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January 26, 2015

Greece and Spain: Two Panic Buttons of EU

By Don Quijones, Spain & Mexico, Wolf Street

After four years of inflicting economic pain and misery on Europe’s semi-bankrupt periphery, the Troika (IMF, ECB and European Commission) is suddenly in a lather over the potential political consequences of its disastrous economic policies: “I wouldn’t like extreme forces to come to power. I would prefer if known faces show up,” said European Commission president Jean-Claude Juncker regarding the upcoming Greek elections.

Speaking at a press conference in Pekin, the IMF’s Chief Economist Oliver Blanchard warned that unemployment in Spain remains too high, fueling a surge of support in “populist movements” and “political parties that do not want to form part of the euro.”

Blanchard’s words were a barely veiled reference to the phoenix-like rise of Podemos, a stridently anti-establishment but far from Eurosceptic political party. In recent polls of voter intentions for the upcoming municipal elections (March) and general elections (September), the new party, now in its second year of existence, has consistently commanded between 25% and 30% of the votes – more than either of the two main parties.

The fear among the political elite, both in Madrid and Brussels, is palpable. In the last few days, Prime Minister Rajoy dispatched his Vice-President, Soraya Sáenz de Santamaria, and Minister of Industry, José Manuel Soria, on a vital mission to persuade Spain’s biggest media conglomerate, Grupo Planeta, to adopt a more critical tone in its reporting on Podemos. In return the government will offer the broadcaster more licenses for more channels. Bienvenido a España!

The Troika Effect

It no longer matters what dastardly ploys the Rajoy government tries to pull off in its desperate bid to hold onto power; with the exception of hardcore PP voters, the Spanish electorate has had enough. Like Samaras’ party in Greece, all the Rajoy government can serve up is a continued diet of fear, lies, and distortion. Podemos, by contrast, offers the prospect of change, for better or worse.
Senior business executives, small business owners, teachers, lawyers, doctors, nurses, civil servants, hijos de ricos en el paro (the unemployed children of rich parents), even their rich parents… all have told me that they intend to vote for Podemos in the upcoming elections. Their main reason? The current government’s naked corruption, criminality and its shameless resurrection of the ghosts of Spain’s Francoist past.

The Troika’s austerity regime comes a close second. As in Greece, the people of Spain are tired and weary of paying for the excesses and failings of a corrupt, self-serving political and economic elite. The austerity measures the Troika has imposed on countries like Greece, Portugal and Spain – in return for bailout funds that in the main have gone toward buttressing Europe’s too-big-to-fail banks – have done nothing but exacerbate the underlying economic conditions on Europe’s periphery.
In late 2011, Rajoy’s government took to austerity with barely concealed glee. Since then, unemployment has failed to budge under 24%; essential public services, drained of vital resources, are being amputated limb by limb; and wages in both the public and private sectors continue to slump. Meanwhile, the country’s public debt has increased by more than half, from 60% of GDP in 2011 to 92% today. So much for austerity!

Naturally, the compound interest on that debt has also swollen: in 2007, the interest payments represented 4.4% of total public spending; by 2013 they had reached a whopping 9.3% – more than the government spends each year on education. What’s more, the amended version of Article 135.3 of the Spanish constitution – a prerequisite of the Troika’s 2012 bailout of Spain’s bankrupt saving banks – gives “absolute priority” to the payment of interest above all other areas of public spending.
As for Greece, its total public debt has grown from an already staggering 126 percent of GDP in 2010 to 175 percent today – and that despite two de facto defaults and ruthless bond haircuts! More than three-quarters of that debt now consists of bailout loans from the Troika.

In other words, both Greece and Spain remain on wholly unsustainable economic paths, despite all the economic misery and pain inflicted by the Troika’s economic shock therapy.

A New Age or Another False Dawn?

Whatever your opinion of Syriza or Podemos or their respective leaders, Alexis Tspiras and Pablo Iglesias, it is clear that an electoral victory for either party would represent a significant blow against the raggedy status quo. According to Yanis Varoufakis, a university professor of economics hotly tipped to be Syriza’s first ever finance minister, a Syriza government’s first task would be to “destroy the Greek oligarchy system.”

If Syriza wins enough votes to control parliament and its leadership honors its electoral pledges – granted, a massive if! – then perhaps, just perhaps, the country might have a slim chance of getting off rock-bottom as well as setting a more socially inclusive standard of economic governance.
As for those shrieking about Greece’s sacred duty to pay off all its debts, I present Michael Hudson’s mantra of perfect logic:

“Debts that can’t be repaid, won’t be repaid.”

It is the overriding dilemma of our times. As Australian economist Steve Keen says, the only sane and effective response to this dilemma is to ask ourselves “not whether we should or should not repay this debt, but how we are going to go about not repay­ing it.”

If the Syriza bloc does win a landslide victory it will be placed under almost unbearable pressure to toe the Brussels line. The ECB’s choice of timing for its virgin round of Quantitative Easing, just four days before the Greek elections, was surely no coincidence. Nor was the central bank’s decision not to extend its QE program to Greece unless, that is, it concludes the pending Troika review.

As if that were not enough, the ever-dependable U.S. rating agency Standard & Poor’s just issued a statement that it may downgrade the rating of European countries where Eurosceptic parties may assume power. According to the rating agency, the most “credit negative” parties are SYRIZA and Podemos, since they both favor increasing public spending and restructuring their debts.

Pro-Euro, Anti-Austerity: A Perfect Paradox

The irony is that neither SYRIZA nor Podemos are Eurosceptic – at least not openly! Instead, what they represent is a manifestation of popular rejection of Troika-imposed austerity. As Tspiras said in a public address yesterday, “The bailout is over. Blackmail is over. Subservience is over.”
Unfortunately, Tspiras is either badly mistaken or he’s knowingly misleading voters. For as long as Greece is in the euro, subservience will forever be its fate. As I wrote many moons ago, the introduction of the single currency had one primary purpose:

To slowly, almost imperceptibly, weaken nation-state institutions to the point of total dependence on Brussels and Frankfurt; and ultimately have them supplanted with EU institutions. It is the financial equivalent of death by a thousand cuts.

It was ever thus and all by design. As Robert Mundell, the Nobel prize-winning father of the euro, admitted to Greg Palast, the euro is what allows congresses and parliaments to be stripped of all power over monetary and fiscal policy. Bothersome democracy is removed from the economic system as the wholly undemocratic and Goldman-compromised European Central Bank is gifted the reins of economic power. “Without fiscal policy, the only way nations can keep jobs is the competitive reduction of rules on business.”

As such, if SYRIZA genuinely sought to save the Greek people from the Troika’s kiss of economic death, their only option would be a dignified exit from the single currency. Either that or accept the occasional ECB-provided crumb of sustenance (a little shot of QE here and there) and the slight – and no doubt temporary – loosening of the monetary strait jacket. Meanwhile, Brussels’ ever opportunistic elite would no doubt exploit this new crisis to claw its way that little bit closer to its ultimate goal: fiscal and political union. By Don Quijones.

And a watertight means for multinational corporations to trump national legislatures? It’s close to becoming reality, but people are starting to open their eyes. 

Courtesy Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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