up the difference.

And so the bond bubble was created.

The large banks, that have a monopoly on managing sovereign debt auctions, were only too happy to play along with this. The reasons are as follows:

Jun 29, 2015

[Problem - Solution]: Eurozone countries must hand over more sovereignty to maintain stability of the Eurozone

It is inevitable that European countries will have to hand over more sovereignty to guarantee the stability of the eurozone,’ the Volkskrant quotes the ‘five presidents’ of Europe as saying in a new joint report. The euro crisis shows that voluntary agreements are not enough to prevent situations such as that involving Greece, say the five, who include Dutch finance minister Jeroen Dijsselbloem. Dijsselbloem is chairman of the influential Eurogroup and has a leading role in efforts to prevent Greece leaving the eurozone. The other signatories are Commission chairman Jean-Claude Juncker, EU president Donald Tusk, European central bank chief Mario Draghi and European parliament chairman Martin Schulz.

Read more at DutchNews.nl: Eurozone countries must hand over more sovereignty: report
http://www.dutchnews.nl/news/archives/2015/06/eurozone-countries-must-hand-over-more-sovereignty-report/

Jun 27, 2015

The US & Europe Will Collapse Regardless Of Economic "Contagion"

A must read, from ZeroHedge,
by Brandon Smith via Alt-Market.com,
In order to understand what is really going on around the globe in terms of the collapsing economy, we must set aside false mainstream versions of reality. When it comes to the EU and its current fiscal turmoil, it is very important to, in some respects, ignore Greece entirely. That’s right; forget about all the supposed drama surrounding Greek debt obligations. Will they find a way to pay creditors? Will they default? Will they make a deal with Russia and the BRICS? Will there be last-minute concessions to save the system? It doesn’t matter. It’s all a soap opera, an elaborate Kabuki theater run by international financiers and globalists.

It is most important to remember the fundamentals. Greece will default on its debts. Period. There is no way around it. Maybe Greece makes a deal today, maybe it makes a deal tomorrow; but eventually, the country’s ability to stretch out its resources in order to meet its exponential liabilities will end. It is inevitable, and no last-minute “deal” is going to change the math at the core of it all.

Why are so many economists so worried about a little country like Greece? It's all due to a great lie: a dishonest narrative being perpetuated by the establishment that if Greece falls, defaults or leaves the EU, this could trigger a domino effect of other nations hitting a debt wall and following suit. The lie embedded in this narrative is the claim that Greece will cause a “contagion” through the act of default.  Let's be clear - there is no contagion. Multiple countries within the EU have developed their own debt problems in spite of Greece over the past couple of decades, not because of Greece. Each of these countries, from Italy, to Spain, to Portugal, etc. has its OWN sovereign debt disasters to deal with caused by its own fiscal irresponsibility. The only legitimate reason for a so-called contagion is the fact that these countries have been forced into socialist interdependency through the EU structure.

Never forget this: The EU is in trouble not because of Greece, but because of forced supranational interdependency. The EU by all rights should not exist, nor should any centralized supranational single currency system.

I would also point out that globalist institutions like the International Monetary Fund are highly motivated to initiate disaster in the EU, despite some people’s assumptions that the EU is some kind of representative model of globalization. It’s not. If this were the case, then the IMF would not be stiffing Greece on debt aid while continuing to help Ukraine despite Ukraine’s similar inability to pay.

Why would the globalists want a partial breakup of the EU? What would they gain from such an event? That’s easy; they gain crisis, chaos and an opportunity to present a false dialectic.

Europe is not at all representative of what globalists really want in terms of economic and political structure, no matter what many people assume. It is a, rather, a kind of facsimile; a half measure. When Europe hits the bottom of the financial abyss and the bewildered public begins asking what the hell happened, the elites will be there with an immediate explanation. They will claim that it was not the EU’s interdependency that was the problem. Instead, they will assert that the EU was actually not centralized ENOUGH. They will claim that in order for a supranational economy and currency to work, we must also have supranational governance. In other words, the system failed because it needs to be stabilized by global government.